00:00I mean, it's exciting few days just following the Japanese yen.
00:03Is there space for authorities to do more?
00:06Yes, I think this time the authorities are determined to really break 155, the key level.
00:14If they fail this time to break that level, then I think the market will see the authorities have exhausted
00:24policy options.
00:25So the fact that they started this intervention means they are strongly determined to alter the market demand supply balance.
00:36And I think that change will happen once, you know, 155 is broken.
00:43And also it's a coordinated intervention.
00:46I was going to say, I mean, aren't the stakes higher now that the U.S. has gotten involved?
00:50Do you have joint intervention for the first time in 15 years or so?
00:53Exactly. So the cost of failure is pretty big this time.
00:56And that's why I think we have to assume they are determined to do, you know, whatever it takes to
01:05change the market dynamics.
01:07And coordinated intervention really removes the hard limit on intervention associated with unilateral intervention.
01:17That is the balance of foreign reserves Japan has.
01:20Not to mention that you can also have that Fed tool where you can borrow as much as, what, $60
01:25billion a day without selling treasuries.
01:27Does that sort of lessen the burden on Tokyo and also relations with Washington?
01:32Yeah, exactly.
01:33So, you know, we don't know how this will be used in practice.
01:36But I think the market now knows Japan is willing to use this facility.
01:42The U.S. is willing to, you know, let Japan use this facility.
01:46And, you know, the biggest, one of the biggest, you know, the side effects of intervention is that Japan might
01:54have to sell a large amount of U.S. treasuries.
01:56And that could destabilize the bond market in the U.S., which could also spill over to Japan as well.
02:03So I think, you know, this facility definitely helps.
02:07And, yeah, I think Japan can probably do more than otherwise.
02:13Why use the euro, which is speculated right now, instead of the U.S. dollar, if the U.S. actually
02:19went ahead and did that?
02:20But was it trying not to weaken the greenback?
02:23And what are the implications of this?
02:25That's a very good question.
02:28I don't fully know the background, but maybe, you know, the U.S. would not want to sell U.S.
02:35dollar.
02:35But I think maybe a bigger implication could be that, you know, it could be a coordinated effort across Japan,
02:45U.S., and maybe, you know, broader G7 community.
02:49Because, you know, the fact that U.S. selling euro implies Europe might have been noted, you know, given a
02:58notice in advance.
02:59So, yeah.
03:00I mean, how much pressure does this put on BOJ Governor Ueda?
03:04When you have the United States, who's also in the past said that monetary policy should be left alone, in
03:11a way implying that they actually need to hike at this point.
03:15Yes.
03:15So the BOJ is a key factor, right?
03:17So one argument is that stronger yen reduces pressure off the BOJ.
03:22But I think, you know, the argument should go the other way.
03:27Because short term, maybe they will succeed.
03:30But longer term, it is true intervention is not effective because they cannot, you know, continue indefinitely, right?
03:36And this is a coordinated effort.
03:38When you ask someone to join your project, you have to have a goal.
03:42And that goal cannot be just to buy time, right?
03:45You have to have, you know, a long-term goal and a long-term plan.
03:50So I think Japan should have a more comprehensive policy response beyond FX intervention.
03:57And as you said, Secretary Besant has historically argued that BOJ rate hikes are needed and effective to support the
04:07Japanese yen.
04:07And yet, is that possible to have such coordinated and long-term strategic planning here in Japan when you have
04:14an administration like Prime Minister Takaiichi's that wants to see expansionary policy?
04:18Yeah, so I think that's why longer term success is much more uncertain than short term.
04:28So here, you know, what they need is faster BOJ rate hikes, maybe more balanced fiscal policy.
04:38But again, it's not a natural action by Japan itself.
04:44You have to, you know, you also have this repo facility announcement.
04:48So it seems like this whole move has been well prepared.
04:53And from that perspective, I think there's a stronger case that Japan will respond in a more comprehensive manner than
05:01otherwise.
05:02Is that why you think your year-end target for the yen is still low 150s?
05:06Well, my argument, so we changed our bearish yen view in May to a constructive one.
05:12And our argument is that, you know, the balance of payment has been improving, you know, quite a lot for
05:19Japan, for the Japanese yen over the past year.
05:23And, you know, that should prevail once, you know, the market recognizes that dynamics.
05:29And I also think there's a little bit of a gap between the actual, you know, factor behind the yen
05:38weakness and the market's view.
05:41Actually, I think, you know, the rise in Japanese equity over the past year and a half has led to
05:47a lot of equity-related yen selling hedging by foreign investors.
05:51So it's not just policy risks that have, you know, driven the yen weakness.
05:56Yes.
05:57So, at the same time, we think solutions are very important.
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