00:00I think the problem for the U.S. is twofold.
00:03The major problem is that increasingly when we see the Japanese yen acutely weak,
00:11it's associated with higher Japanese yields.
00:13The market is afraid that the fiscal situation in Japan is deteriorating.
00:18So the weak yen and higher Japanese yields occur together.
00:23But some of those higher Japanese yields spill over into U.S. yields.
00:27Now, the Treasury Secretary, his only job description is keeping borrowing costs down.
00:33And so when he sees this kind of risk, especially in a week like this,
00:39when they're talking about bond issuance and sort of giving the outlook for the future,
00:45he wants to be careful that he doesn't get blindsided by what's happening in Japan.
00:49To me, there's silence here.
00:52Jesper Cole is one of the great Japanese watchers for years.
00:56Jesper Cole says there perhaps is tensions within the secondary bank system of Japan.
01:04Are there unknown unknowns we don't know about within the banking system with Japan,
01:09which makes the Secretary of Treasury want to parachute in?
01:13You know, that's very hard to say, especially from this distance,
01:17unless you're watching it very closely.
01:19You know, and certainly the Japanese would be a better place to deal with their banking issues than the U
01:25.S. Treasury.
01:25I mean, U.S. is a big country, but it can't solve everybody's problems.
01:29Okay, I want to get this in.
01:30Paul's lined up with eight questions smarter than mine.
01:33As simple as I can, you and I read Rudiger Dornbusch.
01:37We read Rogoff.
01:39We read Opsfeld.
01:40You lived it as a Ph.D. at Yale.
01:43Is there any likelihood this can work for Japan?
01:47I don't see an analog to the past.
01:51You know, I think this is a bridge, you know, and they're hoping that something down the road happens
01:59that makes organically helps contribute to yen strength.
02:03So it could be, say, there's a deal in the Mideast, so oil prices come down.
02:09It could be that the Bank of Japan sort of raises rates so that the pressures are off.
02:16It's not a solution on its own.
02:17And we wrote a piece today, and one of the issues with Japan is that, you know, retail is exporting
02:24capital.
02:25You know, the man on the street.
02:27And they're not going to care that the U.S. has intervened.
02:31You know, the reasons for taking money out of Japan are very different than the reasons, you know,
02:36say a speculator would go short dollar yen.
02:39How significant is it that the U.S. did join the Bank of Japan in supporting the yen here?
02:44It doesn't happen very often.
02:46No, and it's the first time it's happened.
02:48It's the first time it happened in this form with the U.S. sort of telegraphing what it was going
02:54to do in terms of intervention.
02:56You know, even intervening Friday afternoon when most people are heading to the beach is like really unusual.
03:02Oh, come on.
03:02You loved it.
03:03You wrote all Friday night and Saturday, right?
03:06No, actually not, to be clear on that.
03:09I did write on Sunday.
03:11So, you know, I think there's a lot that's unusual here.
03:14And, you know, they intervened in 2011 after the earthquake.
03:18That was a special circumstance.
03:20You have to go back to 2001 and the intervention on the euro to find U.S. coming in to
03:26sort of directionally push another currency.
03:30Do interventions work in the intermediate to long term?
03:33This one seems to be beholding, but I don't know.
03:36Tell us about that.
03:37Well, I mean, I work on the trading floor and my intermediate to long term is longer than 72 hours.
03:44Okay, yeah.
03:45You know, the answer is that if nothing changes, you know, it's really hard to keep spending the money that
03:51it takes.
03:52You know, so far they've been dogged.
03:55Every intervention has tried to get yen stronger so that anyone who went short yen after the previous intervention gets
04:03washed out.
04:04But there's a limit to how long you can do that.
04:06And if organically people want to take money out of Japan at some point, it goes the other way.
04:13Robin Brooks just published this moments ago at Brookings for years with Goldman Sachs.
04:18He's been really definitive within this debate.
04:20Folks, this is really complex inside baseball.
04:23He publishes on higher yields, stronger yen.
04:27He assumes a normal place for the Japanese bond market now is price down, yield up dramatically.
04:36Is that the end outcome here?
04:38Whatever they want to do, is it there's going to be higher yields in Japan because they screwed this up
04:44so bad?
04:45They are facing pressures.
04:48You know, they tried very hard over the last 10 years to stimulate the economy.
04:52You had, you know, the three arrows type of program, which had mixed success.
04:56Right.
04:57If you can't get the growth on your own.
04:59Right.
05:00And you're trying to use fist.
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