David Roche: The Japanese aren't aiming for a particularly strong yen

Look at the yen trade. I don’t think that the yen trade is far speaks to a strong yen. We have not really seen coordinated intervention to prop up the yen from the G7. They had a wishy washy coffee breakfast in which they said it’s terribly naughty to speculate against currencies which are basically very good currencies. They meant the yen, They never mentioned it and they never did anything. So the Japanese intervened on their own. Now intervening on your own is not like intervening with the G7. Second of all, the Japanese could not possibly. Speak to a have policy that really results in a strong yen unless they tighten monetary policy. Which means two things. One, raise interest rates at least 50 basis points, #2 is allow intervention intervention on the end to be unsterilized intervention. In other words, it shrinks the supply of domestic money. As far as I can see from the statistics, they’ve done nothing like that and therefore they’re just talking their own book, which might lead to a stabilization of the yen because the risk of being short has gone up a lot, but it is not going to lead to a strong yen. OK, so hold on. You’re saying it’s not time to put on the Widow Maker trade then? No. I personally don’t think so. All right. In terms of action from BOJ though, you’re saying and we’ll get to the sterilized and unsterilized intervention in just a bit. But what kind of timeline are we looking at? I mean, if we’re looking at, let’s say for the Fed, perhaps some people think as late as November after right after the election. What about for Japan? And you say 50 basis points of consensus right now is probably 25 basis points more in, in October or thereabouts. Well, it’s just enough, is it? If you look at the carry trade and you look at it 25 basis point reduction in Fed rates. And you look at what plus 25 would do on the Japanese yen, then you haven’t taken away the fact that the Japanese yen is the is the cheapest currency to borrow and invest in other things in the world. It doesn’t change it enough. You’d have to go further than that. Now it’s a step in the right direction. But I I personally think that the Japanese are not aiming at a particularly strong yen. I think they’re aiming at a relatively stable yen. They don’t want it to go through the floor anymore and they wanted to act in a way which does not create inflation, which undermines. The Governor of Bank of Japan reader his hopes that actually the higher wage and salary settlements. Will feed through, of course into household income, but the households will go out and spend that income rather than save it. If the yen goes on down, inflation is high, then the real income effects of the wage and salary increases is much less, and the chance of them being saved and not spent is much greater. Therefore, they want to aim at a stabilization of the yen. But do they really want to aim at a strong yen? I don’t think so, and I think it may come, but it’s going to be very gradual.