The Fight to Support the Yen

So if you don’t think they got much bang for their buck, was their actual intervention in your view? You’ve seen many movements in markets, so define it for us. And the scale you talk about the biggest ever. Well, you know we’re trying to trying to work out how much intervention they do is a game that people play looking at looking at central bank balance sheets afterwards. My sense, yes, definitely last Monday they came in in a big way. What they did after that, they seem to have come in again by everything you can judge, it was a big intervention over a very short period of time that they they did possibly more in 2022, but that was over a much longer period of time. Whether it was 1 intervention or you know when it’s over, when it’s over weeks and months, it’s hard to decide how you describe BCS, but they’ve come in and and and done and done a lot and what they did in 2022 was, was a lot by historical standards. The challenge that they have I think firstly is that when you look at the positioning data on on the CFTC which is only one little glimpse of the market. They haven’t scared a lot of people away who who have been long dollar yen or short yen earning carry possibly. You know selling puts in dollar yen on the downside to buy things on the upside making lots of money consistently over a long period of time to force those people out. You have to believe the market has to believe that they have credibility and that there’s policy change that’ll justify it, that the fundamentals are going to justify this move. And none of the things that anyone sees so far really do that. What the yen has going for it is it’s ridiculously cheap on any kind of effective exchange rate valuation. What it has going against it is the interest rate differential is still absolutely vast and the cheapness of the currency hasn’t turned up in awesome export data. By and large it’s turned up in a lot of tourists arriving in Japan this year to admire cherry blossom and things. But, but I would like to see, I was going to say I’ll happily go see the cherry blossoms kit. Maybe you and I can meet meet out there and discuss the yen. What do you then make? OK, so one of the fundamentals aren’t there too if you are going to intervene. History has told us that you having the US on board and the US participating is quite helpful. What do you then make of Yellen over the weekend saying that intervention needs to be rare and with consultation. I I mean, I agree with both of those. If you want it to work, you have to turn around and say we think we have a problem from both sides and I think you will get to a stage where everybody agrees and so you know already all the North East Asian economies agree that the dollar’s too strong. That’s not the first time that’s happened. They’ve agreed the dollar’s too weak in various points in the past too. But it’s not obvious yet while the US is fighting inflation that the US wants a weaker dollar in any make shape or form. So it’s there’s there’s limited enthusiasm at this point in time from the United States. So I think that they might have been Janet Yellen may have been alarmed by the number of countries coming in and thinking yeah we would like a concerted North East Asian intervention because we think the the the Taiwan dollar the the Korean won, the Japanese yen and even perhaps the the yuan are all are all weaker than than people would like to be. We’d like to create some stability you weren’t. I think it’s you you know it’s it’s difficult and sense when when you look at Dolly yen of thinking it’s gone so far. Surely it ought to come come back a long way one day and that’s unstable. But but getting it to happen just with a bit of intervention quickly is going to be really hard if you have neither US support because they think they’ve beaten inflation or narrower interest rate differentials. Well, you know, the debate is this. The jobs report shook the market, but then it was the IT was the tail that that bit really, wasn’t it? The bond market was rallying furiously and then the price is paid and the services came in, which says to me we can debate disinflation all day. Now we must debate deceleration in the United States of America. Is that is that a fur transition? We need to look at it because we’ve we’ve gone from a period where we saw a couple of months of just astonishingly strong sort of sets of data at the beginning of the month. This is much more mixed. But I mean the jobs numbers, the jobs numbers, we sort of have to turn around and say that the year over year growth or the six month annualised growth in jobs is higher than is sustainable in the long run. So that they they temper the pace, but that they’re not, they’re not getting away with the problem. This is an extraordinarily strong economy. The other bits of data that we’ve seen, but the the isms, some of the other survey data that we’ve got are definitely telling a a softer picture. And I think that that’s really where it takes us now, which is we we should debate, but what the Fed is going to have to do is say, well, we don’t really know. We just have to wait for the data to tell us what’s happening on the economy. But this is because it’s still growing. In the meantime, the data has been this narrative. Yo-yo. You start the year with perhaps a ridiculous amount of cuts priced in. We undo those cuts and then we say maybe there are going to be no cuts. Now we say, OK, maybe one cut. And now at the moment it’s two. Exactly. It’s this narrative yo-yo kit that is really hard to keep your head around and has burned so many people in the market. So what do you do with that? Do you just stick to your guns? Do you grit your teeth and hold on to a position and hope for the best? You you don’t over position. I mean, we’re not supposed to be. We’re not supposed to be taken off the pitch by randomness. I mean you know so so economic data have been random forever, right, in the sense of you know you have trends but but you get a lot of movement. At the moment we it’s hard to even discern the trends with confidence. But if you if you sit there and you say yeah, look the feds next move is probably a cut. The economy is slowing at the margin very slowly despite doing much better than we think. Inflation is coming down but we’re in the stage of inflation which is going to come down very slowly. So I believe all of that. And then then you you you make investment decisions based on that framework and you don’t you you make sure you don’t just get carted off by randomness around that. That theme, which is what we’re all doing in the moment is getting is getting just knocked about by by just random data. Kid, we’re just going to interrupt you just for a second. We’re showing live pictures here of Ursula von der Leyen along with Emmanuel Macron and Xi Jinping and of course he’s on this trip to Europe. It’s all part, Danny, of a five day trip to Serbia, Hungary and France. But this is about resetting a trifecta in that room, which is Europe. France as the bulwark of this trade relationship, along with Xi Jinping. Don’t expect it to be easy, though. As political points out, they’re going to be here through tomorrow, and then Serbia and Hungary. This is not the typical visit. This is not going to Brussels. This is not going to Rome or even Berlin. It’s going to two Russian friendly outposts after France that perhaps is designed to send a message, Not to mention the difficulty. They’re going to have dinner tonight. They need to debate things like cognac and EVs. Not an easy visit, no. And and the the, the sort of the subplot of the backdrop to this will be in part macro trying to encourage Xi Jinping to potentially reconsider their position on Russia. And of course it is about those subsidies, the electric vehicles. We’ve had this tit for tat. Yes, of course. I caught up with the Louis Vuitton CEO for for alcohol and he was talking about the dumping of cognac in in in in China. So that you have this EV dumping sort of tit for tat war going on and they want that to stamp in that dine. Really. Yep. So they’re talking now. Macron and von der Leyen held a bilateral meeting 30 minutes ago. Then they’re gonna go speak at the China Forum, the China France Forum, and then again a state dinner. Let’s bring in back Kit jukes to this. So Kit, again, we’re just looking at pictures of this meeting between the different leaders. Obviously, trade for Europe has been a tension point with China. What is the necessity of Europe at a time where we’re talking about cuts in June to make sure to get any sort of agreement where we prevent something that looks like a trade war between China and Europe? Well, I mean we’re in a position where trade is weaker than it was because the Chinese economy is not growing as fast. So Europe has been hit by higher energy costs, which are important and by weaker trade, a terms of trade shock relative to the United States and a growing growth gap which which have, which have given us different sequencing for central banks. And obviously you’re a dollar where it is. So from where I sit, anything that undoes some of that gives the euro potential to go up, it gives Europe potential to surprise on the upside on growth, which is something it hasn’t done much of in the last couple of years. So you know we saw some slightly better Pmis coming out last week in Europe and slightly disappointing ones in the States. Anything that lets those trends continue will be will be good for the euro. These are baby steps because the the big currents still aren’t helpful. The world’s not going to free a trade, the chap. The Chinese economy is not going back to pre pandemic growth rate. So we’re not, we’re not going to go back to where we were. But any any progress I think gets a response in markets because of the because of the starting point we have now of a very strong dollar, very weak euro.