Good markets. Let's start with you.
Talk about central bank action tightening will persist.
And there'll be greater pain for both equities as well as currencies.
I think Jan across across the board working development of emerging markets
is this only one way at this point in time pushes interest rates to go up.
Of course you know inflation is a key concern for longest emerging markets
where Yvonne Man IBEX inflation is at its highest is a lead generation.
But I think at the same time it back off.
I'm not against the policy because minds are essentially though the big gap
between the Fed and the central banks are just increasing.
And what traditional multiple failed policy theory would suggest is that as
this gap widens even further we see further pressure on the currencies as a
result. And how do you keep up.
I mean we have the Citibank governor of the Philippines saying that you know
what we don't want to match the Fed but we have to respond.
Therein lies the problem. I mean how much do you respond.
Well I think it's a very I think it's very fair comment.
And I sort of welcome to the world driven by Jerome Powell.
The reality for most emerging market central banks right now is they have to
make a very difficult choice. They can either choose to import
inflation through a weaker local currency or they can follow the Fed's
lead. Or I guess the third option that we're
seeing in Japan right now is to try to defend the currency which we can talk
about. But there's very little optionality at
play right now. What's I think very interesting to watch
however is the impact that that is having on the domestic economy
particularly from a loan growth perspective where you're seeing very
clear differentials across particularly the Asian countries.
Let's talk about the yen is disappointed at this point in time but some say it
lasts for about one week. I mean is there really reason to think
that Bogey will continue to intervene as some has suggested.
Well I mean I think that it's fair to say in a general consensus I'm speaking
to a lot of strategies and traders out there is that know what the Bank of
Japan has done basically just slows the depreciation at best.
But I think a lot of people are expecting the bull again to shoot up
higher. And with that I think Goldman Sachs ISE
he has a call for 155. Again you know Doug we put a tight
situation because the media fighting against the king dollar against U.S.
use. So unless you know the coming in a very
huge rear end even that's a big if. I think there is general you know
concern or general uncertainty about to be successful essentially punting around
the dollar. What's your take on the yen.
I mean they have no buffers. So what they did yesterday was pretty
small. Yes.
And I think there's several layers to the conversation.
The first layer is there is value in slowing the decline of the yen.
It gives companies and people more time to react and more time to adjust
contracts processes et cetera. So there is value in slowing the pace of
that decline. Ultimately fundamentals will determine
the value of the end and the fundamentals are significant in rising
rate differentials combined with a widening trade surplus.
I think the interesting element to the end conversation at least from an
equities market perspective there are some quarters that will hold that a
weaker yen is positive for Japan equity markets because of a strong export
sector. I think that's a very antiquated view in
my perspective because what you've seen over the course the past 15 to 20 years
is manufacturing moving outside of Japan and all over the rest of Asia.
So the less relevant cross rate is not U.S.
dollar yen it's actually yen versus the rest of the Asian currencies.
Now that's moved significantly as well not as bad as U.S.
dollar yen but I think that's actually the area of focus in determining the
strength of the Japanese economy but also the strength of the Japanese equity
market. This question to Marcus.
Marcus I know you touched on the amount of treasuries that Japan holds.
I mean I think that the second biggest totals in the world of U.S.
debt got the firepower haven't they. The question is do they want to use it.
I mean does it be a question of market. Right essentially.
But it seems at this point in time that I mean there were genuine concerns that
Japan was selling treasuries to basically buy flubs results.
I think what we have seen a sell off in treasuries as a result by at this
juncture most people are trading to the fact that Japan has you know facilities
with the Fed or the Fed report through essentially and according to some Wall
Street strategy so that they put up a number of 110 billion dollars that you
have. And if you contrast it back to the euro
currency that did the Greek contracted back to 97 98 Bank of Japan last defend
it. The yen used about ISE estimates of 42
billion or so. So I think that general fuel right now
is that that Japan is not having a pronounced treasuries tool to defend the
currency to actually use its existing ripple ripple pool with the Fed.
I wouldn't just go to James and ask him with the would be and where it is that
there's going to be. If you believe that the end does come
back at some stage doesn't Japan become a compelling equity question.
It can be. I think the question is the medium term
outlook on the end. And as we've said the fundamentals will
determine that number. And that number is determined by what we
expect to be rising rate differentials. We still have significant.
Rate hikes pencilled in in the US where JP Morgan's forecasting four and a half
percent by early next year. Previously that forecast had been late
next year and we'll see where we go from there.
The expectation is B.J. holds at current levels which are
obviously negative rates. And so as that continues as the trade
surplus continues to blow out we do think we'll see significant yen weakness
from a fundamental perspective. I think the key question here is what is
the Bank of Japan's actual strategy. Are they trying to peg the yen to a
specific value. One forty one.
Forty two pick a number. Or are they trying to make life a little
bit easier for Japanese corporates by slowing the pace of the yen's decline.
Very different strategy very different funding requirements.
In the end it is about monetary policy. The Fed has indicated that rates will
come lower in 2024. That's a long way off.
How do you treat that. I think you have to be cognizant of what
is in the price. And what's interesting particularly rate
markets right now is we have seen markets actually pricing in
significantly higher rates than J.P. Morgan forecast.
As an example you're seeing that in South Africa you're seeing that in the
UK you're seeing that in select emerging markets as well.
So I think the criticality of this again from the market's perspective is always
what's in the price versus what we think reality is going to be.
Markets are discounting mechanisms. They are overly doing their jobs in
certain instances. And markets just before you go what
would be I guess ultimately the key driver for a decisive move in dollar
yen. But I mean a few things.
I mean one of the obvious choice would be the failure.
If that's a peak time to run a dollar not any one Treasury yields.
I think that would be a signal for you know again to really Haidi Lun just a.
But of course the broader the Yemen Yemen space essentially.
But in other ways that other ways could be if the Bank of Japan decides to you
know I wouldn't bet on it. You can't control policy which does not
seem very likely action while crude ISE. Is this an office in a sense.
I think these are some of the things that that could be would signal a
turnaround in a sense.