1 00:00:02,720 --> 00:00:15,840 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,000 --> 00:00:20,800 Speaker 2: Hello man, welcome to another episode of the podcast. 3 00:00:20,920 --> 00:00:23,440 Speaker 3: I'm Tracy Alloway and I'm Joe. 4 00:00:23,800 --> 00:00:23,960 Speaker 4: Joe. 5 00:00:24,040 --> 00:00:26,000 Speaker 2: I think I know the answer to this question, But 6 00:00:27,040 --> 00:00:28,520 Speaker 2: do you ever write to do list? 7 00:00:29,240 --> 00:00:29,440 Speaker 4: No? 8 00:00:29,680 --> 00:00:35,400 Speaker 2: Yeah, I figure, well, I make a half hearted attempt 9 00:00:35,560 --> 00:00:39,800 Speaker 2: every day where it's like podcast recording one, podcast recording two, 10 00:00:39,920 --> 00:00:44,440 Speaker 2: do the newsletter, reply to the following emails. But as 11 00:00:44,479 --> 00:00:47,640 Speaker 2: of last week, I have seen the most epic to 12 00:00:47,760 --> 00:00:48,320 Speaker 2: do list. 13 00:00:48,720 --> 00:00:53,720 Speaker 5: Oh yes, yes, presumably, yeah, yeah, yeah, I saw the 14 00:00:54,040 --> 00:00:55,160 Speaker 5: Scott Bessett to do list. 15 00:00:55,200 --> 00:00:57,040 Speaker 3: It was basically like by the end, right. 16 00:00:57,080 --> 00:01:02,480 Speaker 2: Right, so US Treasury Secretary Scott bessen there was a 17 00:01:02,480 --> 00:01:05,560 Speaker 2: photo taken of him. Presumably he did this on purpose, 18 00:01:05,800 --> 00:01:08,040 Speaker 2: one would hope. But he had a to do list 19 00:01:08,600 --> 00:01:11,960 Speaker 2: and it basically just said buy Japanese yen and he 20 00:01:12,080 --> 00:01:16,720 Speaker 2: put in the jp wy yeah, five to ten billion. 21 00:01:17,800 --> 00:01:18,080 Speaker 4: Yeah. 22 00:01:18,120 --> 00:01:20,319 Speaker 5: So it's pretty clear that he was not referring to 23 00:01:20,520 --> 00:01:23,200 Speaker 5: personal purchases in some vacation. 24 00:01:23,319 --> 00:01:25,840 Speaker 2: If that's the only thing on the Treasury secretaries to 25 00:01:25,880 --> 00:01:28,440 Speaker 2: do list, he's not that busy, right. 26 00:01:29,240 --> 00:01:32,399 Speaker 5: He's not, but he presumably is fairly busy. We know 27 00:01:32,480 --> 00:01:35,200 Speaker 5: that the en had been weakening dramatically. We know that 28 00:01:35,200 --> 00:01:38,000 Speaker 5: there has been a recent sharp strengthening. There's always talk 29 00:01:38,080 --> 00:01:39,680 Speaker 5: of a en intervention here and there. 30 00:01:39,880 --> 00:01:40,440 Speaker 3: I don't really. 31 00:01:40,440 --> 00:01:43,640 Speaker 5: Understand fully why the end is so weak, why the 32 00:01:43,800 --> 00:01:47,000 Speaker 5: US feels compelled that it's important to get involved in 33 00:01:47,040 --> 00:01:49,480 Speaker 5: that market, et cetera. I have many questions. 34 00:01:49,600 --> 00:01:52,920 Speaker 2: Yeah, so the US did intervene together with Japan in 35 00:01:53,000 --> 00:01:56,800 Speaker 2: the yen to stop it from weakening. And what's really 36 00:01:56,840 --> 00:01:59,760 Speaker 2: interesting about all of this. I mean, we love Big 37 00:01:59,800 --> 00:02:02,880 Speaker 2: four and currency stories anyway, but what's interesting is this 38 00:02:03,000 --> 00:02:06,480 Speaker 2: was kind of a new type of intervention. So the 39 00:02:06,600 --> 00:02:09,760 Speaker 2: US actually sold euros, which was very interesting, and they 40 00:02:09,800 --> 00:02:13,639 Speaker 2: also used a fed repo facility that I had completely 41 00:02:13,720 --> 00:02:16,440 Speaker 2: forgotten about as well. So there are all these interesting 42 00:02:16,520 --> 00:02:21,639 Speaker 2: questions about this particular incident, let's say, including the big one, 43 00:02:21,680 --> 00:02:24,640 Speaker 2: which is will this be enough to stop the end weakening? 44 00:02:25,000 --> 00:02:27,120 Speaker 2: And it's still very surreal to me. Whenever I look 45 00:02:27,120 --> 00:02:30,720 Speaker 2: at a chart of the dollar exchange rate, the yen 46 00:02:30,840 --> 00:02:34,200 Speaker 2: will always be one hundred and ten to the dollar 47 00:02:34,280 --> 00:02:36,720 Speaker 2: for me. Yeah, yeah, because that was my allowance when 48 00:02:36,760 --> 00:02:39,360 Speaker 2: I was there. I got one thousand yen every week 49 00:02:39,440 --> 00:02:42,080 Speaker 2: and it was like roughly ten dollars, and so I 50 00:02:42,120 --> 00:02:43,880 Speaker 2: have that stuck in my head, and whenever I look 51 00:02:43,880 --> 00:02:45,720 Speaker 2: at the chart it's now at like one hundred and 52 00:02:45,760 --> 00:02:46,320 Speaker 2: fifty five. 53 00:02:46,360 --> 00:02:47,040 Speaker 3: It's kind of crazy. 54 00:02:47,120 --> 00:02:50,080 Speaker 5: Yeah, no, it's pretty wild. I mean, for so long, 55 00:02:50,200 --> 00:02:52,240 Speaker 5: for like the first half of our careers, the story 56 00:02:52,320 --> 00:02:56,079 Speaker 5: was like strengthening and strengthening yen, lower and lower rates. 57 00:02:56,120 --> 00:02:58,920 Speaker 5: At the long end of the Japanese yield curve. People 58 00:02:59,040 --> 00:03:01,119 Speaker 5: used to talk about the widow maker trade because many 59 00:03:01,160 --> 00:03:04,840 Speaker 5: people had gone to short various forms of Japanese paper 60 00:03:05,160 --> 00:03:07,840 Speaker 5: on the expe expectation that it will blow up in 61 00:03:07,880 --> 00:03:09,679 Speaker 5: some way. But it has a really blown up. But 62 00:03:09,720 --> 00:03:12,240 Speaker 5: it's been quite a reversal on both the rates in 63 00:03:12,320 --> 00:03:14,280 Speaker 5: the end. And again, the question I have, in addition 64 00:03:14,320 --> 00:03:16,880 Speaker 5: to the tools is why is this an important thing 65 00:03:16,960 --> 00:03:20,320 Speaker 5: now for the US to get involved and why do 66 00:03:20,400 --> 00:03:22,760 Speaker 5: we feel so I have many questions. 67 00:03:22,560 --> 00:03:25,680 Speaker 2: All right, So whenever we have big questions about capital 68 00:03:25,720 --> 00:03:30,240 Speaker 2: flows or FX moves, we shine our Brad setzir bat 69 00:03:30,320 --> 00:03:33,919 Speaker 2: signal into the sky and he magically appears on the podcast. 70 00:03:34,000 --> 00:03:36,080 Speaker 2: So we do, in fact have the perfect guest. We 71 00:03:36,120 --> 00:03:39,000 Speaker 2: are speaking once again with Brad Setzer, senior fellow at 72 00:03:39,040 --> 00:03:41,800 Speaker 2: the Council on Foreign Relations. So Brad, thank you so 73 00:03:41,880 --> 00:03:43,200 Speaker 2: much for coming back on odd blots. 74 00:03:43,760 --> 00:03:44,760 Speaker 4: It's always fun. 75 00:03:45,080 --> 00:03:47,840 Speaker 2: Maybe just to begin with, let me ask the obvious question. 76 00:03:48,800 --> 00:03:52,240 Speaker 2: If your currency is weakening to the degree that you 77 00:03:52,280 --> 00:03:56,760 Speaker 2: think in intervention is necessary, why doesn't the boj the 78 00:03:56,840 --> 00:03:58,720 Speaker 2: central bank just raise rates. 79 00:04:01,840 --> 00:04:06,440 Speaker 4: That is a very obvious question. For whatever reason, the 80 00:04:06,480 --> 00:04:10,280 Speaker 4: Bank of Japan has been very slow to raise rates. 81 00:04:10,320 --> 00:04:14,880 Speaker 4: So the short term policy rates about one percent. Inflation 82 00:04:15,000 --> 00:04:17,560 Speaker 4: is clearly above that. They're different measures. Inflation has been 83 00:04:17,560 --> 00:04:22,359 Speaker 4: above that for a long time. The stated reasons for 84 00:04:22,440 --> 00:04:24,960 Speaker 4: the hesitation, as you know, the Bank of Japan has 85 00:04:25,480 --> 00:04:28,600 Speaker 4: worked for so long to get inflation back to two. 86 00:04:28,680 --> 00:04:32,440 Speaker 4: They don't want to prematurely cut off this shift in 87 00:04:33,520 --> 00:04:37,520 Speaker 4: behavior to kind of they don't want to fall back 88 00:04:37,600 --> 00:04:42,240 Speaker 4: into the zero rate, zero inflation economy. I think there's 89 00:04:42,279 --> 00:04:46,400 Speaker 4: also probably a few technical reasons that I'm sure that 90 00:04:46,480 --> 00:04:50,000 Speaker 4: you Hada wanted the yield curve to steepen, and it 91 00:04:50,040 --> 00:04:54,560 Speaker 4: has a lot before short term rates went up, and 92 00:04:54,720 --> 00:04:56,800 Speaker 4: you know, short term rates affect the cost of all 93 00:04:56,839 --> 00:05:00,000 Speaker 4: the yend deposits, so it's they impact the liability side 94 00:05:00,120 --> 00:05:02,640 Speaker 4: of the banking system. The banks have a lot of 95 00:05:02,680 --> 00:05:05,520 Speaker 4: low yielding assets on their balance sheet. So does the 96 00:05:05,560 --> 00:05:09,080 Speaker 4: Bank of Japan, so there may be some concern about 97 00:05:09,600 --> 00:05:12,039 Speaker 4: pushing up the cost of funding on the banking side 98 00:05:12,120 --> 00:05:16,640 Speaker 4: too fast. The theory of some in the market, not me, 99 00:05:17,200 --> 00:05:19,400 Speaker 4: is that this is out of concern about how it 100 00:05:19,480 --> 00:05:24,000 Speaker 4: impacts the government's overall funding cost and that if you 101 00:05:24,040 --> 00:05:27,120 Speaker 4: pushed up short term rates that would push up the 102 00:05:27,520 --> 00:05:30,240 Speaker 4: fiscal deficit interest costs too much. I think it's a 103 00:05:30,279 --> 00:05:33,839 Speaker 4: little overstated, but that is certainly one of the considerations. 104 00:05:34,960 --> 00:05:37,159 Speaker 5: I want to ask about why the yen has been 105 00:05:37,200 --> 00:05:39,600 Speaker 5: so weak in the first place. But I actually before that, 106 00:05:39,680 --> 00:05:42,920 Speaker 5: maybe we zoom out bigger, because like weakness in East 107 00:05:42,960 --> 00:05:46,359 Speaker 5: Asian currencies in general has been a story of twenty 108 00:05:46,440 --> 00:05:50,400 Speaker 5: twenty six. And you know, it's not obvious to me 109 00:05:50,600 --> 00:05:54,400 Speaker 5: why East Asian currencies at all would be particularly weak 110 00:05:54,440 --> 00:05:58,240 Speaker 5: these days, because all I ever read about in headlines 111 00:05:58,600 --> 00:06:02,680 Speaker 5: is extraordinary. You know, current account surpluses, not in Japan 112 00:06:02,760 --> 00:06:06,239 Speaker 5: per se specifically, would be the big one. 113 00:06:06,360 --> 00:06:07,920 Speaker 3: It's not intuitive to be at. 114 00:06:07,839 --> 00:06:10,159 Speaker 5: All that at a time when like the big chip 115 00:06:10,160 --> 00:06:13,160 Speaker 5: makers are making money hand over fist, that they would 116 00:06:13,160 --> 00:06:15,880 Speaker 5: be particularly weak currencies. Why do you give us this 117 00:06:15,960 --> 00:06:19,920 Speaker 5: sort of view from the Asia Pacific view generally and 118 00:06:19,960 --> 00:06:23,279 Speaker 5: then the Japan specific view on this year's currency moves. 119 00:06:25,120 --> 00:06:28,360 Speaker 4: Well, look, you're right, the global trade surplus is now 120 00:06:28,400 --> 00:06:32,920 Speaker 4: all in East Asia. The chip electron you know, basically 121 00:06:33,400 --> 00:06:35,560 Speaker 4: San Francisco decided to spend a lot of money on 122 00:06:35,680 --> 00:06:41,440 Speaker 4: kit that basically comes from you know, in the first instance, Japan, Korea, 123 00:06:41,560 --> 00:06:44,840 Speaker 4: and Taiwan, but feeds into a lot of parts from Japan. 124 00:06:45,040 --> 00:06:47,680 Speaker 4: It's pushing you know, it's help in China too. So 125 00:06:47,760 --> 00:06:52,279 Speaker 4: you know, we have like really record trade surpluses throughout 126 00:06:52,480 --> 00:06:56,000 Speaker 4: Asia East Asia except for Japan. We'll get to Japan later. 127 00:06:56,480 --> 00:06:59,599 Speaker 4: And like, you know, Korea's current account surplus is going 128 00:06:59,640 --> 00:07:02,000 Speaker 4: to go from one hundred billion and changed to somewhere 129 00:07:02,040 --> 00:07:05,880 Speaker 4: between three and four hundred billion. Massive. You know, Taiwan's 130 00:07:05,920 --> 00:07:07,880 Speaker 4: is probably gonna double, and you know it was big 131 00:07:07,880 --> 00:07:09,920 Speaker 4: to begin with. So we're doubling means going from like 132 00:07:09,960 --> 00:07:13,160 Speaker 4: fifteen to twenty five to thirty percent of GDP. These 133 00:07:13,160 --> 00:07:19,520 Speaker 4: are insane numbers. With Taiwan, it's a bit different. The 134 00:07:19,520 --> 00:07:25,720 Speaker 4: central bank doesn't want its currency to strengthen. It has 135 00:07:25,840 --> 00:07:30,160 Speaker 4: engineered a weakening of the Taiwan dollar compared to last 136 00:07:30,240 --> 00:07:35,600 Speaker 4: year by reversing crudential regulations basically letting the lifers unhedged 137 00:07:35,640 --> 00:07:39,280 Speaker 4: their foreign assets. And then with Taiwan in particular, it's 138 00:07:39,320 --> 00:07:42,720 Speaker 4: almost one company TSMC, and you can kind of lean 139 00:07:42,760 --> 00:07:44,800 Speaker 4: on that company to tell it when it converts and 140 00:07:44,800 --> 00:07:46,960 Speaker 4: when it doesn't. Bloomberg actually did one of the best 141 00:07:46,960 --> 00:07:50,360 Speaker 4: stories I've ever seen about the Central Bank of China 142 00:07:50,400 --> 00:07:55,040 Speaker 4: Taipei and how it is managing Taiwan's dollar without actually 143 00:07:55,160 --> 00:07:59,240 Speaker 4: using this balance sheet. Korea is different. Korea has been strange. 144 00:07:59,320 --> 00:08:02,880 Speaker 4: It's been this story where the better the news is 145 00:08:02,920 --> 00:08:05,880 Speaker 4: for Korea, the more the Korean stock market goes up, 146 00:08:06,360 --> 00:08:10,040 Speaker 4: the more foreign holders of Korean stocks have to sell 147 00:08:10,120 --> 00:08:14,200 Speaker 4: because they're hitting concentration limits. And that has created a 148 00:08:14,240 --> 00:08:18,320 Speaker 4: weird situation where good news for the equities for Korea's equity, 149 00:08:18,400 --> 00:08:21,920 Speaker 4: so you know, Heinez and Samsung was leading to an 150 00:08:21,960 --> 00:08:25,680 Speaker 4: outward flow and producing record weakness in the Korean wand 151 00:08:26,840 --> 00:08:30,080 Speaker 4: that is layered on to outflows from the pension system. 152 00:08:30,400 --> 00:08:33,280 Speaker 4: That is layered on to this whole story about you know, 153 00:08:33,360 --> 00:08:37,160 Speaker 4: Korean day traders who used to do buy levered US 154 00:08:37,200 --> 00:08:39,920 Speaker 4: ETF single stock ETFs and then Korea let them by 155 00:08:40,000 --> 00:08:43,440 Speaker 4: levered single stock Korean ETFs, and that didn't turn out 156 00:08:43,480 --> 00:08:45,120 Speaker 4: to be a great idea, but you know, it's sort 157 00:08:45,160 --> 00:08:47,320 Speaker 4: of we end up with a world where you have 158 00:08:47,400 --> 00:08:51,320 Speaker 4: this enormous positive terms of trade shock enormous that is 159 00:08:51,320 --> 00:08:55,320 Speaker 4: producing record weakness, and that's in the it's in that 160 00:08:55,440 --> 00:08:58,280 Speaker 4: context where we can think about the end as being 161 00:08:58,320 --> 00:09:02,280 Speaker 4: another of these countries currencies that is, you know, kind 162 00:09:02,280 --> 00:09:06,320 Speaker 4: of fundamentally okay. Japan has a current account surplus of 163 00:09:06,640 --> 00:09:09,439 Speaker 4: five percent of GDP its investment income. It's not a 164 00:09:09,559 --> 00:09:13,280 Speaker 4: trade its trade accounts would be improving butt for oil 165 00:09:13,840 --> 00:09:17,040 Speaker 4: thanks to the AI stuff. It's got one of the 166 00:09:17,040 --> 00:09:20,840 Speaker 4: biggest foreign asset portfolios in the world. The government of 167 00:09:20,880 --> 00:09:24,480 Speaker 4: Japan has you know, still probably close to one point 168 00:09:24,520 --> 00:09:27,520 Speaker 4: two trillion in reserves, that's a big number. It has 169 00:09:27,640 --> 00:09:31,840 Speaker 4: nine hundred billion plus in the government pension fund foreign assets. 170 00:09:31,920 --> 00:09:34,760 Speaker 4: That's a big number. GDP is now down to four trillion, 171 00:09:34,840 --> 00:09:36,959 Speaker 4: so you know, the government is sitting on a foreign 172 00:09:36,960 --> 00:09:39,240 Speaker 4: asset position of close to fifty percent of its GDP. 173 00:09:40,920 --> 00:09:46,480 Speaker 4: The weakness was it has been throughout Asia a bit counterintuitive, 174 00:09:46,559 --> 00:09:50,000 Speaker 4: but for slightly different reasons. And with Japan, you obviously 175 00:09:50,080 --> 00:09:53,559 Speaker 4: have the very low ring story as a central part. 176 00:10:10,040 --> 00:10:13,960 Speaker 2: So when I hear the words currency intervention, I often 177 00:10:14,000 --> 00:10:18,920 Speaker 2: associate that with currency speculation, right, and here central banks 178 00:10:18,960 --> 00:10:22,520 Speaker 2: will come out and say, like, oh stern words to 179 00:10:22,640 --> 00:10:25,559 Speaker 2: the speculators, you better watch out, and that sort of thing. 180 00:10:25,960 --> 00:10:29,520 Speaker 2: With Japan, do we have indication of how much of 181 00:10:29,559 --> 00:10:33,080 Speaker 2: this is actually speculation versus to your point earlier, like 182 00:10:33,600 --> 00:10:35,640 Speaker 2: actual outward investment. 183 00:10:39,640 --> 00:10:43,320 Speaker 4: There's a bit of speculation around the end. You know, 184 00:10:43,400 --> 00:10:47,080 Speaker 4: there's not a clean measure of the speculative flow. But 185 00:10:47,200 --> 00:10:50,640 Speaker 4: like you know, look, the end was one of the 186 00:10:50,640 --> 00:10:54,319 Speaker 4: lowest yielding currencies, so it was a typical funding currency. 187 00:10:54,800 --> 00:10:57,640 Speaker 4: I don't think the carry trade was on an enormous scale, 188 00:10:58,240 --> 00:11:03,439 Speaker 4: but there were certainly hedge funds others who more or 189 00:11:03,520 --> 00:11:08,400 Speaker 4: less thought that the Ministry of Finance was going to 190 00:11:08,600 --> 00:11:13,079 Speaker 4: allow the yen to weaken beyond what it had weakened before. 191 00:11:13,520 --> 00:11:16,120 Speaker 4: And since you know, the end shortening the en is 192 00:11:16,160 --> 00:11:19,920 Speaker 4: positive carry. There's a higher yield on dollars than on yen. 193 00:11:20,640 --> 00:11:22,960 Speaker 4: As long as it's stable, you make a little bit 194 00:11:23,000 --> 00:11:24,640 Speaker 4: of money, and if the end appreciates, you make a 195 00:11:24,640 --> 00:11:27,200 Speaker 4: lot more money. So there was a bit of speculative 196 00:11:27,200 --> 00:11:29,680 Speaker 4: betting on it, not a ton, I would say. And 197 00:11:29,720 --> 00:11:34,040 Speaker 4: then you have weird hedging dynamics. So there's a little 198 00:11:34,040 --> 00:11:37,360 Speaker 4: bit of a head dynamic where when the NICK goes up, 199 00:11:37,440 --> 00:11:39,480 Speaker 4: foreigners holding the NICK need a hedge a bit more 200 00:11:39,520 --> 00:11:43,800 Speaker 4: because some do partially hedge. When the Nasdaq goes up, 201 00:11:43,880 --> 00:11:47,240 Speaker 4: the GPIF doesn't hedge, so it doesn't generate an offsetting 202 00:11:47,280 --> 00:11:51,240 Speaker 4: hedging flow. And then, despite all the hedge America stories 203 00:11:51,240 --> 00:11:56,280 Speaker 4: from last year, in Japan, the key fixed income hedged 204 00:11:56,320 --> 00:11:59,120 Speaker 4: investors seem to have gone a little bit less hedge. 205 00:11:59,160 --> 00:12:02,079 Speaker 4: The lifer hedge issue has come down, so you don't 206 00:12:02,280 --> 00:12:04,280 Speaker 4: so a lot of it is not quite your classic 207 00:12:04,400 --> 00:12:07,160 Speaker 4: speculative flows, although there's a bit of that. A lot 208 00:12:07,200 --> 00:12:10,600 Speaker 4: of this is hedging flows amongst real money investors, so 209 00:12:10,679 --> 00:12:13,280 Speaker 4: that does add a little bit of a different dynamic. 210 00:12:14,200 --> 00:12:18,359 Speaker 4: But I don't discount the fact that a bunch of investors, 211 00:12:18,400 --> 00:12:20,600 Speaker 4: including a bunch of hedge funds, were basically making a 212 00:12:20,640 --> 00:12:23,080 Speaker 4: bet that the end would go to one seventy because 213 00:12:23,160 --> 00:12:24,280 Speaker 4: Yueita was behind the curve. 214 00:12:25,200 --> 00:12:28,160 Speaker 5: So let's talk about it from the US perspective. What 215 00:12:28,360 --> 00:12:32,280 Speaker 5: is the reason that the weakening of the end is 216 00:12:32,320 --> 00:12:36,720 Speaker 5: something that would or should concern the Treasury Department. 217 00:12:39,960 --> 00:12:43,960 Speaker 4: Well, I think the classic concern, which hasn't been the 218 00:12:44,040 --> 00:12:49,319 Speaker 4: concern that Secretary Vestin has articulated, is that extreme weakness 219 00:12:49,320 --> 00:12:53,560 Speaker 4: in East Asian currencies gives East Asia a trade edge 220 00:12:53,600 --> 00:12:57,200 Speaker 4: over American producers. I mean, classically, a week end is 221 00:12:57,240 --> 00:13:00,280 Speaker 4: bad for Detroit, A weak Korean land is bad for Detroit. Right, 222 00:13:00,840 --> 00:13:07,160 Speaker 4: it's really you know, the traded goods pressure, most classically 223 00:13:07,600 --> 00:13:11,480 Speaker 4: through the automotive sector, that has been the traditional driver 224 00:13:11,640 --> 00:13:14,560 Speaker 4: of this. And to be clear, we are like fifty, 225 00:13:14,640 --> 00:13:16,400 Speaker 4: you know, the ones come back a bit, but fifteen 226 00:13:16,480 --> 00:13:18,640 Speaker 4: hundreds a crisis level of the wand and Korea is 227 00:13:18,640 --> 00:13:23,000 Speaker 4: not in a crisis. One sixty is an insanely weekend 228 00:13:23,080 --> 00:13:26,600 Speaker 4: on any big MAC index. It pushes the end below 229 00:13:26,679 --> 00:13:30,120 Speaker 4: and inflation adjusted terms where it was in the nineteen seventies. 230 00:13:30,160 --> 00:13:34,880 Speaker 4: We're back to the nineteen sixties. These are extreme undervaluations 231 00:13:35,120 --> 00:13:38,360 Speaker 4: in my view. And so in that sense, the classic 232 00:13:38,400 --> 00:13:41,160 Speaker 4: concern would be that this gives all these guys a 233 00:13:41,280 --> 00:13:46,720 Speaker 4: huge edge over American manufacturers. That hasn't been what Bestin 234 00:13:46,760 --> 00:13:50,560 Speaker 4: has emphasized. He's emphasized well, the weekend is putting pressure 235 00:13:50,600 --> 00:13:55,920 Speaker 4: on the wand is adding to the generalized malaise bizarreness 236 00:13:56,440 --> 00:13:58,160 Speaker 4: where good news is bad news for a lot of 237 00:13:58,200 --> 00:14:02,960 Speaker 4: Asian currencies. And then and there's a sense that this 238 00:14:03,000 --> 00:14:06,280 Speaker 4: could create pressure on the treasury market. Now, to be clear, 239 00:14:07,200 --> 00:14:10,480 Speaker 4: if the yen just falls, that makes the value of 240 00:14:11,000 --> 00:14:15,480 Speaker 4: Japanese investments in treasuries higher. So the impact on the 241 00:14:15,520 --> 00:14:19,760 Speaker 4: treasury market would come if the Japanese resisted that use 242 00:14:19,880 --> 00:14:23,200 Speaker 4: their reserves, and the excessive use of their reserves or 243 00:14:23,200 --> 00:14:26,520 Speaker 4: the use of their reserves started to put pressure on 244 00:14:26,520 --> 00:14:28,800 Speaker 4: the treasury market because they have to fund they would 245 00:14:28,840 --> 00:14:32,040 Speaker 4: fund it by selling treasuries. So I think part of 246 00:14:32,160 --> 00:14:35,680 Speaker 4: Besson's theory of the case is that by joining with 247 00:14:35,720 --> 00:14:39,480 Speaker 4: the Japanese, first of all, you know, we're supporting the 248 00:14:39,720 --> 00:14:43,120 Speaker 4: end from an incredibly weak level. It's arguably overshot. It 249 00:14:43,200 --> 00:14:47,160 Speaker 4: has decoupled from five year ten year rate differentials for 250 00:14:47,200 --> 00:14:52,400 Speaker 4: the past several months, past year even And by helping 251 00:14:52,440 --> 00:14:56,280 Speaker 4: the Japanese, we're helping a friend, that's what the President says, 252 00:14:56,880 --> 00:14:59,960 Speaker 4: and we can jointly intervene in a way that we're 253 00:15:00,000 --> 00:15:03,560 Speaker 4: reduces the possible pressure on the treasury market. That would 254 00:15:03,600 --> 00:15:06,320 Speaker 4: be I think the explanation I would give, but I 255 00:15:06,480 --> 00:15:08,680 Speaker 4: you know Besson has n't been He's more I mean 256 00:15:08,720 --> 00:15:12,280 Speaker 4: the President said it was to help a friend. Bessant 257 00:15:12,400 --> 00:15:17,120 Speaker 4: has said is to avoid destabilization throughout the Asia currency complex. 258 00:15:17,800 --> 00:15:20,200 Speaker 2: Why did they do it in euros or why did 259 00:15:20,240 --> 00:15:22,520 Speaker 2: the US do it in euros? They sold euros? 260 00:15:23,480 --> 00:15:25,240 Speaker 4: I mean, you know, some of it is just Secretary 261 00:15:25,280 --> 00:15:28,320 Speaker 4: Besson being a former currency trader wanting to have presumably 262 00:15:28,360 --> 00:15:32,680 Speaker 4: a bit of fun. You know, we have euros, we 263 00:15:32,720 --> 00:15:35,440 Speaker 4: can't use euros. We have a few more dollars, but 264 00:15:35,520 --> 00:15:37,960 Speaker 4: only a few more dollars. I mean, you can debate. 265 00:15:38,040 --> 00:15:40,480 Speaker 4: I mean, this was clearly an intervention, but you know, 266 00:15:40,520 --> 00:15:43,880 Speaker 4: when you shift your the composition of your reserves around, 267 00:15:44,160 --> 00:15:46,520 Speaker 4: sometimes that's not even viewed as intervention because you're not 268 00:15:46,880 --> 00:15:50,360 Speaker 4: selling your currency to buy another guy's currency. I think 269 00:15:50,360 --> 00:15:52,360 Speaker 4: he presumably did it because he wanted to be a 270 00:15:52,360 --> 00:15:55,840 Speaker 4: bit cute and say, well, this isn't an This is 271 00:15:55,840 --> 00:15:58,960 Speaker 4: not a view about the dollar that we still want 272 00:15:58,960 --> 00:16:01,480 Speaker 4: a strong dollar. This is just a view about the yen. 273 00:16:01,560 --> 00:16:04,280 Speaker 4: And we're just expressing this in a way that makes 274 00:16:04,320 --> 00:16:06,960 Speaker 4: it clear that this is a view about the en. 275 00:16:07,480 --> 00:16:10,480 Speaker 4: It also let him do like kind of surprising things, 276 00:16:10,520 --> 00:16:13,080 Speaker 4: like there was the rate check in euro yen, which 277 00:16:13,120 --> 00:16:16,800 Speaker 4: caused a lot of confusion in the market. But at 278 00:16:16,800 --> 00:16:18,800 Speaker 4: the end of the day, the you know, we don't 279 00:16:18,840 --> 00:16:20,640 Speaker 4: know the volume, we don't know if he actually did 280 00:16:20,680 --> 00:16:23,200 Speaker 4: the five to ten. Maybe we'll see in a week 281 00:16:23,320 --> 00:16:26,520 Speaker 4: or so. But the vast bulk of the intervention was 282 00:16:26,520 --> 00:16:29,120 Speaker 4: from the Japan's Ministry of Finance, and it was in 283 00:16:29,200 --> 00:16:32,680 Speaker 4: dollar yen, So fundamentally this was a dollar yen intervention, 284 00:16:32,800 --> 00:16:34,000 Speaker 4: not a euro yen intervention. 285 00:16:34,400 --> 00:16:37,040 Speaker 5: Brad, you mentioned that if you were to go buy 286 00:16:37,080 --> 00:16:40,560 Speaker 5: something like the Big Mac Index, the dollar yen or 287 00:16:40,600 --> 00:16:43,080 Speaker 5: the en is at historically weak levels. And of course 288 00:16:43,080 --> 00:16:46,680 Speaker 5: there's all kinds of attempts to measure like what like 289 00:16:46,880 --> 00:16:49,040 Speaker 5: fair value of a currency is, right, so you mentioned 290 00:16:49,080 --> 00:16:52,280 Speaker 5: the Big Mac Index, and then there's like, I don't know, 291 00:16:52,400 --> 00:16:58,560 Speaker 5: beer models and rear models and exchange rate differential models 292 00:16:58,640 --> 00:17:03,560 Speaker 5: and GDP differential models. Do any of them work anymore? 293 00:17:03,640 --> 00:17:10,320 Speaker 5: Are any of them consistently either predictive or useful? Or like, 294 00:17:10,640 --> 00:17:12,840 Speaker 5: what is the state of all of these sort of 295 00:17:13,000 --> 00:17:17,800 Speaker 5: classical approaches to determining fairvlie of any given currency. 296 00:17:18,920 --> 00:17:21,760 Speaker 4: The Big MAC index is a version of purchasing parity 297 00:17:21,840 --> 00:17:25,040 Speaker 4: that sort of prices, broadly speaking, should be the same 298 00:17:25,080 --> 00:17:30,919 Speaker 4: if you're comparable levels of development. Recently, particularly visa the Asia, 299 00:17:32,520 --> 00:17:37,320 Speaker 4: the market pressure, the financial pressures have pulled currencies further 300 00:17:37,400 --> 00:17:42,800 Speaker 4: away from their purchasing power parity levels. So that hasn't 301 00:17:42,960 --> 00:17:46,920 Speaker 4: as a predictive variable. That hasn't worked as an analytical tool. 302 00:17:47,000 --> 00:17:51,600 Speaker 4: I feel think it's valuable. A behavioral equilibrium exchange rate 303 00:17:51,720 --> 00:17:56,680 Speaker 4: model fundamentally looks at policy settings today and says, we 304 00:17:56,760 --> 00:17:58,760 Speaker 4: know what's the impact of the policy settings, and then 305 00:17:58,760 --> 00:18:01,840 Speaker 4: it says, we don't know the equilibrium value of the 306 00:18:01,880 --> 00:18:03,600 Speaker 4: currency is, but we know what it is where it 307 00:18:03,600 --> 00:18:06,560 Speaker 4: has been in the past. So given the policies and 308 00:18:06,600 --> 00:18:10,120 Speaker 4: given the past, is the currency strong or weak? All 309 00:18:10,119 --> 00:18:13,160 Speaker 4: the Asian currencies kind of score is weak on this 310 00:18:14,080 --> 00:18:17,960 Speaker 4: because they are fundamentally incredibly weak. I mean, we haven't 311 00:18:17,960 --> 00:18:20,320 Speaker 4: talked about China, but China has a big and growing 312 00:18:20,320 --> 00:18:23,320 Speaker 4: trades are Plus, use a current account based model, you'll 313 00:18:23,359 --> 00:18:26,680 Speaker 4: find that China's currency is undervalued. Certainly Korea's currency is 314 00:18:26,720 --> 00:18:29,560 Speaker 4: undervalued on a current account based model. All these show 315 00:18:29,640 --> 00:18:34,320 Speaker 4: is undervalued on behaviorable exchange rate based models. So basically, 316 00:18:34,440 --> 00:18:36,920 Speaker 4: like what we know is that financial flows have pulled 317 00:18:37,480 --> 00:18:41,800 Speaker 4: currencies quite far away from any of the more fundamental 318 00:18:41,920 --> 00:18:43,680 Speaker 4: or purchasing power based measures. 319 00:18:45,160 --> 00:18:48,600 Speaker 2: So I want to go back to the idea of 320 00:18:48,680 --> 00:18:52,879 Speaker 2: avoiding additional pressure on the US treasury market. And a 321 00:18:52,880 --> 00:18:55,919 Speaker 2: big component of this seems to be use of this 322 00:18:56,000 --> 00:18:58,760 Speaker 2: FED facility that I mentioned earlier. It's called the Foreign 323 00:18:58,840 --> 00:19:03,919 Speaker 2: and International Monetary Authorities REPO Facility very catchy or FEMA, 324 00:19:04,400 --> 00:19:08,440 Speaker 2: and it basically allows foreign central banks to use their 325 00:19:08,440 --> 00:19:13,240 Speaker 2: treasuries as collateral to get dollars. But from what I understand, 326 00:19:13,400 --> 00:19:17,520 Speaker 2: and I should say, this facility I think came about 327 00:19:17,600 --> 00:19:20,600 Speaker 2: during twenty twenty during the pandemic with the big treasury 328 00:19:20,600 --> 00:19:24,880 Speaker 2: market route. From what I understand, it charges above market 329 00:19:25,119 --> 00:19:29,200 Speaker 2: rates for central banks. And so one of the criticisms 330 00:19:29,240 --> 00:19:33,760 Speaker 2: I've seen lately, or maybe concerns, is that the FEMA 331 00:19:33,840 --> 00:19:37,680 Speaker 2: REPO facility is ultimately going to be uneconomical for central banks, 332 00:19:37,720 --> 00:19:39,159 Speaker 2: like why would they want to use it if they 333 00:19:39,160 --> 00:19:43,240 Speaker 2: could just repo treasuries at cheaper market rates. And then secondly, 334 00:19:43,520 --> 00:19:47,240 Speaker 2: the facility is also capped at something like sixty billions, 335 00:19:47,280 --> 00:19:50,840 Speaker 2: So if you need to intervene again, someone's going to 336 00:19:50,920 --> 00:19:54,320 Speaker 2: have to raise that limit. What are the sort of 337 00:19:54,400 --> 00:19:58,840 Speaker 2: pros and cons of using this particular facility in this way. 338 00:19:59,040 --> 00:20:01,520 Speaker 3: You're a fan, right, I'm a fan. 339 00:20:01,680 --> 00:20:04,639 Speaker 4: I publicly, I privately pushed for it back when I 340 00:20:04,680 --> 00:20:07,119 Speaker 4: was at the Treasury. I publicly pushed for it in 341 00:20:07,160 --> 00:20:11,560 Speaker 4: twenty twenty. I think it is a useful tool. The 342 00:20:11,640 --> 00:20:14,480 Speaker 4: basic idea is that central banks have a lot of 343 00:20:14,480 --> 00:20:18,600 Speaker 4: really good collateral and if they need cash, they don't 344 00:20:18,640 --> 00:20:22,240 Speaker 4: actually have to go and sell the treasuries into the 345 00:20:22,400 --> 00:20:25,480 Speaker 4: cash bond market. They can just repo them at the FED, 346 00:20:25,600 --> 00:20:29,200 Speaker 4: get dollars and then intervene that way, and it's zero 347 00:20:29,320 --> 00:20:32,400 Speaker 4: risk to the FED, and the FED can always offset 348 00:20:32,440 --> 00:20:36,199 Speaker 4: any monetary impact with its domestic operations, so there's no 349 00:20:36,920 --> 00:20:41,320 Speaker 4: necessary monetary impact. It's just a way to allow in 350 00:20:41,440 --> 00:20:44,640 Speaker 4: times of stress or times of pressure, a central bank 351 00:20:44,680 --> 00:20:48,119 Speaker 4: to avoid having to immediately sell treasuries. And remember the 352 00:20:48,160 --> 00:20:51,040 Speaker 4: in twenty twenty we kind of got into a downward 353 00:20:51,359 --> 00:20:54,560 Speaker 4: spiral in the treasury market where central bank sales were 354 00:20:54,840 --> 00:21:00,959 Speaker 4: sort of begetting begatting private sales, and the long bonds 355 00:21:01,080 --> 00:21:03,280 Speaker 4: was really selling off and the FED had to come 356 00:21:03,280 --> 00:21:06,280 Speaker 4: in and do a lot of direct bond purchases. So 357 00:21:06,359 --> 00:21:08,280 Speaker 4: you know, it sort of makes sense to have this 358 00:21:08,359 --> 00:21:12,800 Speaker 4: additional tool in the tool kit. You know, why do 359 00:21:12,880 --> 00:21:15,000 Speaker 4: it with the FED rather than with a Well, first 360 00:21:15,000 --> 00:21:16,320 Speaker 4: of all, I guess you know the FED, you know, 361 00:21:16,400 --> 00:21:19,959 Speaker 4: not in this case is a little quieter as a counterparty. 362 00:21:20,040 --> 00:21:22,240 Speaker 4: I mean, it is disclosed, but with a weak lag 363 00:21:23,359 --> 00:21:25,760 Speaker 4: it is in theory. You know, if you get rid 364 00:21:25,800 --> 00:21:29,920 Speaker 4: of the cap, it's unlimited in the quantities, and then 365 00:21:29,960 --> 00:21:35,280 Speaker 4: the premium is there. It's not huge, but you know, 366 00:21:35,320 --> 00:21:37,439 Speaker 4: you can debate where it is not. It was not 367 00:21:37,480 --> 00:21:40,439 Speaker 4: meant to be used as a as a substitute for 368 00:21:40,720 --> 00:21:45,159 Speaker 4: REPO in ordinary conditions, so it does have a premium. 369 00:21:45,520 --> 00:21:47,880 Speaker 4: I think you can argue that right now, if you're 370 00:21:48,040 --> 00:21:51,280 Speaker 4: the Ministry of Finance and you got a legacy five 371 00:21:51,400 --> 00:21:54,560 Speaker 4: year bond with a pretty high coupond, you're better off 372 00:21:54,680 --> 00:21:57,200 Speaker 4: using FEMA REPO than dumping it in the market. You're 373 00:21:57,240 --> 00:22:00,920 Speaker 4: gonna be able to cover the cost of FEMA out 374 00:22:00,960 --> 00:22:03,040 Speaker 4: of the cuban on the bond. And if obviously, if 375 00:22:03,040 --> 00:22:04,920 Speaker 4: you sell the bond, you're never gonna get that bond 376 00:22:04,960 --> 00:22:08,239 Speaker 4: and that heel back. It gives the you know, the 377 00:22:08,240 --> 00:22:11,359 Speaker 4: Ministry of Finance a bit of flexibility at a minimum. 378 00:22:11,680 --> 00:22:15,760 Speaker 4: It means it can intervene and then sell treasuries with 379 00:22:15,800 --> 00:22:20,000 Speaker 4: a lag. It doesn't have to sort of immediately sell. Now, 380 00:22:21,080 --> 00:22:24,280 Speaker 4: Japan does have a cash buffer. When they've intervened in 381 00:22:24,320 --> 00:22:27,639 Speaker 4: the past, for whatever reason, they haven't used their cash buffer. 382 00:22:27,680 --> 00:22:30,480 Speaker 4: They've pretty directly sold treasuries. So I think, you know, 383 00:22:30,520 --> 00:22:35,879 Speaker 4: it just gives another tool to the Ministry of Finance 384 00:22:35,920 --> 00:22:39,520 Speaker 4: and gives the Ministry of Finance more options about how 385 00:22:39,680 --> 00:22:42,520 Speaker 4: it generates the dollars that it's self. 386 00:22:59,119 --> 00:23:02,639 Speaker 5: Is there anything stuff upping Secretary Bessent from saying, you 387 00:23:02,680 --> 00:23:03,119 Speaker 5: know what. 388 00:23:03,240 --> 00:23:05,560 Speaker 3: One hundred and fifty dollars, one hundred and fifty end. 389 00:23:05,520 --> 00:23:07,840 Speaker 5: Of the dollar. That is our line in the sand. 390 00:23:08,280 --> 00:23:10,800 Speaker 5: We're not gonna let it weaken beyond that. And then 391 00:23:10,880 --> 00:23:13,240 Speaker 5: you might not even have to spend a penny because 392 00:23:13,560 --> 00:23:15,760 Speaker 5: you know, no one's gonna people might not want to 393 00:23:15,800 --> 00:23:19,280 Speaker 5: test it, and you just say, we have unlimited, unlimited 394 00:23:19,280 --> 00:23:21,440 Speaker 5: firepower because we're spending our own currency. 395 00:23:21,560 --> 00:23:22,640 Speaker 3: We're just gonna cap it there. 396 00:23:24,440 --> 00:23:27,000 Speaker 4: Yeah, there's something that limits Secretary Bestent from doing that, 397 00:23:27,040 --> 00:23:29,600 Speaker 4: which is that he doesn't control the fed's balance sheet. Okay, 398 00:23:30,160 --> 00:23:33,720 Speaker 4: Secretary Bessent just has the ESF. Right now, the ESF 399 00:23:33,760 --> 00:23:37,840 Speaker 4: has ballpark twenty billion in FX ballpark twenty billion in 400 00:23:37,920 --> 00:23:41,600 Speaker 4: like liquid dollar cash, and then the special drawing rights, 401 00:23:41,680 --> 00:23:43,359 Speaker 4: which it has like one hundred and sixty hundred and 402 00:23:43,359 --> 00:23:46,880 Speaker 4: seventy billion of a lot but not unlimited. And using 403 00:23:46,920 --> 00:23:50,400 Speaker 4: the special drawing rights is kind of even more out 404 00:23:50,440 --> 00:23:53,159 Speaker 4: there than using FEMA repo. You know, it's sort of 405 00:23:53,880 --> 00:23:58,080 Speaker 4: so you know, the Treasury on its own probably doesn't 406 00:23:58,119 --> 00:24:02,639 Speaker 4: have the firepower. Now you can argue that between the 407 00:24:02,720 --> 00:24:08,520 Speaker 4: Treasury the MOTH, if Japan could through some magic change 408 00:24:08,520 --> 00:24:13,280 Speaker 4: some of the pension funds operating guidance so that it 409 00:24:13,359 --> 00:24:16,520 Speaker 4: started hedging its nine hundred and fifty billion dollar portfolio, 410 00:24:17,000 --> 00:24:22,840 Speaker 4: there's more than enough firepower there collectively to set a target, 411 00:24:22,920 --> 00:24:25,280 Speaker 4: sort of a yield curve control type target one p 412 00:24:25,359 --> 00:24:29,440 Speaker 4: fifty probably be more like one sixty now, and thereby 413 00:24:31,080 --> 00:24:34,080 Speaker 4: implement that so you know, whatever it takes, this is 414 00:24:34,119 --> 00:24:37,399 Speaker 4: going to stay below one fifty or one sixty. The 415 00:24:37,440 --> 00:24:42,680 Speaker 4: world does change. Oil shocks happen, inflation shocks, the FED 416 00:24:42,720 --> 00:24:44,879 Speaker 4: maybe raising rates. People think the bank of demands is 417 00:24:45,000 --> 00:24:47,240 Speaker 4: likely now to raise rates. So I think the risk 418 00:24:47,359 --> 00:24:49,679 Speaker 4: on that is that you get locked into defending a 419 00:24:49,760 --> 00:24:53,359 Speaker 4: level and then the world changes. But you know, conceptually 420 00:24:53,359 --> 00:24:55,359 Speaker 4: you could try to do that. I think what the 421 00:24:55,400 --> 00:24:58,879 Speaker 4: Ministry of Finance is trying to do is re establish 422 00:24:59,080 --> 00:25:01,600 Speaker 4: fear in the market round one sixty. I mean that 423 00:25:01,720 --> 00:25:05,080 Speaker 4: used to be kind of a level where you know, 424 00:25:05,119 --> 00:25:06,640 Speaker 4: if you were going to go short the en, you'd 425 00:25:06,680 --> 00:25:08,879 Speaker 4: be a little nervous that the moth might come in 426 00:25:08,960 --> 00:25:11,240 Speaker 4: and whack you. But then when they. 427 00:25:11,680 --> 00:25:15,040 Speaker 3: Didn't defend whacking, right, let me. 428 00:25:15,040 --> 00:25:19,200 Speaker 4: Look, the weak side of the yen has been defined 429 00:25:19,200 --> 00:25:21,240 Speaker 4: by the Ministry of Finance for the past several years. 430 00:25:21,240 --> 00:25:23,919 Speaker 4: I mean, that's that's a conventional view in the market, 431 00:25:24,160 --> 00:25:27,600 Speaker 4: given that the interest rate differential favors the dollar. By 432 00:25:27,600 --> 00:25:29,879 Speaker 4: the way, we should discuss fiscal policy because US fiscal 433 00:25:29,880 --> 00:25:32,679 Speaker 4: policy is way worse than Japanese fiscal policy. So I 434 00:25:32,680 --> 00:25:35,679 Speaker 4: don't buy this is fiscal fears or whatever it is 435 00:25:35,800 --> 00:25:39,840 Speaker 4: rate differentials, but the rate differential has favored the dollar 436 00:25:40,440 --> 00:25:45,280 Speaker 4: and the limit for the past I would say three 437 00:25:45,359 --> 00:25:49,440 Speaker 4: years on how weak the yen gets has been set 438 00:25:49,480 --> 00:25:52,320 Speaker 4: by the mof and when the moth didn't intervene at 439 00:25:52,320 --> 00:25:54,159 Speaker 4: one sixty, and then the last time an interviewed at 440 00:25:54,160 --> 00:25:56,840 Speaker 4: one sixty two, you know, people thought, well, maybe they're 441 00:25:56,840 --> 00:25:59,920 Speaker 4: going to allow further moves, and we'll make a bet 442 00:26:00,760 --> 00:26:03,160 Speaker 4: that the moth is going to tolerate a week or yen, 443 00:26:03,520 --> 00:26:06,240 Speaker 4: given that UAITE has been slow to raise rates. And 444 00:26:06,320 --> 00:26:09,360 Speaker 4: so I think this is fundamentally about saying we're going 445 00:26:09,400 --> 00:26:11,760 Speaker 4: to defend one sixty. There's a lot of risk around 446 00:26:11,760 --> 00:26:15,080 Speaker 4: one sixty. Be careful if you want to just go 447 00:26:15,840 --> 00:26:19,159 Speaker 4: short yen when you're close to that level, which is 448 00:26:19,200 --> 00:26:22,040 Speaker 4: a softer version of the we're just going to defend 449 00:26:22,119 --> 00:26:24,720 Speaker 4: one fifty to kingdom. Come all right? 450 00:26:24,800 --> 00:26:27,760 Speaker 2: Well, on that note, perhaps the biggest question other than 451 00:26:27,840 --> 00:26:30,879 Speaker 2: you know, why did all of this happen? Is is 452 00:26:30,920 --> 00:26:33,680 Speaker 2: it going to work? And I mentioned earlier the yen 453 00:26:33,760 --> 00:26:38,200 Speaker 2: is trading at like one fifty five six to the dollar. 454 00:26:39,040 --> 00:26:42,840 Speaker 2: That's better than where it was before this intervention, but 455 00:26:42,960 --> 00:26:46,960 Speaker 2: it is starting to weaken ever so slightly again. And 456 00:26:47,240 --> 00:26:51,359 Speaker 2: on that note, Adam Posen had pretty funny quote in 457 00:26:51,440 --> 00:26:55,840 Speaker 2: the Financial Times. Did you say yet so basically saying, 458 00:26:56,920 --> 00:26:59,880 Speaker 2: verbatim quote the irony of the guy working for Sore 459 00:27:00,320 --> 00:27:02,959 Speaker 2: and Stanley drucken Miller who broke the Bank of England 460 00:27:02,960 --> 00:27:05,320 Speaker 2: back in ninety two. Pretending that you can do FX 461 00:27:05,400 --> 00:27:09,879 Speaker 2: intervention alone and lastingly defend a currency is just amazing. 462 00:27:10,040 --> 00:27:12,960 Speaker 2: So again this idea of like how much firepower does 463 00:27:13,000 --> 00:27:16,120 Speaker 2: the US actually have? Does this need to be more coordinated? 464 00:27:17,080 --> 00:27:18,120 Speaker 2: Do you think this is enough? 465 00:27:19,280 --> 00:27:21,680 Speaker 4: I think it will be enough if the Bank of 466 00:27:21,760 --> 00:27:26,320 Speaker 4: Japan is going to raise rates and maybe raise rates 467 00:27:26,320 --> 00:27:32,280 Speaker 4: several times. I think the only reason why it wouldn't 468 00:27:32,320 --> 00:27:34,600 Speaker 4: be enough if the Bank of Japan is going to 469 00:27:34,680 --> 00:27:36,240 Speaker 4: raise rates. And look, I think if the Bank of 470 00:27:36,320 --> 00:27:40,320 Speaker 4: Japan doesn't raise rates in September, this will be tested clearly. 471 00:27:40,760 --> 00:27:44,040 Speaker 4: I mean, that would signal there's not full commitment inside 472 00:27:44,119 --> 00:27:47,560 Speaker 4: Japan to defending the currency. And even in the classic sense, 473 00:27:47,600 --> 00:27:51,680 Speaker 4: the monetary and fiscal authorities have different views. But if 474 00:27:51,720 --> 00:27:55,399 Speaker 4: the Bank of Japan does raise raids, the other side 475 00:27:55,440 --> 00:27:58,600 Speaker 4: of the currency pair is the dollar, and so it 476 00:27:58,640 --> 00:28:01,960 Speaker 4: depends a little bit on what does. But if the 477 00:28:01,960 --> 00:28:04,400 Speaker 4: Bank of Japan is raising rates faster than the FED 478 00:28:04,480 --> 00:28:07,359 Speaker 4: from this point on, I actually do think this will work. 479 00:28:08,040 --> 00:28:10,840 Speaker 4: You know, there's Adam never believes currency intervention works by 480 00:28:10,840 --> 00:28:15,040 Speaker 4: the way, So it's not at all a surprise that 481 00:28:15,119 --> 00:28:18,960 Speaker 4: he has this view, and I think he should reflect 482 00:28:19,000 --> 00:28:21,680 Speaker 4: a little bit on why the yen and why currency 483 00:28:21,680 --> 00:28:25,200 Speaker 4: traders are nervous around key levels, because in the short run, 484 00:28:25,560 --> 00:28:28,760 Speaker 4: most market people I talked to say intervention can work 485 00:28:28,800 --> 00:28:32,880 Speaker 4: in a over a reasonably short period of time, and 486 00:28:32,960 --> 00:28:35,520 Speaker 4: it can work over a longer period of time. If 487 00:28:35,560 --> 00:28:38,120 Speaker 4: the currency is overshot. I would say the yen has 488 00:28:38,240 --> 00:28:41,720 Speaker 4: overshot if the fundamentals are evolving in a way that 489 00:28:41,840 --> 00:28:45,800 Speaker 4: is going to be eventually favorable to that currency. You 490 00:28:45,840 --> 00:28:49,160 Speaker 4: can make that argument with Japan. You know, oil prices, 491 00:28:49,160 --> 00:28:51,920 Speaker 4: if you know, that depends on what happens in the 492 00:28:51,960 --> 00:28:55,280 Speaker 4: Strait and with Iran, but oil prices are not at 493 00:28:55,320 --> 00:28:59,720 Speaker 4: their highs. That helps Japan. The BOJ seems likely to 494 00:28:59,800 --> 00:29:02,960 Speaker 4: raise rates in September. Certainly, the BOJ could be on 495 00:29:03,040 --> 00:29:06,760 Speaker 4: a path that brings short term rates up too closer 496 00:29:06,880 --> 00:29:09,800 Speaker 4: to you know, inflation, so on a path that leads 497 00:29:09,800 --> 00:29:12,440 Speaker 4: it to two over time, that should support the end 498 00:29:12,480 --> 00:29:16,480 Speaker 4: if the FED stable. Long term Japanese rates have converged 499 00:29:16,520 --> 00:29:20,960 Speaker 4: with long term US rates, so the long run interest 500 00:29:21,000 --> 00:29:24,680 Speaker 4: rate differential is now actually at odds with the en. 501 00:29:24,840 --> 00:29:28,640 Speaker 4: It's given this rate differential, the end should be stronger. 502 00:29:29,480 --> 00:29:33,360 Speaker 4: The current account is actually quite solid five percent of GDP. 503 00:29:33,840 --> 00:29:37,320 Speaker 4: Japan's getting ever more money on the same level of 504 00:29:37,360 --> 00:29:40,719 Speaker 4: its US portfolio because US rates are now higher than 505 00:29:40,760 --> 00:29:43,280 Speaker 4: they were when Japan bought his original bond, So that's 506 00:29:43,640 --> 00:29:46,600 Speaker 4: not really at risk. And you know, the key thing 507 00:29:46,720 --> 00:29:51,040 Speaker 4: is that you got to change expectations, and the expectations 508 00:29:51,080 --> 00:29:52,680 Speaker 4: have been that the EN's going to stay weak and 509 00:29:52,720 --> 00:29:55,960 Speaker 4: maybe get weaker. So in that context, this huge foreign 510 00:29:56,040 --> 00:30:00,600 Speaker 4: portfolio of Japanese institutional investors is generally becoming less hedged 511 00:30:00,640 --> 00:30:03,440 Speaker 4: over time. You change that, and I think you change 512 00:30:03,480 --> 00:30:06,400 Speaker 4: the dynamics. And where I probably differ a bit from 513 00:30:06,400 --> 00:30:13,080 Speaker 4: people like Adam or more like the conventional international macroeconomics school, 514 00:30:13,800 --> 00:30:16,479 Speaker 4: is that, you know, I do think Japan is unique 515 00:30:16,560 --> 00:30:18,640 Speaker 4: in a couple of ways. One way it has been 516 00:30:18,800 --> 00:30:22,840 Speaker 4: unique is that, you know, the companies that have this 517 00:30:23,640 --> 00:30:29,080 Speaker 4: massive foreign presence make enormous profits abroad. Those profits translate 518 00:30:29,360 --> 00:30:32,440 Speaker 4: into enormous gen profits, but they don't actually bring the 519 00:30:32,760 --> 00:30:36,520 Speaker 4: dollars euros you on that they earn a broad back home. 520 00:30:36,560 --> 00:30:38,800 Speaker 4: They tend to reinvest, so that doesn't generate a flow, 521 00:30:39,360 --> 00:30:41,640 Speaker 4: and then the irony is a lot of the non 522 00:30:41,800 --> 00:30:45,560 Speaker 4: FDI foreign assets are held by the government. You know, 523 00:30:45,640 --> 00:30:49,360 Speaker 4: the bulk of the unheaded, unheedged portfolio is actually in 524 00:30:49,360 --> 00:30:52,560 Speaker 4: the hands of them off and the GPIF, the pension fund, 525 00:30:52,760 --> 00:30:56,920 Speaker 4: and they typically don't repatriate, so you know, they're generating. 526 00:30:57,520 --> 00:31:00,600 Speaker 4: You know, the reserves were generating thirty five to forty 527 00:31:00,640 --> 00:31:03,200 Speaker 4: billion an interest a year, but in normal times that 528 00:31:03,320 --> 00:31:08,400 Speaker 4: just was compounding Abroad, the GPIF gets dividends, it gets interest, 529 00:31:08,880 --> 00:31:13,760 Speaker 4: it doesn't repatriate that. Now there's some portfolio rebalancing. There's 530 00:31:13,760 --> 00:31:17,040 Speaker 4: some additional complexities. I won't go into that, but in 531 00:31:17,080 --> 00:31:19,960 Speaker 4: the normal course of action, all this interest income that 532 00:31:20,000 --> 00:31:23,360 Speaker 4: goes to the government, which is well above you know, 533 00:31:23,400 --> 00:31:25,920 Speaker 4: it's well above a percentage point of GDP, it's heading 534 00:31:25,920 --> 00:31:29,280 Speaker 4: towards two percentage points of GDP, doesn't hit the FX market. 535 00:31:29,960 --> 00:31:33,720 Speaker 4: So in a sense, I think in order to equilibriate flows, 536 00:31:34,160 --> 00:31:36,800 Speaker 4: you're gonna need to see a way to you know, 537 00:31:37,200 --> 00:31:40,000 Speaker 4: have the winner of a weekend, which in a financial 538 00:31:40,040 --> 00:31:43,600 Speaker 4: sense has been the government of Japan takes some of 539 00:31:43,640 --> 00:31:46,480 Speaker 4: its winnings and bring them back home. And so in 540 00:31:46,480 --> 00:31:49,680 Speaker 4: that sense, I tend to view this a little more favorably. 541 00:31:49,720 --> 00:31:53,480 Speaker 4: I think this is part of these conditions needed to 542 00:31:53,480 --> 00:31:56,920 Speaker 4: set a floor under the end over time, together with 543 00:31:57,040 --> 00:31:59,640 Speaker 4: the Bank of Japan. So to me, you got to 544 00:31:59,680 --> 00:32:02,200 Speaker 4: have the Bank of Japan and then you have to 545 00:32:02,200 --> 00:32:04,960 Speaker 4: have the flow dynamics. And the interesting thing about Japan 546 00:32:05,440 --> 00:32:07,520 Speaker 4: is that the government is by far the biggest actor 547 00:32:07,560 --> 00:32:10,880 Speaker 4: on the flow dynamics. It has the biggest foreign asset position, 548 00:32:10,960 --> 00:32:14,040 Speaker 4: and it has the biggest capital gains from yen weakness. 549 00:32:14,280 --> 00:32:16,840 Speaker 5: By the way, for those who don't know the numbers, 550 00:32:16,920 --> 00:32:18,680 Speaker 5: you know, as you mentioned, the long end of the 551 00:32:18,760 --> 00:32:23,000 Speaker 5: curves in the US and Japan converge somewhat, but you know, 552 00:32:23,080 --> 00:32:26,120 Speaker 5: the FEDS current rates there's between three and a half 553 00:32:26,160 --> 00:32:28,080 Speaker 5: and three and a quarter. Bank of Japan is till 554 00:32:28,200 --> 00:32:31,800 Speaker 5: one percent. So that's really where this gap persists. We'll see, 555 00:32:31,800 --> 00:32:34,600 Speaker 5: as you mentioned, if the BOJ closed it. Before we wrap, 556 00:32:34,720 --> 00:32:37,920 Speaker 5: let's talk about fiscal policy for a moment, because you know, 557 00:32:38,280 --> 00:32:41,880 Speaker 5: going back at twenty sixteen, the yield on the Japanese 558 00:32:41,880 --> 00:32:44,840 Speaker 5: thirty year was like zero point h five, like something 559 00:32:44,960 --> 00:32:48,440 Speaker 5: like truly nothing, and now it's like around four percent. 560 00:32:49,120 --> 00:32:52,320 Speaker 5: There are these because the debt to GDP is so 561 00:32:52,600 --> 00:32:55,960 Speaker 5: high there are these fears that if rates rise across 562 00:32:56,000 --> 00:32:59,480 Speaker 5: the curve, a significant share of government expenditures are in 563 00:32:59,480 --> 00:33:02,719 Speaker 5: the form of payments. That further is the information problem 564 00:33:02,760 --> 00:33:05,320 Speaker 5: than you have what people call fyscal dominance. It spirals 565 00:33:05,360 --> 00:33:07,920 Speaker 5: out of control. The central bank can't fix it. That 566 00:33:08,120 --> 00:33:10,360 Speaker 5: is sort of like the classical version of why some 567 00:33:10,400 --> 00:33:13,000 Speaker 5: people think that you should short the end because it 568 00:33:13,040 --> 00:33:16,000 Speaker 5: will one day be worth confetti or something like that. 569 00:33:16,360 --> 00:33:17,600 Speaker 4: What is wrong with. 570 00:33:17,640 --> 00:33:23,040 Speaker 5: The theory that this is the piper being paid? Is 571 00:33:23,080 --> 00:33:25,080 Speaker 5: that a phrase, the piper being paid for years of 572 00:33:25,120 --> 00:33:26,480 Speaker 5: overly loose fiscal policy. 573 00:33:27,080 --> 00:33:29,760 Speaker 4: Well, I like the way you phrased it as years 574 00:33:29,760 --> 00:33:32,760 Speaker 4: of overly lose fiscal policy, because you didn't say today's 575 00:33:32,760 --> 00:33:39,240 Speaker 4: fiscal policy is overly loose. What has changed, certainly compared 576 00:33:39,280 --> 00:33:43,040 Speaker 4: to twenty fourteen, even compared to twenty sixteen, is that 577 00:33:43,760 --> 00:33:50,200 Speaker 4: the primary balance, so excluding interests, government revenues relative to expenditures, 578 00:33:51,080 --> 00:33:54,040 Speaker 4: is now in balance. It's now flat. There's no primary deficit. 579 00:33:54,560 --> 00:33:58,760 Speaker 4: That makes Japan one of the better G seven economy, 580 00:33:58,840 --> 00:34:01,040 Speaker 4: certainly better in the United States, certainly better than the UK, 581 00:34:01,120 --> 00:34:04,120 Speaker 4: certainly better than France. I think better than Germany now too. 582 00:34:04,160 --> 00:34:06,440 Speaker 4: I mean, I think if you count the defense spending, 583 00:34:06,920 --> 00:34:12,040 Speaker 4: so Japan no longer has a big primary deficit. It's 584 00:34:12,520 --> 00:34:15,399 Speaker 4: primary is actually trending towards a primary surplus. The moth 585 00:34:15,520 --> 00:34:18,400 Speaker 4: loves to play games where if you don't do a stimulus, 586 00:34:18,400 --> 00:34:21,720 Speaker 4: you actually tighten, because the way they structure the budget, 587 00:34:21,760 --> 00:34:24,279 Speaker 4: they sort of force the government to go out and 588 00:34:24,400 --> 00:34:28,040 Speaker 4: argue for a stimulus to offset what they mechanically have 589 00:34:28,040 --> 00:34:30,799 Speaker 4: baked in as a tightening, which is why we've ended up. 590 00:34:31,120 --> 00:34:34,160 Speaker 4: You know, Japan has outperformed the IMF's forecast this year. 591 00:34:34,200 --> 00:34:37,000 Speaker 4: It's really you know, at a primary balance rather than 592 00:34:37,040 --> 00:34:42,120 Speaker 4: in a modest one percent primary deficit, and so you know, 593 00:34:41,960 --> 00:34:45,719 Speaker 4: you're not in a position where things are on the 594 00:34:45,840 --> 00:34:49,600 Speaker 4: edge of spiraling out of control. Now. It is certainly 595 00:34:49,680 --> 00:34:54,759 Speaker 4: true that the interest burden will go up if the 596 00:34:54,880 --> 00:34:57,239 Speaker 4: Bank of Japan hikes rates, and it will actually go 597 00:34:57,360 --> 00:34:59,880 Speaker 4: up even if the Bank of Deman doesn't hike rates, 598 00:35:00,400 --> 00:35:02,840 Speaker 4: because there's an awful lot of bonds that were issued 599 00:35:02,840 --> 00:35:05,600 Speaker 4: at the past at very very low rates. They will mature, 600 00:35:05,680 --> 00:35:10,400 Speaker 4: they'll have to be refinanced with higher inflation, higher nominal growth. 601 00:35:10,760 --> 00:35:15,560 Speaker 4: The debt dynamics don't go crazy because you have higher 602 00:35:15,640 --> 00:35:18,080 Speaker 4: nominal rates, but your nominal rates aren't wildly out of 603 00:35:18,080 --> 00:35:21,120 Speaker 4: line with nominal growth. Real rates are probably still below 604 00:35:21,239 --> 00:35:23,839 Speaker 4: or equal to real growth, and your primary is in 605 00:35:23,840 --> 00:35:29,000 Speaker 4: an okay position. The other weird thing about Japan is 606 00:35:29,040 --> 00:35:34,279 Speaker 4: that the government of Japan holds on its balance sheet. 607 00:35:34,320 --> 00:35:36,440 Speaker 4: So the Ministry of Finance is part of the government. 608 00:35:36,480 --> 00:35:40,040 Speaker 4: It holds the reserves. The reserves in Japan make money. 609 00:35:40,520 --> 00:35:43,000 Speaker 4: They are in dollars with this higher interest rate compared 610 00:35:43,000 --> 00:35:45,520 Speaker 4: to the short term cost of funding and yen. The 611 00:35:45,600 --> 00:35:49,160 Speaker 4: gpis the government pension fund makes money. It has higher 612 00:35:49,239 --> 00:35:53,320 Speaker 4: yielding foreign assets. So the net interest payments on Japan 613 00:35:54,440 --> 00:35:57,080 Speaker 4: are actually for at times they've been close to zero. 614 00:35:57,600 --> 00:36:02,040 Speaker 4: Now that's a function in part of the backward looking 615 00:36:02,080 --> 00:36:04,719 Speaker 4: low rates, but it's also a function of the fact 616 00:36:05,239 --> 00:36:09,439 Speaker 4: that Japan's government has this massive foreign asset position. Long 617 00:36:09,440 --> 00:36:17,120 Speaker 4: winded way of saying there is you should worry if 618 00:36:17,800 --> 00:36:21,719 Speaker 4: nominal rates go way up and inflation doesn't go up. 619 00:36:23,560 --> 00:36:27,240 Speaker 4: But if nominal rates converge to levels that are consistent 620 00:36:27,280 --> 00:36:30,480 Speaker 4: with inflation, and if the primary stays where it is, 621 00:36:31,120 --> 00:36:34,879 Speaker 4: Japan's debt dynamics are actually not bad. The net debt 622 00:36:34,960 --> 00:36:39,319 Speaker 4: levels have been falling in five years without much change, 623 00:36:39,600 --> 00:36:42,160 Speaker 4: net debt in the US will surpass or be close 624 00:36:42,200 --> 00:36:44,960 Speaker 4: to that of Japan. And remember when you're shortened the 625 00:36:45,080 --> 00:36:46,799 Speaker 4: end and to go long the dollar, you're going long 626 00:36:46,920 --> 00:36:49,319 Speaker 4: US fiscal And I would argue, if you look at 627 00:36:49,360 --> 00:36:53,880 Speaker 4: the full range of variables, not gross debt, but the 628 00:36:53,960 --> 00:36:57,680 Speaker 4: dynamic path of net debt, the primary absolutely the fiscal 629 00:36:57,760 --> 00:37:00,719 Speaker 4: balance one percent of GDP in last year, and that's 630 00:37:00,760 --> 00:37:02,880 Speaker 4: not the US. We're at six. We were five ish 631 00:37:02,920 --> 00:37:05,239 Speaker 4: last year, but we're now at six. We're heading up. 632 00:37:05,480 --> 00:37:08,160 Speaker 4: That's before the defense spending. I think what has gotten 633 00:37:08,200 --> 00:37:12,440 Speaker 4: people nervous is Takeichi doesn't want, at a minimum, to 634 00:37:12,480 --> 00:37:15,440 Speaker 4: get a bigger surplus. She's pushing back against the moths plans. 635 00:37:15,680 --> 00:37:17,800 Speaker 4: She may want to go back to a modest primary, 636 00:37:18,080 --> 00:37:21,319 Speaker 4: and she expresses this in a way that generates a 637 00:37:21,320 --> 00:37:25,320 Speaker 4: lot of anks. But the underlining fiscal performance of Japan. 638 00:37:25,640 --> 00:37:30,560 Speaker 4: Stack up Japan using the IMF fiscal monitor variables against 639 00:37:30,600 --> 00:37:34,040 Speaker 4: the US, and then compare that to the rhetoric that 640 00:37:34,200 --> 00:37:38,480 Speaker 4: is tossed around, and I would say there's a very 641 00:37:38,480 --> 00:37:39,040 Speaker 4: big gap. 642 00:37:40,200 --> 00:37:43,160 Speaker 2: All right, Well, On that note, Brad, thank you so 643 00:37:43,239 --> 00:37:45,680 Speaker 2: much for coming back on the show. Really appreciate it. 644 00:37:45,760 --> 00:37:48,719 Speaker 4: Oh thanks, thanks for letting me explain my this is 645 00:37:48,760 --> 00:37:54,600 Speaker 4: one area where I'm not the most conventional. And just 646 00:37:54,680 --> 00:37:58,440 Speaker 4: remember this last thing. Just always remember Japan is selling 647 00:37:59,280 --> 00:38:02,000 Speaker 4: dollars at by between eighty and one hundred depending on 648 00:38:02,040 --> 00:38:06,600 Speaker 4: when they bought it, and somewhere around one sixty. This 649 00:38:07,040 --> 00:38:11,279 Speaker 4: and the worst you can say this operation. It reduces 650 00:38:11,400 --> 00:38:13,359 Speaker 4: gross debt in a really big way. 651 00:38:14,719 --> 00:38:15,480 Speaker 3: That was excellent. 652 00:38:15,800 --> 00:38:16,440 Speaker 2: Thanks Brad. 653 00:38:17,000 --> 00:38:32,719 Speaker 3: Hopefully talk to you soon, but not too soon, Joe. 654 00:38:32,800 --> 00:38:35,480 Speaker 2: Always good to catch up with Brad and get his perspective. 655 00:38:35,560 --> 00:38:37,440 Speaker 3: Yeah, a few things. 656 00:38:37,239 --> 00:38:40,040 Speaker 2: Stood out from that conversation. So one, it is kind 657 00:38:40,040 --> 00:38:43,719 Speaker 2: of crazy how long the memory of the lost decade 658 00:38:44,280 --> 00:38:47,080 Speaker 2: is lingering here. And we see this time and time again, 659 00:38:47,280 --> 00:38:50,279 Speaker 2: both in economics and the business world, which is like 660 00:38:50,600 --> 00:38:53,600 Speaker 2: people just remember the past cycle, right, and it influences 661 00:38:53,640 --> 00:38:57,600 Speaker 2: their current behavior understandably so in the case of Japan. 662 00:38:58,040 --> 00:38:59,600 Speaker 2: The other thing that stood out to me is this 663 00:38:59,680 --> 00:39:02,319 Speaker 2: idea of Okay, the treasury has done this sort of 664 00:39:02,480 --> 00:39:08,359 Speaker 2: creative intervention in order to ease pressure on long term treasuries, 665 00:39:09,840 --> 00:39:12,160 Speaker 2: but there seems to be a tension there with what 666 00:39:12,200 --> 00:39:14,840 Speaker 2: the Fed's doing ye at the moment, right, So Warsh 667 00:39:14,960 --> 00:39:18,120 Speaker 2: is like, ah, you know, like markets, you you have 668 00:39:18,239 --> 00:39:21,480 Speaker 2: more of an activist, say, and where treasury yields are going, 669 00:39:21,520 --> 00:39:24,239 Speaker 2: it shouldn't all be about the central bank. And so 670 00:39:24,320 --> 00:39:27,080 Speaker 2: we've seen longer term treasure yields go up. So now 671 00:39:27,080 --> 00:39:31,160 Speaker 2: you have this weird situation where like Treasury clearly wants 672 00:39:31,160 --> 00:39:33,520 Speaker 2: them to come down, whereas the FED is kind of 673 00:39:33,600 --> 00:39:34,799 Speaker 2: like do your own thing. 674 00:39:35,120 --> 00:39:36,719 Speaker 3: Totally, there's lots of in there. 675 00:39:36,800 --> 00:39:38,800 Speaker 5: One of the first things that Brad said that I 676 00:39:38,840 --> 00:39:41,280 Speaker 5: thought was interesting and it sort of and it speaks 677 00:39:41,320 --> 00:39:43,719 Speaker 5: to your point about the last decade is he's like, oh, 678 00:39:43,800 --> 00:39:46,279 Speaker 5: the bojsn all this work to get inflation back to 679 00:39:46,320 --> 00:39:49,399 Speaker 5: two percent. And in my mind I was thinking, like, oh, yeah, right, 680 00:39:49,560 --> 00:39:51,600 Speaker 5: like they must when he says all this work, they're 681 00:39:51,600 --> 00:39:53,880 Speaker 5: trying to get inflation back down. But then I remember 682 00:39:53,920 --> 00:39:57,719 Speaker 5: that in other direction, and so like you know, for 683 00:39:57,880 --> 00:40:01,080 Speaker 5: years the story is like no inflation, No, maybe they 684 00:40:01,120 --> 00:40:02,840 Speaker 5: just want to let it run hot a little while. 685 00:40:03,120 --> 00:40:06,600 Speaker 5: To fully put the lost really multiple decades of like 686 00:40:06,680 --> 00:40:10,799 Speaker 5: no inflation truly in the past. I also think it 687 00:40:10,960 --> 00:40:14,319 Speaker 5: is interesting and probably no one really talks about it, 688 00:40:14,360 --> 00:40:17,120 Speaker 5: the idea that Japan's fiscal position, at least by a 689 00:40:17,239 --> 00:40:22,400 Speaker 5: certain objective measures, clearly improving, clearly looking better than the 690 00:40:22,440 --> 00:40:24,799 Speaker 5: trajectory of the US these days, at least if you're 691 00:40:24,840 --> 00:40:28,480 Speaker 5: looking at a primary deficit. And then to his point, 692 00:40:28,600 --> 00:40:31,960 Speaker 5: you know, there's numerous you know, the classical metrics that 693 00:40:32,040 --> 00:40:35,279 Speaker 5: economists use to measure the valuation of a currency. We 694 00:40:35,400 --> 00:40:37,440 Speaker 5: know none of them are that great as metrics go, 695 00:40:37,840 --> 00:40:39,399 Speaker 5: but they all point it to the end in fact 696 00:40:39,400 --> 00:40:40,160 Speaker 5: being undervalued. 697 00:40:40,400 --> 00:40:43,400 Speaker 2: Yeah, all right, I think we should end it there 698 00:40:43,560 --> 00:40:46,759 Speaker 2: before I make a terrible turning Japanese. 699 00:40:47,160 --> 00:40:49,960 Speaker 5: Oh you know what I thought it would pun but 700 00:40:50,640 --> 00:40:54,239 Speaker 5: someone had already used it was keep calm and carry in. 701 00:40:55,080 --> 00:40:57,000 Speaker 3: But uh yeah, right, Oh. 702 00:40:56,880 --> 00:40:58,880 Speaker 5: You know it's like I'm saying it act usually been 703 00:40:58,960 --> 00:41:01,359 Speaker 5: used a handful of times. Uh yeah, I just looked 704 00:41:01,360 --> 00:41:03,759 Speaker 5: it up. It's just a few random you need to. 705 00:41:03,760 --> 00:41:05,919 Speaker 2: Make those posters. I see them on the wall. 706 00:41:06,160 --> 00:41:06,359 Speaker 1: Yeah. 707 00:41:06,520 --> 00:41:08,040 Speaker 5: If I had been the first, I would do it, 708 00:41:08,080 --> 00:41:08,799 Speaker 5: but I was not. 709 00:41:08,920 --> 00:41:10,640 Speaker 3: All right, shall we leave it there, Let's leave it there. 710 00:41:10,840 --> 00:41:13,160 Speaker 2: This has been another episode of the aud Thoughts podcast. 711 00:41:13,239 --> 00:41:16,120 Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway 712 00:41:16,239 --> 00:41:17,440 Speaker 2: and I'm Joe Isn't All. 713 00:41:17,480 --> 00:41:20,120 Speaker 5: You can follow me at the Stalwart, follow our producers 714 00:41:20,160 --> 00:41:23,360 Speaker 5: Kerman Rodriguez at Kerman armand dash Ol Bennett at Dashbot, 715 00:41:23,440 --> 00:41:27,360 Speaker 5: Kelbrooks at Kilbrooks and Kevin Lozano at Kevin Lloyd Lisano. 716 00:41:27,680 --> 00:41:29,920 Speaker 5: And for more odd Laws content, go to Bloomberg dot 717 00:41:29,960 --> 00:41:32,279 Speaker 5: com slash odd Lots or of the daily newsletter and 718 00:41:32,360 --> 00:41:34,520 Speaker 5: all of our episodes, and you can chat about all 719 00:41:34,520 --> 00:41:37,040 Speaker 5: of these topics twenty four to seven in our discord 720 00:41:37,320 --> 00:41:39,600 Speaker 5: Discord dot gg slash online. 721 00:41:39,840 --> 00:41:41,759 Speaker 2: And if you enjoy odd Thoughts, if you like it 722 00:41:41,800 --> 00:41:44,400 Speaker 2: when we shine the brad sets or that signal, then 723 00:41:44,440 --> 00:41:47,719 Speaker 2: please leave us a positive review on your favorite podcast platform. 724 00:41:47,920 --> 00:41:50,640 Speaker 2: And remember, if you are a Bloomberg subscriber, you can 725 00:41:50,680 --> 00:41:53,920 Speaker 2: listen to all of our episodes absolutely ad free. All 726 00:41:53,960 --> 00:41:56,080 Speaker 2: you need to do is find the Bloomberg channel on 727 00:41:56,120 --> 00:41:59,760 Speaker 2: Apple Podcasts and follow the instructions there. Thanks for listening, 728 00:42:00,080 --> 00:42:00,200 Speaker 2: dum