Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug
Speaker 2: Chrisner has a week off. We begin with the yen.
Speaker 2: The currency held steady through the New York trading session
Speaker 2: on Monday, after sharp advance earlier in the day that
Speaker 2: spark speculation authorities may have intervened to support the currency again. Meantime,
Speaker 2: US and Japanese officials warned investors they're determined to keep
Speaker 2: defending the currency after their first joint intervention in fifteen years.
Speaker 2: That's where we begin our conversation with shus Ke Yamada.
Speaker 2: Shooske is chief Japan and FX rate strategistic Bank of
Speaker 2: America Global Research. He spoke to Bloomberg's s Sherry on,
Speaker 2: I mean.
Speaker 1: It's exciting few days just following the Japanese yen. Is
Speaker 1: there space for authorities to do more?
Speaker 2: Yes?
Speaker 3: I think this time the authorities are determined to really
Speaker 3: break one hundred and fifty five, the key level. You know,
Speaker 3: if they fail this time to break that level, then
Speaker 3: I think the market will see, you know, the authorities
Speaker 3: have exhausted policy options. So the fact that they started
Speaker 3: this intervention means They're strongly determined to alter the market
Speaker 3: demand supply balance, and I think that change will happen
Speaker 3: once you know, one hundred and fifty five is broken.
Speaker 3: And also it's a coordinated interventional.
Speaker 1: I was gonna say, I mean, aren't the stakes higher
Speaker 1: now that the US has got involved. You have joint
Speaker 1: intervention for the first time in fifteen years or so.
Speaker 3: Exactly, So the cost of failure is pretty big this time.
Speaker 3: And that's why I think we have to assume they
Speaker 3: are determined to do, you know, whatever it takes to
Speaker 3: change the market dynamics, and coordinate intervention really removes the
Speaker 3: hard limit on intervention associated with uniratal intervention, that is
Speaker 3: the balance of foreign reserves.
Speaker 1: Japan has now to mention that you can also have
Speaker 1: that fit tool where you can borrow as much as
Speaker 1: what's sixty billion dollars a day without selling treasuries, as
Speaker 1: that sort of lessen the burden on token also relations
Speaker 1: with Washington.
Speaker 3: Yeah exactly. So you know, we don't know how this
Speaker 3: will be used in practice, but I think the market
Speaker 3: now knows Japan is willing to use this facility. The
Speaker 3: US is willing to, you know, let Japan use this facility,
Speaker 3: And you know, the biggest, one of the biggest, you know,
Speaker 3: the side effects of intervention is that Japan might have
Speaker 3: to sell a large amount of US treasuries and that
Speaker 3: could destabilize the bond market in the US, which could
Speaker 3: also spill over to Japan as well. So I think,
Speaker 3: you know, this facility definitely helps, And yeah, I think
Speaker 3: Japan can probably do more than otherwise.
Speaker 1: Why use euro which is speculated right now, instead of
Speaker 1: the US dollar? If the US actually went ahead and
Speaker 1: did that, was it trying to not to weaken the
Speaker 1: green back? And what are the implications of this?
Speaker 3: That's a very good question. I don't fully know the background,
Speaker 3: but maybe you know, the US would not want to
Speaker 3: sell US dollar, But I think maybe a bigger implication
Speaker 3: could be that, you know, it could be a coordinated
Speaker 3: effort across Japan, US and maybe you know, broader G
Speaker 3: seven community, because you know the fact that US selling
Speaker 3: euro implies Europe might have been noted in you know,
Speaker 3: given a notice in advance.
Speaker 1: So yeah, I mean, how much pressure does this put
Speaker 1: on bog government when you have the United States who's
Speaker 1: also in the past said that monetary policy should be
Speaker 1: let alone in a way, implying that they actually need
Speaker 1: to hike at this Yes.
Speaker 3: So the BOJ is a key factor, right, So one
Speaker 3: argument is that stronger end reduced its pressure of the BOJ.
Speaker 3: But I think, you know, the argument should go the
Speaker 3: other way, because short term maybe they will succeed, but
Speaker 3: longer term, it is true intervention is not effective because
Speaker 3: they cannot you know, continue indefinitely, right, and this is
Speaker 3: a coordinated effort. When you ask someone to join your project,
Speaker 3: you have to have a goal, and that goal cannot
Speaker 3: be just to buy time, right, You have to have
Speaker 3: a long term goal and a long term plan. So
Speaker 3: I think Japan should have a more comprehensive policy respond
Speaker 3: beyond FCS intervention. And as you said, Secretary best And
Speaker 3: has historically argued that BOJ rate hikes are needed and
Speaker 3: effective to support the Japanese yen.
Speaker 1: And yet is that possible to have such coordinated and
Speaker 1: long term strategic planning here in Japan when you have
Speaker 1: an gustration like primates Attaka each is that wants to
Speaker 1: see expansionary policy.
Speaker 3: Yeah, so I think that's why longer term success is
Speaker 3: much more uncertain than short term. So here, you know,
Speaker 3: what they need is faster bios, your rate hikes, maybe
Speaker 3: more balanced physical policy, but again it's not your natural
Speaker 3: action by Japan itself. You have to you know, you
Speaker 3: also have this repo facility announcement, So it seems like
Speaker 3: this whole move has been well prepared, and from that perspective,
Speaker 3: I think there's a stronger case that Japan will respond
Speaker 3: in a more comprehensive manner than otherwise.
Speaker 1: Is that why you think your urine target for the
Speaker 1: yen is still low one fifties?
Speaker 3: Well, my argument so we changed our verys in view
Speaker 3: in May to a constructive one, and our argument is that, uh,
Speaker 3: you know, the bounance of payment has been improving, you know,
Speaker 3: quite a lot for Japan for the Japanese yen over
Speaker 3: the past year, and uh you know that that should
Speaker 3: prevail once you know, the market recognizes that dynamics. And
Speaker 3: I also think there's a little bit of a gap
Speaker 3: between the actual uh you know, uh factor behind the
Speaker 3: young weakness and uh the market's view. Actually, I think,
Speaker 3: you know, the rights in Japanese equity over the past
Speaker 3: year and a half has led to a lot of
Speaker 3: equity related in selling hedging by foreign investors. So it's
Speaker 3: not just policy risks that have, you know, driven the
Speaker 3: young weakness.
Speaker 2: That was shoes Ki Yama, Dad Chief Japan and FX
Speaker 2: rate strategist at Bank of America, speaking of Bloomberg TV
Speaker 2: host sherry On, and we're bringing their conversation to you
Speaker 2: here on the Daybreak Asia Podcast. Welcome back to the
Speaker 2: Daybreak Asia Podcast. I'm Dan Schwartzman. Doug Krisner has a
Speaker 2: week off. President Trump says this is Iran's last chance
Speaker 2: to sign a deal. That is after he called off
Speaker 2: a major attack on the Islamic Republic over the weekend.
Speaker 2: Iran denied it was negotiating with the US, but said
Speaker 2: talks with Oman to get more ships moving through the
Speaker 2: straighth Hormuz are making progress. That's where we begin our
Speaker 2: conversation with Mona Yakubian. Mona's a director and senior Advisor
Speaker 2: of the Middle East Program at CSIS. She spoke to
Speaker 2: Bloomberg scherry.
Speaker 1: On, can you just help all of us understand where
Speaker 1: we are at in this conflict.
Speaker 4: You know, it's a dizzying turn of events. We really
Speaker 4: are seeing a cycle of escalation, military escalation, announced potential
Speaker 4: breakthroughs in diplomacy which then don't materialize, and then a
Speaker 4: return back to the threats, and that's exactly what we've
Speaker 4: witnessed over the weekend, where we saw first some very
Speaker 4: significant threats being leveled against Iran by President Trump, threatening
Speaker 4: to go after major energy infrastructure in Iran, but then
Speaker 4: he calls the strikes off again at the last minute,
Speaker 4: saying that there could be a diplomatic breakthrough. Iran then
Speaker 4: denies that they are having direct talks, and now we're
Speaker 4: hearing again an escalation, at least in the President's rhetoric. Unfortunately,
Speaker 4: this has become an all too familiar cycle with respect
Speaker 4: to this conflict.
Speaker 1: Why is the President not moving through and following through
Speaker 1: on his threats? Is a call just way too high,
Speaker 1: especially at a time when Iran is actually ready to
Speaker 1: take the hit.
Speaker 4: I think that the President has certainly been receiving many
Speaker 4: calls from Golf allies and partners who raise deep concerns
Speaker 4: about what Iran would do if the US struck in
Speaker 4: massive strikes against Iran's energy infrastructure. It's fairly clear that
Speaker 4: Iran would not hesitate to retaliate, hitting American companies, Gulf
Speaker 4: infrastructure installations, energy installations all across the region, and therefore
Speaker 4: I think this is why you keep seeing the President
Speaker 4: walk up to the brink of those threats but not
Speaker 4: following through on them. Every time he does it. Though, however,
Speaker 4: I think Iran takes away the message that the US
Speaker 4: is weak and that Iran has the upper hand in
Speaker 4: this conflict.
Speaker 1: The upper hand on fundamentally different objectives out of this war, right,
Speaker 1: especially when it comes to what happens to the Straight
Speaker 1: of four moves? Can the international community accept what Tehran wants,
Speaker 1: which is control of the waterway?
Speaker 4: Well, I think Iran de facto has control over the
Speaker 4: Straight of hour moves. I don't see a return to
Speaker 4: the status quo anti And so the question is what
Speaker 4: is the way forward? Is there some sort of compromise
Speaker 4: and you know, what is Iran willing to accept? What
Speaker 4: would some kind of an agreed upon channel or passage
Speaker 4: to the Strait look like? There has been discussion about
Speaker 4: potentially modeling it after the Strait of Malica and how
Speaker 4: that is administered, But it seems fairly clear that Iran
Speaker 4: is not willing to relinquish its control and it would
Speaker 4: be very hard to compel it to do so. Militarily,
Speaker 4: It would come, I think, at great risk to US
Speaker 4: forces in the region.
Speaker 1: Beyond this immediate conflict around the Iran What precedent does
Speaker 1: this said on the global stage, especially about the US
Speaker 1: as an international actor and a mediator of sorts when
Speaker 1: it comes to global peace.
Speaker 4: Well, I think it raises questions about US credibility and reliability.
Speaker 4: In particular, when we see these dramatic swings from promises
Speaker 4: of diplomatic breakthroughs to very significant threats of military action,
Speaker 4: it comes off both to adversaries and allies alike that
Speaker 4: the US is not a reliable partner in the case
Speaker 4: of allies and in the case of adversaries, that the
Speaker 4: US doesn't make good on its threats. And so really
Speaker 4: it's a loss to US credibility on both sides, and
Speaker 4: it does raise bigger questions about US leadership across the globe.
Speaker 1: So, in the meantime, is this in the area of
Speaker 1: groundhog day with the Iran war getting to the brink
Speaker 1: of more strikes to pulling back, going to see be
Speaker 1: the new normal? And in that case, how would really
Speaker 1: powers around the world behave around this, especially given that
Speaker 1: the price of oil is on the line.
Speaker 4: Well, if there is a resumption of even limited strikes,
Speaker 4: we were seeing. The strait has remained for all intents
Speaker 4: and purposes closed. There's limited shipping that's going through, but
Speaker 4: very little. If there is a resumption of even limited
Speaker 4: strikes or in a more regular fashion, unfortunately, that spells
Speaker 4: real trouble for global energy supply and supply chains. And
Speaker 4: how much longer this level of disruption in the Strait
Speaker 4: of Hormuz can be tolerated is honestly an open question,
Speaker 4: and I think this is certainly on the President's mind.
Speaker 4: He raised the prospect at the time of the signing
Speaker 4: of the MoU that he didn't want to be responsible
Speaker 4: for a global recession, and so that looms out there
Speaker 4: as well in his own decision making, and I think
Speaker 4: that is certainly a factor in his decisions and not
Speaker 4: to follow through on threats to go after Iran's energy
Speaker 4: infrastructure for fear that it really will unleash chaos not
Speaker 4: only across the East, but across the global economy.
Speaker 2: That was Mona Yakubian, director and Senior Advisor of the
Speaker 2: Middle East Program at csis speaking to Bloomberg TV host
Speaker 2: Cherry On and we're bringing their conversation to you here
Speaker 2: on the Daybreak Asia Podcast.
Speaker 3: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 3: Asia Edition podcast. Each weekday, we look at the story
Speaker 3: shaping markets, finance, and geopolitics in the Asia Pacific.
Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast
Speaker 2: YouTube channel, or anywhere else you listen.
Speaker 3: Join us again tomorrow for insight on the market moves
Speaker 3: from Hong Kong to Singapore and Australia. I'm Doug Prisner,
Speaker 3: and this is Bloomberg