WEBVTT - Yen on Watch, Trump: Talks Are Iran's Last Chance

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug

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<v Speaker 2>Chrisner has a week off. We begin with the yen.

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<v Speaker 2>The currency held steady through the New York trading session

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<v Speaker 2>on Monday, after sharp advance earlier in the day that

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<v Speaker 2>spark speculation authorities may have intervened to support the currency again. Meantime,

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<v Speaker 2>US and Japanese officials warned investors they're determined to keep

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<v Speaker 2>defending the currency after their first joint intervention in fifteen years.

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<v Speaker 2>That's where we begin our conversation with shus Ke Yamada.

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<v Speaker 2>Shooske is chief Japan and FX rate strategistic Bank of

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<v Speaker 2>America Global Research. He spoke to Bloomberg's s Sherry on,

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<v Speaker 2>I mean.

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<v Speaker 1>It's exciting few days just following the Japanese yen. Is

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<v Speaker 1>there space for authorities to do more?

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<v Speaker 2>Yes?

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<v Speaker 3>I think this time the authorities are determined to really

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<v Speaker 3>break one hundred and fifty five, the key level. You know,

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<v Speaker 3>if they fail this time to break that level, then

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<v Speaker 3>I think the market will see, you know, the authorities

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<v Speaker 3>have exhausted policy options. So the fact that they started

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<v Speaker 3>this intervention means They're strongly determined to alter the market

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<v Speaker 3>demand supply balance, and I think that change will happen

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<v Speaker 3>once you know, one hundred and fifty five is broken.

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<v Speaker 3>And also it's a coordinated interventional.

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<v Speaker 1>I was gonna say, I mean, aren't the stakes higher

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<v Speaker 1>now that the US has got involved. You have joint

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<v Speaker 1>intervention for the first time in fifteen years or so.

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<v Speaker 3>Exactly, So the cost of failure is pretty big this time.

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<v Speaker 3>And that's why I think we have to assume they

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<v Speaker 3>are determined to do, you know, whatever it takes to

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<v Speaker 3>change the market dynamics, and coordinate intervention really removes the

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<v Speaker 3>hard limit on intervention associated with uniratal intervention, that is

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<v Speaker 3>the balance of foreign reserves.

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<v Speaker 1>Japan has now to mention that you can also have

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<v Speaker 1>that fit tool where you can borrow as much as

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<v Speaker 1>what's sixty billion dollars a day without selling treasuries, as

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<v Speaker 1>that sort of lessen the burden on token also relations

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<v Speaker 1>with Washington.

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<v Speaker 3>Yeah exactly. So you know, we don't know how this

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<v Speaker 3>will be used in practice, but I think the market

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<v Speaker 3>now knows Japan is willing to use this facility. The

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<v Speaker 3>US is willing to, you know, let Japan use this facility,

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<v Speaker 3>And you know, the biggest, one of the biggest, you know,

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<v Speaker 3>the side effects of intervention is that Japan might have

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<v Speaker 3>to sell a large amount of US treasuries and that

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<v Speaker 3>could destabilize the bond market in the US, which could

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<v Speaker 3>also spill over to Japan as well. So I think,

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<v Speaker 3>you know, this facility definitely helps, And yeah, I think

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<v Speaker 3>Japan can probably do more than otherwise.

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<v Speaker 1>Why use euro which is speculated right now, instead of

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<v Speaker 1>the US dollar? If the US actually went ahead and

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<v Speaker 1>did that, was it trying to not to weaken the

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<v Speaker 1>green back? And what are the implications of this?

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<v Speaker 3>That's a very good question. I don't fully know the background,

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<v Speaker 3>but maybe you know, the US would not want to

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<v Speaker 3>sell US dollar, But I think maybe a bigger implication

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<v Speaker 3>could be that, you know, it could be a coordinated

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<v Speaker 3>effort across Japan, US and maybe you know, broader G

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<v Speaker 3>seven community, because you know the fact that US selling

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<v Speaker 3>euro implies Europe might have been noted in you know,

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<v Speaker 3>given a notice in advance.

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<v Speaker 1>So yeah, I mean, how much pressure does this put

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<v Speaker 1>on bog government when you have the United States who's

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<v Speaker 1>also in the past said that monetary policy should be

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<v Speaker 1>let alone in a way, implying that they actually need

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<v Speaker 1>to hike at this Yes.

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<v Speaker 3>So the BOJ is a key factor, right, So one

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<v Speaker 3>argument is that stronger end reduced its pressure of the BOJ.

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<v Speaker 3>But I think, you know, the argument should go the

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<v Speaker 3>other way, because short term maybe they will succeed, but

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<v Speaker 3>longer term, it is true intervention is not effective because

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<v Speaker 3>they cannot you know, continue indefinitely, right, and this is

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<v Speaker 3>a coordinated effort. When you ask someone to join your project,

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<v Speaker 3>you have to have a goal, and that goal cannot

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<v Speaker 3>be just to buy time, right, You have to have

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<v Speaker 3>a long term goal and a long term plan. So

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<v Speaker 3>I think Japan should have a more comprehensive policy respond

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<v Speaker 3>beyond FCS intervention. And as you said, Secretary best And

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<v Speaker 3>has historically argued that BOJ rate hikes are needed and

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<v Speaker 3>effective to support the Japanese yen.

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<v Speaker 1>And yet is that possible to have such coordinated and

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<v Speaker 1>long term strategic planning here in Japan when you have

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<v Speaker 1>an gustration like primates Attaka each is that wants to

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<v Speaker 1>see expansionary policy.

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<v Speaker 3>Yeah, so I think that's why longer term success is

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<v Speaker 3>much more uncertain than short term. So here, you know,

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<v Speaker 3>what they need is faster bios, your rate hikes, maybe

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<v Speaker 3>more balanced physical policy, but again it's not your natural

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<v Speaker 3>action by Japan itself. You have to you know, you

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<v Speaker 3>also have this repo facility announcement, So it seems like

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<v Speaker 3>this whole move has been well prepared, and from that perspective,

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<v Speaker 3>I think there's a stronger case that Japan will respond

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<v Speaker 3>in a more comprehensive manner than otherwise.

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<v Speaker 1>Is that why you think your urine target for the

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<v Speaker 1>yen is still low one fifties?

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<v Speaker 3>Well, my argument so we changed our verys in view

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<v Speaker 3>in May to a constructive one, and our argument is that, uh,

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<v Speaker 3>you know, the bounance of payment has been improving, you know,

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<v Speaker 3>quite a lot for Japan for the Japanese yen over

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<v Speaker 3>the past year, and uh you know that that should

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<v Speaker 3>prevail once you know, the market recognizes that dynamics. And

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<v Speaker 3>I also think there's a little bit of a gap

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<v Speaker 3>between the actual uh you know, uh factor behind the

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<v Speaker 3>young weakness and uh the market's view. Actually, I think,

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<v Speaker 3>you know, the rights in Japanese equity over the past

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<v Speaker 3>year and a half has led to a lot of

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<v Speaker 3>equity related in selling hedging by foreign investors. So it's

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<v Speaker 3>not just policy risks that have, you know, driven the

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<v Speaker 3>young weakness.

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<v Speaker 2>That was shoes Ki Yama, Dad Chief Japan and FX

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<v Speaker 2>rate strategist at Bank of America, speaking of Bloomberg TV

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<v Speaker 2>host sherry On, and we're bringing their conversation to you

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<v Speaker 2>here on the Daybreak Asia Podcast. Welcome back to the

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<v Speaker 2>Daybreak Asia Podcast. I'm Dan Schwartzman. Doug Krisner has a

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<v Speaker 2>week off. President Trump says this is Iran's last chance

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<v Speaker 2>to sign a deal. That is after he called off

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<v Speaker 2>a major attack on the Islamic Republic over the weekend.

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<v Speaker 2>Iran denied it was negotiating with the US, but said

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<v Speaker 2>talks with Oman to get more ships moving through the

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<v Speaker 2>straighth Hormuz are making progress. That's where we begin our

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<v Speaker 2>conversation with Mona Yakubian. Mona's a director and senior Advisor

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<v Speaker 2>of the Middle East Program at CSIS. She spoke to

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<v Speaker 2>Bloomberg scherry.

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<v Speaker 1>On, can you just help all of us understand where

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<v Speaker 1>we are at in this conflict.

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<v Speaker 4>You know, it's a dizzying turn of events. We really

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<v Speaker 4>are seeing a cycle of escalation, military escalation, announced potential

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<v Speaker 4>breakthroughs in diplomacy which then don't materialize, and then a

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<v Speaker 4>return back to the threats, and that's exactly what we've

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<v Speaker 4>witnessed over the weekend, where we saw first some very

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<v Speaker 4>significant threats being leveled against Iran by President Trump, threatening

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<v Speaker 4>to go after major energy infrastructure in Iran, but then

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<v Speaker 4>he calls the strikes off again at the last minute,

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<v Speaker 4>saying that there could be a diplomatic breakthrough. Iran then

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<v Speaker 4>denies that they are having direct talks, and now we're

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<v Speaker 4>hearing again an escalation, at least in the President's rhetoric. Unfortunately,

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<v Speaker 4>this has become an all too familiar cycle with respect

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<v Speaker 4>to this conflict.

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<v Speaker 1>Why is the President not moving through and following through

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<v Speaker 1>on his threats? Is a call just way too high,

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<v Speaker 1>especially at a time when Iran is actually ready to

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<v Speaker 1>take the hit.

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<v Speaker 4>I think that the President has certainly been receiving many

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<v Speaker 4>calls from Golf allies and partners who raise deep concerns

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<v Speaker 4>about what Iran would do if the US struck in

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<v Speaker 4>massive strikes against Iran's energy infrastructure. It's fairly clear that

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<v Speaker 4>Iran would not hesitate to retaliate, hitting American companies, Gulf

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<v Speaker 4>infrastructure installations, energy installations all across the region, and therefore

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<v Speaker 4>I think this is why you keep seeing the President

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<v Speaker 4>walk up to the brink of those threats but not

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<v Speaker 4>following through on them. Every time he does it. Though, however,

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<v Speaker 4>I think Iran takes away the message that the US

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<v Speaker 4>is weak and that Iran has the upper hand in

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<v Speaker 4>this conflict.

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<v Speaker 1>The upper hand on fundamentally different objectives out of this war, right,

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<v Speaker 1>especially when it comes to what happens to the Straight

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<v Speaker 1>of four moves? Can the international community accept what Tehran wants,

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<v Speaker 1>which is control of the waterway?

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<v Speaker 4>Well, I think Iran de facto has control over the

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<v Speaker 4>Straight of hour moves. I don't see a return to

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<v Speaker 4>the status quo anti And so the question is what

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<v Speaker 4>is the way forward? Is there some sort of compromise

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<v Speaker 4>and you know, what is Iran willing to accept? What

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<v Speaker 4>would some kind of an agreed upon channel or passage

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<v Speaker 4>to the Strait look like? There has been discussion about

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<v Speaker 4>potentially modeling it after the Strait of Malica and how

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<v Speaker 4>that is administered, But it seems fairly clear that Iran

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<v Speaker 4>is not willing to relinquish its control and it would

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<v Speaker 4>be very hard to compel it to do so. Militarily,

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<v Speaker 4>It would come, I think, at great risk to US

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<v Speaker 4>forces in the region.

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<v Speaker 1>Beyond this immediate conflict around the Iran What precedent does

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<v Speaker 1>this said on the global stage, especially about the US

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<v Speaker 1>as an international actor and a mediator of sorts when

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<v Speaker 1>it comes to global peace.

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<v Speaker 4>Well, I think it raises questions about US credibility and reliability.

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<v Speaker 4>In particular, when we see these dramatic swings from promises

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<v Speaker 4>of diplomatic breakthroughs to very significant threats of military action,

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<v Speaker 4>it comes off both to adversaries and allies alike that

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<v Speaker 4>the US is not a reliable partner in the case

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<v Speaker 4>of allies and in the case of adversaries, that the

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<v Speaker 4>US doesn't make good on its threats. And so really

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<v Speaker 4>it's a loss to US credibility on both sides, and

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<v Speaker 4>it does raise bigger questions about US leadership across the globe.

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<v Speaker 1>So, in the meantime, is this in the area of

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<v Speaker 1>groundhog day with the Iran war getting to the brink

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<v Speaker 1>of more strikes to pulling back, going to see be

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<v Speaker 1>the new normal? And in that case, how would really

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<v Speaker 1>powers around the world behave around this, especially given that

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<v Speaker 1>the price of oil is on the line.

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<v Speaker 4>Well, if there is a resumption of even limited strikes,

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<v Speaker 4>we were seeing. The strait has remained for all intents

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<v Speaker 4>and purposes closed. There's limited shipping that's going through, but

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<v Speaker 4>very little. If there is a resumption of even limited

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<v Speaker 4>strikes or in a more regular fashion, unfortunately, that spells

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<v Speaker 4>real trouble for global energy supply and supply chains. And

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<v Speaker 4>how much longer this level of disruption in the Strait

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<v Speaker 4>of Hormuz can be tolerated is honestly an open question,

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<v Speaker 4>and I think this is certainly on the President's mind.

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<v Speaker 4>He raised the prospect at the time of the signing

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<v Speaker 4>of the MoU that he didn't want to be responsible

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<v Speaker 4>for a global recession, and so that looms out there

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<v Speaker 4>as well in his own decision making, and I think

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<v Speaker 4>that is certainly a factor in his decisions and not

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<v Speaker 4>to follow through on threats to go after Iran's energy

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<v Speaker 4>infrastructure for fear that it really will unleash chaos not

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<v Speaker 4>only across the East, but across the global economy.

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<v Speaker 2>That was Mona Yakubian, director and Senior Advisor of the

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<v Speaker 2>Middle East Program at csis speaking to Bloomberg TV host

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<v Speaker 2>Cherry On and we're bringing their conversation to you here

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<v Speaker 2>on the Daybreak Asia Podcast.

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<v Speaker 3>Thanks for listening to today's episode of the Bloomberg Daybreak

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<v Speaker 3>Asia Edition podcast. Each weekday, we look at the story

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<v Speaker 3>shaping markets, finance, and geopolitics in the Asia Pacific.

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<v Speaker 3>from Hong Kong to Singapore and Australia. I'm Doug Prisner,

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