WEBVTT - De-Dollarization – What It Means for the Region 0:00:01.320 --> 0:00:05.360 US President Trump's tariff policies have had a profound impact 0:00:05.480 --> 0:00:09.080 on global financial markets, but one of the most surprising 0:00:09.200 --> 0:00:12.039 has been the sell off in the US dollar. Since 0:00:12.080 --> 0:00:16.120 the president's inauguration, the US dollar has weakened by over 0:00:16.239 --> 0:00:20.160 nine percent versus a basket of major currencies, as measured 0:00:20.160 --> 0:00:23.920 by the DXY Index. What's also unique is that this 0:00:24.040 --> 0:00:27.120 sell off has occurred during times of financial stress in 0:00:27.280 --> 0:00:30.840 US equity and bond markets, leading some analyst to question 0:00:31.160 --> 0:00:35.080 whether the currency is losing its safe haven status. This 0:00:35.159 --> 0:00:39.200 fear was further exacerbated when Moody's downgraded the US credit 0:00:39.320 --> 0:00:42.839 rating from triple A to double A one. Are we 0:00:43.159 --> 0:00:46.800 entering into a period of d dollarization? What does this 0:00:46.920 --> 0:00:50.760 mean for Asia's currencies? And what about the region's central banks, 0:00:50.880 --> 0:00:55.120 companies and financial institutions, many of whom are the biggest 0:00:55.120 --> 0:00:58.600 holders of US treasuries and are heavily exposed to FX risks. 0:01:00.000 --> 0:01:03.560 Listening to Aga Centric from Bloomberg Intelligence. I'm John Lee 0:01:03.640 --> 0:01:06.480 here in Hong Kong. Today we have a regular on 0:01:06.520 --> 0:01:10.679 the show. He's my colleague Stephen Chu, Chief Asia FX 0:01:10.720 --> 0:01:14.560 and Great Strategies for Bloomberg Intelligence. Stephen, welcome to. 0:01:14.520 --> 0:01:18.039 The show Hi, John, thanks for having me. Stephen. 0:01:18.240 --> 0:01:22.720 Are we entering into a period of d dollarization, Well, 0:01:22.760 --> 0:01:23.240 I would. 0:01:23.080 --> 0:01:26.120 Say yes and no, because this period actually has started 0:01:26.240 --> 0:01:29.039 up over ten years ago in twenty fourteen when Thursday's 0:01:29.080 --> 0:01:33.480 Russia and Cremer incident, and apparently Russia has start to 0:01:33.720 --> 0:01:36.560 offload their US treasuries and then followed by of course 0:01:36.680 --> 0:01:39.720 China also start to reduce their holdings. So it has 0:01:39.760 --> 0:01:43.080 started just at a very gradual pace. And what happened 0:01:43.120 --> 0:01:45.560 this year, especially in April, I would say, is just 0:01:45.840 --> 0:01:49.200 acceleration of it. And if you ask me, it's still 0:01:49.240 --> 0:01:51.960 somewhat orderly. Of course, it's very rare that we saw 0:01:52.440 --> 0:01:55.280 US dollar, US treasury, and US equities all setting off 0:01:55.280 --> 0:01:58.080 at the same time. So it's very clear that market 0:01:58.600 --> 0:02:00.800 had enough of the TI riff game. So they don't 0:02:00.800 --> 0:02:02.880 want to care about the reciprocal tariff. They don't want 0:02:02.880 --> 0:02:05.040 to wait for any trade trials or trade deal. They 0:02:05.200 --> 0:02:08.920 just vote by action that they're questioning the credibility of 0:02:08.960 --> 0:02:11.799 the US, the credibility of the dollar, and of course 0:02:11.840 --> 0:02:14.639 the US Treasury. So I would say that's why, yes, 0:02:14.639 --> 0:02:17.800 I know it has started before, it's accelerating, and whether 0:02:17.880 --> 0:02:20.360 it's going to continue to accelerate really depends on what 0:02:20.440 --> 0:02:22.799 the US administration does, so we're going to look forward 0:02:22.800 --> 0:02:24.080 to that going forward. 0:02:24.440 --> 0:02:26.440 I want to just repeat what you said, and you 0:02:26.600 --> 0:02:30.320 refer to the events in April. Now, when the US 0:02:30.360 --> 0:02:34.040 announced reciprocal tariffs, the S and P five hundred sort 0:02:34.080 --> 0:02:36.880 off by more than twelve percent. In the next few days, 0:02:37.080 --> 0:02:40.280 blond yuods were also rising, but we had surprisingly the 0:02:40.440 --> 0:02:44.560 US dollar sell off. Now has these things happened before. 0:02:44.880 --> 0:02:47.960 Yeah, at least memory search. I've been the futual about 0:02:47.960 --> 0:02:51.200 fifteen years. I've probably never seen that. It's quite interesting 0:02:51.200 --> 0:02:54.480 because if we drill down into the performances, so the 0:02:54.560 --> 0:02:58.800 dollar weakness was very apparent against the major currencies, especially 0:02:58.840 --> 0:03:01.160 the Euro and the end. So that tells you that 0:03:01.240 --> 0:03:04.880 the market theme is about changing the view of which 0:03:04.919 --> 0:03:07.440 currency is more credible as a reserve currency. So we 0:03:07.520 --> 0:03:09.960 know when we look at the reserve currencies, there's the dollar, 0:03:10.160 --> 0:03:13.640 there's a euro, Yen Stirling. Of course, Chinese un is 0:03:13.639 --> 0:03:16.480 a very interesting one and market always lost to talk 0:03:16.520 --> 0:03:20.040 about it, but practically speaking, the UN didn't really rally 0:03:20.120 --> 0:03:22.320 right away, meaning that market at the end of the 0:03:22.400 --> 0:03:25.079 day is still more comfortable with the uro and the yen, 0:03:25.160 --> 0:03:29.160 the major currencies, and in fact Asian currencies didn't already 0:03:29.240 --> 0:03:31.919 against the dollar. Some actually when weaker, especially the un 0:03:32.240 --> 0:03:35.520 before really rallying towards the end of April and early May. 0:03:36.240 --> 0:03:38.880 So are we starting to see a change in the 0:03:38.920 --> 0:03:42.280 paradigm of FX investing now? I know a lot of 0:03:42.400 --> 0:03:46.280 FX strategists talk about this smile theory for the US. 0:03:46.480 --> 0:03:48.200 Can you give us like an FX one O one? 0:03:48.240 --> 0:03:49.880 What does this smile theory mean? 0:03:50.160 --> 0:03:52.520 Yeah? Sure, So it's a very that's very well known 0:03:52.560 --> 0:03:55.840 in the fics community. So it's proposed by Stephen Lee 0:03:55.920 --> 0:03:59.280 Jen in two thousand and one. It's a relationship between 0:03:59.320 --> 0:04:02.440 the US dollar and the US economy, so very simple. 0:04:02.640 --> 0:04:05.720 When the US economy is super strong or super weak, 0:04:05.880 --> 0:04:08.560 we see a strong dollar. When it's super strong, we 0:04:08.600 --> 0:04:11.000 have the fat hiking rates them from an interest rate 0:04:11.080 --> 0:04:14.000 or carry perspective. So we saw a few years ago 0:04:14.040 --> 0:04:17.279 after COVID, so the US dollar was super strong. However, 0:04:17.600 --> 0:04:20.680 in the extreme end, when we have say a US recession, 0:04:20.720 --> 0:04:23.960 a global recession, everybody cutting rates. It's a risk of 0:04:24.120 --> 0:04:26.880 scenario and the dollar, of course, we all know that 0:04:26.920 --> 0:04:30.559 it's really the top most credible reserve currency, at least 0:04:30.560 --> 0:04:33.039 before this year. So we have a very strong dollar 0:04:33.040 --> 0:04:35.240 at the extreme ends, and only in the middle, in 0:04:35.240 --> 0:04:37.360 the middle of the smell, we have a weaker US 0:04:37.440 --> 0:04:40.520 dollar because when the world is peaceful, then everybody used 0:04:40.520 --> 0:04:42.720 the dollar as a funding currency to buy something else. 0:04:43.200 --> 0:04:48.039 Okay, so that's the dollar smile. Now, what's happening now. 0:04:48.120 --> 0:04:50.760 Yeah, I would propose, of course, there are some people 0:04:50.760 --> 0:04:52.839 talking about it already, and we were one of the 0:04:52.880 --> 0:04:57.400 early ones proposing this so called dollar frown theory. So 0:04:57.520 --> 0:05:00.640 it's just the extreme opposite compared to a smell. So 0:05:00.680 --> 0:05:03.800 what happens is when the US economy is super strong 0:05:03.880 --> 0:05:06.560 or super weak, we'll see a weaker US dollar. The 0:05:06.720 --> 0:05:09.640 rationale it's because of fiscal concerns. So when we look 0:05:09.680 --> 0:05:12.320 at the extremements, when the US economy is super strong 0:05:12.360 --> 0:05:15.400 and the fact cannot cut rates, just like what's happening now, 0:05:15.800 --> 0:05:19.039 market will actually dealt whether the US government can refine 0:05:19.040 --> 0:05:21.160 them as the debt at such a high cost, given 0:05:21.200 --> 0:05:25.400 that the US really funded spending with foreign flows. When 0:05:25.400 --> 0:05:27.880 that's in doubt, we saw what happened. US treasury is 0:05:27.880 --> 0:05:31.800 selling off really since April to now, it's still going on. However, 0:05:31.920 --> 0:05:34.640 in the other end, when we saw say a global recession, 0:05:34.680 --> 0:05:38.120 a completely risk of scenario, the dollar is no longer 0:05:38.160 --> 0:05:40.880 the top choice for safe haven. People will go to 0:05:40.960 --> 0:05:44.000 eurog to yen, and go to gold, and gold will 0:05:44.080 --> 0:05:47.160 be more sort of currency. Like during this juncture in 0:05:47.200 --> 0:05:49.440 the middle, when everything is fine, when we have no 0:05:49.560 --> 0:05:52.560 trade will the world is peaceful, then market may actually 0:05:52.560 --> 0:05:55.000 step back a little bit in questioning the US dollar, 0:05:55.279 --> 0:05:58.080 and we saw US dollar strengthening, which is why, as 0:05:58.120 --> 0:06:00.479 an example, we saw when the news about the US 0:06:00.640 --> 0:06:03.680 China trade tariff delay for ninety days came out, the 0:06:03.760 --> 0:06:05.240 dollar did rebound for a bit. 0:06:06.000 --> 0:06:09.320 Asia Centric is produced by Bloomberg Intelligence, where more than 0:06:09.360 --> 0:06:13.200 five hundred experienced analysts and strategists work around the clock 0:06:13.279 --> 0:06:16.760 to bring you timely, world class research. Our coverage spans 0:06:16.800 --> 0:06:21.120 two hundred market industries, currencies, commodities and industries, as well 0:06:21.120 --> 0:06:24.120 as over two thousand equities and credits. To learn more 0:06:24.160 --> 0:06:28.400 about Bloomberg Intelligence, visit bi go on the Bloomberg terminal. 0:06:28.920 --> 0:06:31.440 If you like what you hear, don't forget to subscribe 0:06:31.440 --> 0:06:35.960 and share. We had Moodies downgrade the US credit rating. 0:06:36.440 --> 0:06:38.840 Was this a big issue in your view, not. 0:06:38.839 --> 0:06:41.000 Really, of course everybody talk about so it's no longer 0:06:41.080 --> 0:06:43.760 the highest rating government dat but it doesn't matter because 0:06:43.800 --> 0:06:46.480 eventually this is going to happen. And even if all 0:06:46.520 --> 0:06:50.520 these rating agencies don't address the concern, every single market 0:06:50.520 --> 0:06:54.719 player knows about the structural slash fiscal vulnerabilities in the US, 0:06:55.000 --> 0:06:57.160 so it's just a matter of time to see a 0:06:57.160 --> 0:07:00.320 proper reflection of that. So that's why after that move, 0:07:00.480 --> 0:07:02.560 it's not really in use. But we saw the dollar 0:07:02.880 --> 0:07:05.159 selling off again and the US treasuries as well. 0:07:05.360 --> 0:07:08.279 Okay, so it sounds like the US is slowly starting 0:07:08.279 --> 0:07:11.480 to lose its safe haven asset status. 0:07:11.480 --> 0:07:14.560 Would you say, yes, definitely start losing, but from a 0:07:14.680 --> 0:07:17.480 very high base and at a very gradual pace, because 0:07:17.480 --> 0:07:19.800 if you ask me as an X trader, as a practitioner, 0:07:20.200 --> 0:07:22.160 I know everybody want to get out of the US dollar, 0:07:22.240 --> 0:07:26.040 but the reality is there not much to go to really, 0:07:26.120 --> 0:07:28.480 like there's as much gold as you can buy, there's 0:07:28.560 --> 0:07:31.960 only as much safe government assets out there beyond the 0:07:32.040 --> 0:07:34.360 US treasuries. So I would say it will still be 0:07:34.400 --> 0:07:37.080 a very gradual process, but at least it will continue 0:07:37.120 --> 0:07:37.800 going forward. 0:07:38.240 --> 0:07:40.680 And that's why you mentioned gold. Now, is that why 0:07:40.760 --> 0:07:42.800 gold price is a continuing to go up. 0:07:43.040 --> 0:07:46.280 Yeah, especially we know gold is priced in the US dollars, 0:07:46.320 --> 0:07:48.040 so it's kind of like a mirror image. As long 0:07:48.080 --> 0:07:50.840 as the dollar continues to weaken, we'll see record goal 0:07:50.920 --> 0:07:54.400 price every now and then. And central banks are really 0:07:54.400 --> 0:07:55.960 the ones that we want to follow. They are the 0:07:56.000 --> 0:07:59.280 smart people, and they have been buying really since twenty 0:07:59.440 --> 0:08:02.600 twenty two, or buying at a quicker pace right after 0:08:02.680 --> 0:08:05.440 COVID because they saw what's coming. We saw a more 0:08:05.520 --> 0:08:09.480 bivocated world with all inflation anchoring. The fat had to 0:08:09.920 --> 0:08:12.720 rate to higher levels, but still not really dealing with 0:08:12.760 --> 0:08:16.120 the inflation issue. So that's why emerging Markeuess central banks, 0:08:16.200 --> 0:08:19.760 leading really by China, India and Turkey for example, they're 0:08:19.760 --> 0:08:22.720 all buying gold because they see this dollar era coming 0:08:22.760 --> 0:08:23.920 to be questions. 0:08:24.240 --> 0:08:26.000 And I know you don't cover it, but I know 0:08:26.080 --> 0:08:27.840 you get this question all the time as well. Does 0:08:27.840 --> 0:08:30.200 that same theory apply to cryptocurrencies. 0:08:30.640 --> 0:08:33.200 It's a little bit different because when we look back 0:08:33.200 --> 0:08:38.280 in history, usually when gold play a currency role, it's before, during, 0:08:38.320 --> 0:08:41.800 and after a major geopolitical incident, so namely the World 0:08:41.800 --> 0:08:44.719 War was so the gold being a unit and accounts 0:08:44.800 --> 0:08:48.960 storage of value and transaction. Being a transaction unit, it's 0:08:49.000 --> 0:08:51.800 more credible like these days, like you still can't really 0:08:51.800 --> 0:08:55.200 transact with cryptocurrency, So I would say cryptocurrency might be 0:08:55.280 --> 0:08:57.720 a good choice if you have a portfolio that you 0:08:57.800 --> 0:09:00.320 want to exploit a weaker used dollar, But I would 0:09:00.360 --> 0:09:02.400 say goal to still play a larger role in this 0:09:02.480 --> 0:09:05.719 D dollarization trend, at least a larger share, because, after all, 0:09:05.760 --> 0:09:08.679 crypto it's also a price in US dollar. So if 0:09:08.720 --> 0:09:10.920 you ask me, like, I'm no expert in crypto, but 0:09:10.920 --> 0:09:13.920 I would say it's just a dollar derivative or dollar assets, 0:09:14.160 --> 0:09:14.800 unlike gold. 0:09:15.280 --> 0:09:19.120 Okay, so we've talked about the US the D dollarization. 0:09:19.760 --> 0:09:22.920 What does this all mean in terms of your forecards 0:09:22.960 --> 0:09:26.920 for the US dollar as well as against Asian currencies. 0:09:27.400 --> 0:09:30.320 Yeah, so simply put, we're going to see a broad 0:09:30.520 --> 0:09:33.080 weekending in the US dollar. But of course there are 0:09:33.080 --> 0:09:37.560 different performances across major currencies, let alone Asian currencies, so 0:09:37.600 --> 0:09:40.400 we have to look at fundamentals. When we look at Asia, 0:09:40.800 --> 0:09:44.319 one reason why they didn't really rally before the majors 0:09:44.360 --> 0:09:47.839 until later in April was that we saw that their 0:09:47.920 --> 0:09:50.679 macro fundamentals were still quite vulnerable to the trade tar 0:09:50.760 --> 0:09:53.640 riff because we know trade tar riff target China, targets 0:09:53.720 --> 0:09:56.520 Vietnam like a lot of the Asian partners. So at 0:09:56.559 --> 0:09:58.160 the end of the day, if we don't have a 0:09:58.200 --> 0:10:01.040 trade deal and if the effective tarret still end up 0:10:01.120 --> 0:10:03.599 higher than before the trade will, then that's going to 0:10:03.720 --> 0:10:07.040 hurt their economies. And we know they are very growth 0:10:07.080 --> 0:10:10.840 sensitive and capital flows into Asia. Really it's betting on 0:10:11.000 --> 0:10:14.559 their growth. Therefore, even though in a weaker dollar backdrop, 0:10:14.600 --> 0:10:17.480 even if Asian currencies rally, it's going to be more 0:10:17.559 --> 0:10:20.520 gradual compared to the g tens. Now when we look 0:10:20.559 --> 0:10:23.880 at little podcasts the risk of larger appreciation. We saw 0:10:23.880 --> 0:10:26.160 what happened to the Taiwan dollar in early May, and 0:10:26.280 --> 0:10:29.720 possibly to Korean one and even Japanese yen. But that's 0:10:29.720 --> 0:10:32.360 for different matter. That's because of the nature of those 0:10:32.400 --> 0:10:35.360 economy and also with other players like the life insurance 0:10:35.400 --> 0:10:36.760 companies and pensions. 0:10:37.559 --> 0:10:39.920 And I wanted to talk about the Taiwan dollar in 0:10:39.960 --> 0:10:43.200 a few minutes, but I wanted to draw back to 0:10:43.360 --> 0:10:45.959 the beginning of this year. Now, I remember a lot 0:10:45.960 --> 0:10:49.080 of FX strategists were saying that US tarists was supposed 0:10:49.160 --> 0:10:53.360 to support the US dollar, and these developments are surprised. 0:10:53.760 --> 0:10:57.240 Not really now it did happen because market always priced 0:10:57.400 --> 0:11:00.760 in development before it happened. And when we look at 0:11:00.760 --> 0:11:04.880 the efics market pricing, it really started since late last year, 0:11:05.360 --> 0:11:08.880 before the US presential election in November, and then all 0:11:08.920 --> 0:11:11.960 the way until really early January, so that has been 0:11:11.960 --> 0:11:14.840 priced in by the market. We saw stronger dollar across 0:11:14.880 --> 0:11:18.400 the board across Asian currencies, and not until earlier this year, 0:11:18.440 --> 0:11:22.000 and markets start to question whether that policy could really 0:11:22.080 --> 0:11:24.360 work to the US. And also to a point also 0:11:24.440 --> 0:11:27.559 thanks to the US President Donald Trump being so hardworking 0:11:27.600 --> 0:11:30.760 and posting about new policies every day, especially on tariff. 0:11:31.200 --> 0:11:34.040 So market, as we said earlier, might really be fed 0:11:34.120 --> 0:11:36.240 up with that. So they just decide, Okay, we're going 0:11:36.280 --> 0:11:40.120 to exploit your structural factors for the US. Usually it's 0:11:40.160 --> 0:11:42.640 more a medium to the longer term, but market decided 0:11:42.640 --> 0:11:44.640 they're going to bring it forward and treat it as 0:11:44.640 --> 0:11:47.640 a short term driver. Therefore the dollar stopped strengthening and 0:11:47.679 --> 0:11:48.360 start to weaken. 0:11:48.679 --> 0:11:50.520 Okay, let's talk about the tow one dollar, because it 0:11:50.600 --> 0:11:54.400 had a big move was it in May? Its strengthened 0:11:54.440 --> 0:11:57.719 by over seven percent over a few days. Now I 0:11:57.720 --> 0:12:00.440 think it was up by over nine percent versus the 0:12:00.520 --> 0:12:03.760 US dollar for the whole month. Tell us what happened 0:12:03.760 --> 0:12:06.760 to the Taiwan dollar and why was the move so abrupt? 0:12:07.240 --> 0:12:09.360 Yeah, I think it was about over ten percent at 0:12:09.400 --> 0:12:11.720 one point for the first two days until the central 0:12:11.760 --> 0:12:14.760 banks step in. So what happened was quite clear. So 0:12:14.840 --> 0:12:18.160 we know most of the Asian economies exporters, they are 0:12:18.200 --> 0:12:21.040 the big players. But also we have to at least 0:12:21.080 --> 0:12:23.120 from now on market we have to pay a lot 0:12:23.200 --> 0:12:25.960 of attention to and other big players, which are the livers. 0:12:26.440 --> 0:12:29.920 So livers are most prominent or dominant in Taiwan of 0:12:29.960 --> 0:12:32.280 course Taiwan, and then we have self current japen Asulla. 0:12:32.320 --> 0:12:34.720 You're talking about life insurance life insurance companies. 0:12:34.800 --> 0:12:38.520 Yeah, so they have a lot of overseas investments just 0:12:38.600 --> 0:12:41.920 because the local market weren't big enough to absorb, so 0:12:42.080 --> 0:12:44.439 they don't have really a big logo born market. So 0:12:44.520 --> 0:12:48.600 in Taiwan's case, given the amount of the life insurance policies, 0:12:48.720 --> 0:12:52.160 they have to look for investments overseas, and clearly the 0:12:52.320 --> 0:12:55.240 US market is really their major destination. So whether it's 0:12:55.320 --> 0:12:57.640 US treasuries, and to some extent, of course, it's actually 0:12:58.240 --> 0:13:00.560 they're more interested in the dollar credit with high yield, 0:13:01.000 --> 0:13:03.640 so they have a lot of dollar assets holding overseas. 0:13:04.120 --> 0:13:07.000 What happened was now we have no proof and we 0:13:07.160 --> 0:13:09.800 don't know whether they have started selling the assets, but 0:13:10.000 --> 0:13:13.400 if they sold market really starting to question about the 0:13:13.600 --> 0:13:16.840 US status or the US dollar status, US treasury status, 0:13:17.160 --> 0:13:19.120 then it makes sense for them to at least either 0:13:19.280 --> 0:13:22.240 increase hatching or to sell the assets. So that was 0:13:22.320 --> 0:13:25.200 what happened. They probably just try to hatch a little 0:13:25.200 --> 0:13:27.480 bit of their dollar holding by they usually do it 0:13:27.600 --> 0:13:30.920 through NDF so selling Dollar Tower and DF but probably 0:13:31.080 --> 0:13:34.120 given that the market was so feen, especially I remember 0:13:34.200 --> 0:13:38.040 it was a mainland China holiday, price actions got exaggerated 0:13:38.280 --> 0:13:41.439 and then we saw a huge appreciation in the Taiwan dollars. 0:13:41.440 --> 0:13:43.719 So that's what happened until the central bands step in. 0:13:44.080 --> 0:13:46.640 Of course, now the tides has come a little bit, 0:13:47.040 --> 0:13:50.040 but it doesn't change the fact that at least for Taiwan, 0:13:50.080 --> 0:13:52.880 they're holding over seven hundred billion US dollar or foreign assets, 0:13:52.960 --> 0:13:56.240 mostly in the US dollar. At some point they will 0:13:56.320 --> 0:13:58.360 have to deal with it either they have to hatch 0:13:58.480 --> 0:14:00.880 more of it, or they'll have to out it. In 0:14:01.040 --> 0:14:04.120 either case, it's going to hurt the US dollar. Also, 0:14:04.320 --> 0:14:07.800 one very popular ethics theme is market or at least 0:14:07.800 --> 0:14:10.439 a taiwan Is players, they're trying to hash through other currencies. 0:14:10.800 --> 0:14:14.160 It makes sense because everybody hashing dollar Taiwan has made 0:14:14.200 --> 0:14:16.400 the hedge and cost so expensive. And now when we 0:14:16.480 --> 0:14:19.280 look at the NDF, say three months or one month NDF, 0:14:19.520 --> 0:14:23.160 the implied annualized hatching cost is double digit over ten percent. 0:14:23.360 --> 0:14:25.840 That's crazy. So you pay ten percent to hash an 0:14:25.880 --> 0:14:29.040 appreciation and as you suspension, it's not easy to have 0:14:29.160 --> 0:14:32.320 a ten percent appreciation, So it's that expensive. So what 0:14:32.480 --> 0:14:35.960 happened at least hearing from market people, some people hash 0:14:36.000 --> 0:14:38.680 it through the current one. And also going forward, we 0:14:38.760 --> 0:14:40.560 may look at other Asian currencies. A lot of the 0:14:40.600 --> 0:14:42.720 Asian currencies will be looked in to be used as 0:14:42.800 --> 0:14:45.560 a proxy to hatch. So oh in all, the end 0:14:45.640 --> 0:14:48.080 game is pretty straforred. We're going to see stronger Asian 0:14:48.160 --> 0:14:50.040 currencies as a whole against the US dollar. 0:14:50.640 --> 0:14:53.440 And do you think what happened to the Taiwan dollar 0:14:53.560 --> 0:14:56.840 that rapid appreciation, do you think that could be a precursor. 0:14:56.960 --> 0:14:59.280 Could this happen again to other currencies. 0:15:00.160 --> 0:15:02.440 It's going to be a precursor. Actually, what makes things 0:15:02.560 --> 0:15:07.040 interesting is now it had the Taiwanese authorities attention, so 0:15:07.120 --> 0:15:09.320 they're going to stop that from happening again, at least 0:15:09.360 --> 0:15:12.400 in the near term. So everybody, whether it's on shore 0:15:12.440 --> 0:15:15.680 Taiwanese players or even offshore players betting them to go 0:15:15.840 --> 0:15:18.520 for more hedging. We will look for other Asian currencies. 0:15:18.560 --> 0:15:20.280 The Korean one is one of the obvious one that 0:15:20.480 --> 0:15:23.240 people like because of course we have the news about 0:15:23.480 --> 0:15:27.200 US and South Korea talking about ethics during the trade negotiation. 0:15:27.760 --> 0:15:30.160 So even from that perspective, the kourent one could have 0:15:30.280 --> 0:15:34.000 some room for appreciation, and both economies export a lot 0:15:34.040 --> 0:15:36.800 of tech products. We know about the smartphones, we know 0:15:36.880 --> 0:15:40.880 about other semiconductors, so therefore kourent one is really one 0:15:40.920 --> 0:15:43.480 of the no brainer as a proxy hetch. We also 0:15:43.560 --> 0:15:45.920 had a look at other currencies. We go through the 0:15:46.000 --> 0:15:49.600 correlation some of the interesting ones, including the taigbart and 0:15:49.640 --> 0:15:52.240 the Malaysian ring its, so we'll look after those currencies 0:15:52.280 --> 0:15:52.600 as well. 0:15:53.280 --> 0:15:57.040 Okay, and what about the japan currency the yen. Now 0:15:57.480 --> 0:16:00.520 I noticed like Japan CPI rose by I think over 0:16:00.640 --> 0:16:02.720 three point five percent in April, and I saw the 0:16:02.800 --> 0:16:07.000 headline news it was highest amongst G seven countries. This 0:16:07.160 --> 0:16:11.360 is quite unbelievable. See inflation's returning back to Japan. What 0:16:11.480 --> 0:16:12.880 does this mean for the currency. 0:16:13.440 --> 0:16:16.000 To be honest, this is just a continuation of what 0:16:16.120 --> 0:16:18.160 has happened over the last two years ore and a 0:16:18.200 --> 0:16:21.560 half years. So Japan inflation, as you have mentioned, if 0:16:21.600 --> 0:16:24.240 you look at it, say the headline inflation or the 0:16:24.320 --> 0:16:27.640 core inflation, both of them on a year and year basis, 0:16:27.800 --> 0:16:31.400 remains about three percent. And even the so called core inflation, 0:16:31.560 --> 0:16:35.520 which is inflation excluding food and energy prices, it's also 0:16:35.600 --> 0:16:38.640 about two percent. So we talk about the last decades, 0:16:38.680 --> 0:16:41.320 we talk about Japan in deflation mode for many decades. 0:16:41.640 --> 0:16:44.800 Now they're getting two to three percent inflation. So now 0:16:45.080 --> 0:16:48.280 is the best window for them to normalize policy, which 0:16:48.320 --> 0:16:50.400 is why we think they're going to keep hiking rates 0:16:50.440 --> 0:16:54.160 at least till policy rates reach one percent. And more importantly, 0:16:54.200 --> 0:16:57.440 they're going to keep doing quilty so quantitative tightening by 0:16:57.600 --> 0:17:00.960 slowing their purchase of the jgbs. We know jgb's have 0:17:01.080 --> 0:17:03.360 been a hot topic these days because of the yields, 0:17:03.440 --> 0:17:06.440 especially in the longer end yells has risen quite a lot. 0:17:06.680 --> 0:17:08.320 But if you look at what the Bank of Japan 0:17:08.400 --> 0:17:10.800 has said, not the government, the Bank of Japan, they 0:17:10.840 --> 0:17:13.639 are not really concerned. They said they will keep doing QT, 0:17:13.920 --> 0:17:15.560 maybe with a little bit of a tweak, but the 0:17:15.680 --> 0:17:18.879 direction will be the same. That tells you how committed 0:17:19.000 --> 0:17:21.840 they are in terms of walking away from the JGB market, 0:17:22.040 --> 0:17:25.879 because one problem or one development over the decades is 0:17:25.920 --> 0:17:29.119 that BOJ now owns over half of the JGB market 0:17:29.640 --> 0:17:31.800 and going forward that's not healthy. If they want to 0:17:32.200 --> 0:17:36.040 have a healthier private investor driven JGB market, kind of 0:17:36.119 --> 0:17:38.320 like the US Treasury, then they will have to lower 0:17:38.480 --> 0:17:41.480 their dominance in the JGB market. And now, as we said, 0:17:41.560 --> 0:17:43.760 it's really the best window for them to normalize. 0:17:44.200 --> 0:17:47.360 So you see higher JGB yields going forward. 0:17:47.200 --> 0:17:50.320 Higher, so even steeper curve bear stripening we think is 0:17:50.359 --> 0:17:51.040 going to be the normal. 0:17:51.480 --> 0:17:54.960 Okay, now, Stephen, you're one of our most popular analysts 0:17:55.000 --> 0:17:58.040 that Bloomberg Intelligence. You always have been, but recently, you know, 0:17:58.119 --> 0:18:02.520 there's been even more interesting in e fics currencies. You 0:18:02.640 --> 0:18:06.000 and I have been on overseas trips recently. What are 0:18:06.080 --> 0:18:07.680 clients worried about right now. 0:18:08.320 --> 0:18:11.200 Well, kind of like what you ask about the Taiwan dollar. Well, 0:18:11.240 --> 0:18:13.280 of course we talk to Taiwanese clients. We talked too 0:18:13.359 --> 0:18:16.359 many clients, and most of them they're concerned about a 0:18:16.680 --> 0:18:20.680 very strong local currency. Because we mentioned about exporters in particular, 0:18:20.800 --> 0:18:23.520 and livers and a lot of the other investors, they 0:18:23.560 --> 0:18:26.040 have a lot of dollar exposure, whether their trades are 0:18:26.160 --> 0:18:28.040 denominated in the dollars or they have a lot of 0:18:28.119 --> 0:18:32.200 dollar assets. So now we're really talking about US crisis 0:18:32.280 --> 0:18:34.680 in the making in terms of dollar assets. When we 0:18:34.760 --> 0:18:37.320 talk about the Asian financial crisis many many years ago, 0:18:37.400 --> 0:18:41.359 it's always about dollar liabilities because of FX mismatch. The 0:18:41.520 --> 0:18:44.000 risk was on the Asian economies back then, But now 0:18:44.160 --> 0:18:46.480 the risk really lies with the US because it's a 0:18:46.520 --> 0:18:49.280 dollar asset crisis. And yeah, as you said, we have 0:18:49.359 --> 0:18:51.639 a lot of questions this year, and that's why we 0:18:51.760 --> 0:18:54.960 are cading it, at least internally the year of the EFFCS. 0:18:55.000 --> 0:18:57.400 Of course, we know EFX matters every day every year, 0:18:57.640 --> 0:18:59.920 but going forward for the next year, for the next 0:19:00.119 --> 0:19:02.440 few years, in the next decade, we think effects will 0:19:02.480 --> 0:19:05.879 be increasingly important given what happened to the US dollar, and. 0:19:06.000 --> 0:19:09.560 This is particularly worrisome for a lot of especially North 0:19:09.600 --> 0:19:13.160 Asian companies and countries, because they rely on exports. 0:19:13.800 --> 0:19:16.520 Yes, I mean like because we are really one of 0:19:16.600 --> 0:19:19.680 the major funders of the US deficit over the years. 0:19:19.760 --> 0:19:23.440 Of course, novice Asian economies especially has been accused of 0:19:23.880 --> 0:19:27.359 undervaluing their currency, which is why the US administration always 0:19:27.400 --> 0:19:31.720 goes after say South Korea for example. But however, the 0:19:31.840 --> 0:19:34.199 fact is that we do fund their deficit. So at 0:19:34.200 --> 0:19:36.480 the end of the day, we are the savers with 0:19:36.600 --> 0:19:40.119 the current accountcor plus player. So now the risk is 0:19:40.200 --> 0:19:43.280 really on us to sort of manage a soft lending 0:19:43.359 --> 0:19:44.959 so to speak, for this dollar weakness. 0:19:45.640 --> 0:19:47.560 Okay, so Stephen, before I let you go, like you've 0:19:47.680 --> 0:19:50.680 already sort of hinted about some of these currencies. But 0:19:51.440 --> 0:19:55.560 in your story of Asian currencies appreciating, do you have 0:19:56.080 --> 0:19:58.560 like one of two favorites of the next say, six 0:19:58.640 --> 0:19:59.480 to twelve months. 0:19:59.520 --> 0:20:02.440 Yeah, if you ask me, Because the largest risk of 0:20:02.560 --> 0:20:05.880 appreciation that the central bank will find it hard to oppose, 0:20:05.960 --> 0:20:08.680 it's really Taiwan. So if you ask me, twan dollar 0:20:08.760 --> 0:20:10.960 will always be there in your little bit of course, 0:20:11.240 --> 0:20:13.600 one reason being like in my view, it's not going 0:20:13.640 --> 0:20:16.480 to operate from over the next three to foremanths is 0:20:16.560 --> 0:20:19.560 that central banks will try their best to control to 0:20:19.680 --> 0:20:23.520 contain the appreciation, so therefore the proxy currencies will be 0:20:23.600 --> 0:20:25.920 my favorite. I mentioned a little bit earlier, so South 0:20:26.000 --> 0:20:29.240