WEBVTT - Wells Fargo's Viloria: Kuroda Easing Could Weigh on Yen (Audio)

0:00:02.360 --> 0:00:05.800
<v Speaker 1>Global business news twenty four hours a day at Bloomberg

0:00:05.840 --> 0:00:08.880
<v Speaker 1>dot Com, the radio, plus mobile, lapt and on your radio.

0:00:09.160 --> 0:00:13.360
<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Handquarters.

0:00:13.400 --> 0:00:16.280
<v Speaker 1>I'm Charlie Pallett. Stocks are approaching a record after an

0:00:16.280 --> 0:00:19.720
<v Speaker 1>increase in consumer spending underscored the strength of the U.

0:00:19.800 --> 0:00:23.400
<v Speaker 1>S economy. As traders assess the outlook for interest rates.

0:00:23.680 --> 0:00:27.440
<v Speaker 1>The dollar rose oil is slumping. West Texas Intermediate crewed

0:00:27.480 --> 0:00:31.000
<v Speaker 1>down one percent, now falling fifty seven cents of arrow

0:00:31.080 --> 0:00:34.160
<v Speaker 1>forty seven oh seven. Right now on West Texas Intermediate

0:00:34.200 --> 0:00:36.960
<v Speaker 1>Crewed Gold up one tenth of one percent, gaining a

0:00:37.000 --> 0:00:40.040
<v Speaker 1>dollar eighty the ounce to thirteen twenty four, the tenure

0:00:40.080 --> 0:00:43.360
<v Speaker 1>of nineteen thirty seconds, the yield one point five six percent.

0:00:43.760 --> 0:00:46.840
<v Speaker 1>The SMP up thirteen eighty two, a gain of six

0:00:46.880 --> 0:00:50.239
<v Speaker 1>tenths of one percent. Down indust reels up one hundred sixteen,

0:00:50.360 --> 0:00:53.120
<v Speaker 1>also a gain of six tenths of one percent. I'm

0:00:53.200 --> 0:00:57.320
<v Speaker 1>Charlie Pallett, and that's a Bloomberg Business Flash. This is

0:00:57.400 --> 0:01:01.920
<v Speaker 1>taking stock with Pim Fox and Kathleen has on Bluebird Radio.

0:01:02.520 --> 0:01:06.080
<v Speaker 1>Massive stimulus. Is this what is going to take for

0:01:06.160 --> 0:01:10.080
<v Speaker 1>the Bank of Japan to finally weaken its currency to

0:01:10.160 --> 0:01:13.920
<v Speaker 1>help Japanese exporters who have certainly been clobbered by the

0:01:14.040 --> 0:01:16.720
<v Speaker 1>rise in the end which has occurred despite already some

0:01:16.800 --> 0:01:20.919
<v Speaker 1>pretty significant easing steps by the b O J Joining

0:01:20.959 --> 0:01:24.320
<v Speaker 1>us now is Eric Valoria. He's currency strategist at Wells

0:01:24.319 --> 0:01:26.960
<v Speaker 1>Fargo Securities right here in New York. Eric, Welcome to

0:01:27.000 --> 0:01:31.040
<v Speaker 1>the show. Thanks for having me. Kathleen, So I certainly

0:01:31.840 --> 0:01:35.880
<v Speaker 1>was paying close attention on Saturday, late Saturday morning in

0:01:36.080 --> 0:01:39.160
<v Speaker 1>Jackson Hole, the Kansas City feder WID Deserved Symposium, where

0:01:39.200 --> 0:01:43.680
<v Speaker 1>I was fortunate to be attending, when Governor Kuroda was

0:01:43.760 --> 0:01:46.839
<v Speaker 1>on a wrap up panel and overview of the last

0:01:46.840 --> 0:01:49.360
<v Speaker 1>two days of papers and discussions in Jackson Hole and

0:01:49.640 --> 0:01:52.040
<v Speaker 1>Boyle Boy when he basically said that the Bank of Japan,

0:01:53.120 --> 0:01:56.400
<v Speaker 1>far from maybe reassessing a stimulus and pulling some back

0:01:56.480 --> 0:01:59.120
<v Speaker 1>or going an other direction, very determined to do what

0:01:59.240 --> 0:02:02.680
<v Speaker 1>needs to be done to get inflation higher and boost

0:02:02.680 --> 0:02:06.840
<v Speaker 1>the economy. Yeah, the Bank of Japan and Corota specifically

0:02:06.880 --> 0:02:10.440
<v Speaker 1>have been committed to achieving their inflation target. UM. I

0:02:10.440 --> 0:02:12.320
<v Speaker 1>think the comments that we heard from him over the

0:02:12.360 --> 0:02:16.000
<v Speaker 1>weekend at Jackson Hole were reinforcing some previous comments that

0:02:16.080 --> 0:02:18.200
<v Speaker 1>he had not too long ago, just about a week

0:02:18.240 --> 0:02:19.920
<v Speaker 1>and a half ago, he had said that there's a

0:02:19.960 --> 0:02:24.120
<v Speaker 1>sufficient chance for more easing in September. So certainly dubbish

0:02:24.160 --> 0:02:26.720
<v Speaker 1>in terms of the monetary policy bias by the Bank

0:02:26.760 --> 0:02:29.639
<v Speaker 1>of Japan, and this should keep the Japanese gen restraint.

0:02:30.400 --> 0:02:35.000
<v Speaker 1>So in terms of more stimulus, we know that yes,

0:02:35.200 --> 0:02:38.280
<v Speaker 1>Japanese rates are negative, but they're only the key rates

0:02:38.320 --> 0:02:40.320
<v Speaker 1>only negative by point on one per cent. Right, that

0:02:40.639 --> 0:02:43.720
<v Speaker 1>that's a rounding here, right. Uh. We know they are

0:02:43.760 --> 0:02:46.800
<v Speaker 1>buying so many etf that they become a very large

0:02:46.800 --> 0:02:50.240
<v Speaker 1>owner of stocks in Japan. We know that they've done

0:02:50.480 --> 0:02:53.800
<v Speaker 1>quantitative easing type moves. What do they need to do

0:02:53.960 --> 0:02:58.000
<v Speaker 1>in your view to weaken the en Well, they could

0:02:58.000 --> 0:03:00.920
<v Speaker 1>do more of the current policy tools that they've been implementing.

0:03:01.120 --> 0:03:03.040
<v Speaker 1>You know, as you mentioned, with the negative interest rates,

0:03:03.120 --> 0:03:06.480
<v Speaker 1>it's just a negative tent basis points. So um, there

0:03:06.600 --> 0:03:09.760
<v Speaker 1>there could be further deepening of negative interest rates, and

0:03:10.080 --> 0:03:13.000
<v Speaker 1>Kuroda hinted at that, saying that you know their current

0:03:13.040 --> 0:03:15.680
<v Speaker 1>rate is still far from the lower bound, suggesting that

0:03:15.720 --> 0:03:18.760
<v Speaker 1>they could go more negative. Um, and then you know

0:03:18.880 --> 0:03:22.400
<v Speaker 1>the the asset purchases, a quantitative and qualitative easing UH

0:03:22.520 --> 0:03:26.320
<v Speaker 1>could also be expanded further. So there there's still um

0:03:26.520 --> 0:03:29.560
<v Speaker 1>those three dimensions that they could use in terms of

0:03:29.560 --> 0:03:33.480
<v Speaker 1>easing policy further. So you know, your currency analysts, you're

0:03:33.480 --> 0:03:36.240
<v Speaker 1>watching these markets and the traders, and you know on

0:03:36.320 --> 0:03:38.520
<v Speaker 1>the desk, et cetera. What is it going to take

0:03:38.600 --> 0:03:43.320
<v Speaker 1>to move the dial for those people? Because shakunaw some

0:03:43.480 --> 0:03:46.320
<v Speaker 1>have said, is almost what Governor Krota needs to come

0:03:46.400 --> 0:03:50.080
<v Speaker 1>up with to really shift this this dynamic which has

0:03:50.120 --> 0:03:51.880
<v Speaker 1>taken hold where seems no matter what the Bank of

0:03:51.960 --> 0:03:56.240
<v Speaker 1>Japan does, the end strengthens. Yeah, and I think that

0:03:56.360 --> 0:03:58.800
<v Speaker 1>the strengthening of the end that we've seen earlier this

0:03:59.000 --> 0:04:02.160
<v Speaker 1>year UH came from when you look at the strengthening

0:04:02.160 --> 0:04:04.680
<v Speaker 1>of the end or surrounding the policy meetings and the

0:04:04.840 --> 0:04:07.960
<v Speaker 1>policy easings by the Bank Japan UH. It appears though

0:04:07.960 --> 0:04:10.760
<v Speaker 1>the market we're expecting the Bank Japan to be more

0:04:10.800 --> 0:04:12.920
<v Speaker 1>aggressive and easing. I mean, the last time they ease

0:04:13.080 --> 0:04:15.840
<v Speaker 1>was just a tweak of the et F purchases. UM.

0:04:15.880 --> 0:04:18.520
<v Speaker 1>Earlier in the year we saw that introduction of negative

0:04:18.520 --> 0:04:20.640
<v Speaker 1>interest rates, but again, you know, just a small move

0:04:21.040 --> 0:04:24.520
<v Speaker 1>and not really being applied to a broad base of cash. So, uh,

0:04:24.800 --> 0:04:28.000
<v Speaker 1>they could be more comprehensive in terms of the policy

0:04:28.040 --> 0:04:32.920
<v Speaker 1>measures announced and implemented um or expanded upon. And the

0:04:32.920 --> 0:04:34.839
<v Speaker 1>other side of that is also the U S and

0:04:34.880 --> 0:04:37.159
<v Speaker 1>the Fed. So we think that if the Fed raises

0:04:37.200 --> 0:04:39.080
<v Speaker 1>interest rates, and we are expecting the Fed to raise

0:04:39.120 --> 0:04:42.880
<v Speaker 1>interest rates um by another twenty five basis points this year,

0:04:43.120 --> 0:04:46.200
<v Speaker 1>that would also help to weaken the Japanese yen relative

0:04:46.279 --> 0:04:48.800
<v Speaker 1>to the US dollars, so supporting a higher dollar end

0:04:48.839 --> 0:04:52.120
<v Speaker 1>exchange rate. So we can only wonder if maybe over

0:04:52.200 --> 0:04:55.320
<v Speaker 1>one of those uh, you know, cups of coffee or

0:04:55.640 --> 0:05:00.880
<v Speaker 1>or you know, lunches, if Governor Kroda perhaps didn't whisper

0:05:00.880 --> 0:05:03.279
<v Speaker 1>in Janet Yellen's here are just course imagining this, but

0:05:03.400 --> 0:05:05.960
<v Speaker 1>still that because it would be awfully nice, wouldn't it. It

0:05:05.839 --> 0:05:08.320
<v Speaker 1>It seems it would make the Bank of Japan's steps

0:05:08.360 --> 0:05:11.159
<v Speaker 1>more effective if as they eased more and as you said,

0:05:11.200 --> 0:05:13.880
<v Speaker 1>did something you know, bigger and more substantial, the said

0:05:14.400 --> 0:05:17.400
<v Speaker 1>made his first interest rate in increase in you know,

0:05:17.480 --> 0:05:22.600
<v Speaker 1>over nine months. Uh yeah, So I mean, certainly policy

0:05:22.839 --> 0:05:25.880
<v Speaker 1>is monetary policy is is a key driver of the

0:05:25.880 --> 0:05:28.080
<v Speaker 1>foreign exchange markets in the US dollar exchange rate, and

0:05:28.240 --> 0:05:30.200
<v Speaker 1>in particular, and that's because of the impact that it

0:05:30.240 --> 0:05:33.039
<v Speaker 1>has on on bond yields, and when we look at

0:05:33.080 --> 0:05:37.599
<v Speaker 1>the bond yield or the interest rate differential between US

0:05:37.640 --> 0:05:40.279
<v Speaker 1>Treasury yields and Japanese government bond yields, that that has

0:05:40.320 --> 0:05:43.159
<v Speaker 1>a strong correlation with the exchange rate. One of the

0:05:43.160 --> 0:05:46.680
<v Speaker 1>other things that we look at is the broader risk environment.

0:05:46.880 --> 0:05:50.440
<v Speaker 1>You know, the Japanese yen has strengthened significantly this year

0:05:50.640 --> 0:05:55.359
<v Speaker 1>also because of UH more volatile UH global market conditions.

0:05:55.560 --> 0:05:58.440
<v Speaker 1>So we saw a significant strengthening in the end following

0:05:58.560 --> 0:06:02.480
<v Speaker 1>the UK vote UH who leave the European Union. So

0:06:03.520 --> 0:06:07.840
<v Speaker 1>you know, UH, if if markets remain calm um as

0:06:07.880 --> 0:06:10.960
<v Speaker 1>they have or relatively benign H, then you know, this

0:06:11.080 --> 0:06:13.400
<v Speaker 1>could also be another factor that that could help to

0:06:13.640 --> 0:06:18.080
<v Speaker 1>weaken the end overtime. So interesting story today on the

0:06:18.120 --> 0:06:22.640
<v Speaker 1>Bloomberg and also on our website Bloomberg dot Com from

0:06:22.640 --> 0:06:25.520
<v Speaker 1>our one of our colleagues on our Tokyo team talking

0:06:25.560 --> 0:06:30.440
<v Speaker 1>about forget helicopter money. Maybe in this direct you know, UH,

0:06:30.640 --> 0:06:33.440
<v Speaker 1>dispersion of cash somehow to consumers in Japan to spend.

0:06:33.800 --> 0:06:36.240
<v Speaker 1>Bank of Japan might next target financing a bit closer

0:06:36.240 --> 0:06:39.279
<v Speaker 1>to the ground trains, hospitals, power plants, and sewers, in

0:06:39.279 --> 0:06:43.160
<v Speaker 1>other words, infrastructure by buying bonds of local governments and

0:06:43.279 --> 0:06:47.760
<v Speaker 1>public corporations. Does that make sense to you, Eric, Um, Well,

0:06:47.839 --> 0:06:50.040
<v Speaker 1>it makes sense in in the in the sense that

0:06:50.360 --> 0:06:54.360
<v Speaker 1>helicopter money is probably a very well likelihood. I think

0:06:54.400 --> 0:06:57.640
<v Speaker 1>that Governor Corota earlier this year um pretty much rolled

0:06:57.640 --> 0:06:59.680
<v Speaker 1>it out. I believe his comments were that there was

0:06:59.720 --> 0:07:02.800
<v Speaker 1>no needing, no possibility for helicopter money, is what he

0:07:02.880 --> 0:07:05.400
<v Speaker 1>said a couple of months ago. Uh. And then the

0:07:05.400 --> 0:07:08.039
<v Speaker 1>comments that he made over the weekend Attack and Hole

0:07:08.360 --> 0:07:11.040
<v Speaker 1>that their scope to move lower and interest rates and

0:07:11.200 --> 0:07:14.120
<v Speaker 1>that they could um expand easing for their just kind

0:07:14.120 --> 0:07:16.920
<v Speaker 1>of reinforced that they could still use the tools available

0:07:16.960 --> 0:07:19.280
<v Speaker 1>to them. Um. If they were to go with other

0:07:19.280 --> 0:07:22.200
<v Speaker 1>bond purchases, UM, you know, then that would certainly be

0:07:23.000 --> 0:07:26.200
<v Speaker 1>additional easing and could further way on the end here Florida,

0:07:26.280 --> 0:07:28.240
<v Speaker 1>thank you so very much for joining us today. Derek

0:07:28.400 --> 0:07:32.120
<v Speaker 1>is currency strategist at Wells Fargo Securities here in New York.

0:07:33.160 --> 0:07:36.840
<v Speaker 1>So oil boilers was up above fifty bucks, now it's

0:07:36.880 --> 0:07:39.360
<v Speaker 1>back below again. What's driving it? And how much lower

0:07:39.400 --> 0:07:42.120
<v Speaker 1>will it go this time? I'm Kathleen Hayes. This is

0:07:42.120 --> 0:07:50.640
<v Speaker 1>Bloomberg coming up and in the in depth look at

0:07:50.680 --> 0:07:53.360
<v Speaker 1>the state of energy markets in wide demand recruit Oil

0:07:53.400 --> 0:07:55.680
<v Speaker 1>will continue to be slow to recover with stron hein

0:07:55.800 --> 0:07:57.640
<v Speaker 1>rock from a T. Kearney