The BOJ did exactly the right thing to start normalizing
monetary policy.
I've seen a lot of talking heads in recent days
blaming the BOJ.
I think that's complete nonsense.
The normalization of Japanese monetary policies long overdue.
The longer they take to normalize,
the bigger the carry trade and the bigger the disruption
when they normalize.
So this process should have started at least when Kuroda
stepped down.
He left the job to his successor,
Mr. Wader. And this, this whole correction in Japan is
a giant technical.
It's a technical issue, not a fundamental issue
because people are selling leveraged positions.
But it's also exacerbated by the fact that the Japanese
stock market,
it does not have domestic institutional support.
Japanese institutions have been
underweight Japanese equity since the bubble.
They've been reducing positions in Japanese equity since 1990 when
the bubble burst.
And so the Japanese market,
it tends to be a playground of foreign investors,
many of them leveraged, and there's a lack of domestic
institutional support,
which creates the kind of volatility you saw.
So you think Deputy Governor Yuchi
Dasan's comments this morning, which have calmed the market a
bit,
is a bit of a walk back because of pressure
that could have been external also coming in maybe from
the US,
given the way stocks fell there?
Yeah, completely, completely reactive, as you say.
Unfortunately for the BOJ, the long overdue effort to normalize
Japanese monetary policy,
unfortunately for them, then coincided with with the first
comprehensively weak employment report. Everybody's been expecting the US labour
market to weaken in recent months,
myself included, has been remarkably resilient.
So it was bad luck for the BOJ
that the US labour market finally showed clear evidence of
weakening just after they normalized rates.
The the other irony is that the BOJ was under
growing political pressure from the Japanese government and the Ministry
of Finance to normalize monetary policy because this week yen
in Japan was becoming too much of a good thing.
The week yen is calling,
causing big increases in prices in Japan.
Regular Japanese people are suffering declining real wages.
The government's popularity has been declining sharply.
So the pressure, there was pressure on the
Japanese central bank to raise rates coming from the finance
ministry and the government.
So what do you think happens
here on Chris? That's the key question.
Do you think that the dust is settled on this
uncertainty for now?
How do you look at the rate differential story between
the Fed where the pressure is now calling for 50
basis points of rate cuts
versus the BOJ where you know,
they're saying, OK, we're not going to move rates much
higher from here,
but the expectation is that they will be hawkish.
Where does that rate differential lie?
No, the key issue right now is not Japan is
the US economy.
So we've had this one week data point on the
employment market,
which has caused these monetary easing expectations to pick up
dramatically,
just like we have very bit aggressive monetarizing expectations at
the start of this year.
So the the markets are assuming what I'm also assuming
that in a situation where the labour market really weakens
in America,
the Fed will prioritize employment over inflation.
But obviously that that raises 2 issues.
Will the labour market continue to weaken?
That's my base case, but it also
next week. I mean, the inflation data next week has
now become important precisely because the money markets are now
discounting more aggressive easing.
So if the inflation data goes the wrong way next
week that that's going to be a negative for markets.
But fundamentally what matters now is the US economy
for the BOJ. It it doesn't come naturally for the
BOJ to be raising rates when the Fed is cutting
rates.
So if the Fed easing expectations really pick up,
then the market is going to assume that the BOJ
is on hold up worst.
OK, just before we go 30 seconds,
Chris, very quickly. Where do you think dollar yen would
end the year in this whole unwinding rewinding trade?
No, I'm not. I'm not spec.
I don't want to. I would I my advice is
not to speculate on dollar yen.
I can give you a very good reason why yen
can get 100 and a very good reason why I
can get a 250.
But as of now, if the Bojs come under pressure
from the US not to raise,
not to raise rates anymore,
then clearly the yen can weaken again.
So you're absolutely right. The motivation of that deputy governor's
speech today I think is very important because a few
months ago the same deputy governor basically gave a speech
declaring victory over deflation. So that would have that would
mean that he would support further normalization of monetary policy.