Surveillance: Yen Weakness with Wizman

to seventies seven dollars and down. John just a complete debaccle to twenty six dollars to take out this morning all cash HP forty dollars per share. Dave shul looks like a genius. What they do headphones, they do stuff like that. They I don't know. No, they're not like those kind of headphones. I mean, you know you're not listening. Yeah, they're not like you'll you'll us into Tyler the Creator. They're not like that. They're like when you're like hello,

line to John Farrell's online too. Yeah, that kind of thing. Okay, we'll move on from that, but that's an interesting story. They're the only one that understands what I'm talking about is Terry Wiseman who remembers this and Bear Sterns years ago, not on plantronics, but on interest rates and currencies. Terry, I am honored you were on today, and I want to link it right into Macquarie, which is ausi yen.

When we move like we move, things happen. What should we be paying attention to with weekend three standard deviation long rendmnby three standard deviation long ausee, etcetera. What do we gotta focus on? We still have to focus on what the central banks are going to do it, especially with the b o J is going to do over the next few weeks. They have a meeting coming up in a few weeks, and we think that they're going

to um potentially raise that app on ten year d yield. Yes, you're willing to call that that They're gonna go from a point to five out to something new. Yeah, probably about above zero point three, maybe zero point three to zero point four, somewhere in that range. I think at some point there's gonna be a loss or or lack of tolerance for for a week or agen. As you said,

imports are going to start getting more expensive in Japan. Uh, It's true that they need more inflation, But it seems that they also don't need the kind of uncertainty that's brought to the market by a lot of dollar yet in volatile. Okay, but Terry, with all your with all your I gotta interrupt because this is so so important. You and I are xconsed at the Imperial Hotel, at the old Frank Lloyd Wright Bar. You're Evan Saki. I can't afford I'm having a triple Scotch and we're talking

about a cultural change in Japan? Are we gonna see that at this time? No. I wouldn't describe it as such. That the states of cultural change would be to say that somehow zero point to five percent is some sort of line in the sand that is immutable. We never thought that it was always intended to adjust with conditions. Inflation is returning to Japan to some extent, but more importantly, that's the b o J risks having a situation where it's forced to absorb and buy every j g BE

on the planet. Uh If if yields outside of Japan continued to go up and people continue to dump their jgbs, I don't think the b O J would want to be in a position where it completely loses control of its balance sheet, and the adjustment they have to make here is to raise the cap. It's not a cultural change. I think it's with central banks do all the time,

move at the times, move with the data. Terry. There is a time when actually people would not have found that as shocking, considering how much of some of the markets the Bank of Japan ended up owning. I do wonder though, going back to your question about the idea of a weak currency being a bad thing, after so many years, when I'm sure that the Bank of Japan would have welcomed a weaker currency, we've seen this race

to strengthening in the FX market. Are you saying that the Bank of Japan hand will be in the same camp and that really it's a fight to preserve the worth in order to avoid that kind of bad inflationary input. Yeah, I think so. I think the kind of inflation that the rest of the world is seeing is certainly going

to be to be visited on Japan. After all, Uh, they are not a commodity economy there there in terms of trade or not improving here, there's no reason to believe outside of central bank policy that the end would stabilize at these levels, and I think they recognize that and will be forced to make an adjustment. It may be small, it may not be enough to you know, take dollar end back down to one one ten or one oh five, but I think it will be enough

to start stabilizing UH dollar. Yet. The other thing I would keep in mind is that dollar yen typically does not go up in those periods after the US yield curve inverts, and we are very close to inversion now, the same way we were in two thousand seven and the same way we we were in two thousand nineteen. If you look back with both those episodes, dollar yen was not rising anymore. It may have been rising before,

but it started to fall after the inversion. So that's another reason why we think that dollary and may stabilize around these levels. This raises a question about what the haven is and whether the dollar really becomes the last standing haven that will continue to get inflows and continue to get stronger versus all of its developed market peers amid the turmoil of both with respect to inflation but also with respect to a potential growth scares. But not necessarily.

You have seen the commodity currencies do very well in this context at the expense of the dollar. The Canadian dollars been stable, the Ausy dollar has been stable. Many of the emerging market currency they're associated with commodity economies as in Latin America and very stable. So I would not necessarily say that the dollar is the last is

the redoubt here of of the inflation mistas. There are other currencies that one can buy here if one wants better protection, especially against the commodity driven supply shock driven inflation terry just quickly. The boj today hat to come in multiple times. I'm just thinking a few steps, a few miles down the rotarian getting to the end the story.

Are they going to win the whold of this j g B market once they're done, because they already No, I don't think so, because I think that's not something they want to do, that eliminate liquidity from the market. I don't think that's the central Bank's responsibility. But already have a night what liquidity is there in the j

g P market. We go some days where it's not even traded agreed and but I don't think they're going to force things to an extreme here there needs to be a liquid j g B market for the for the for the federal government to issue into I don't think a central bank's role is to eliminate liquidity. And remember we were looking at very tough times in Japan in the past deflation. We're not looking at that anymore

in Japan. The need to to to reef to to reflate is diminishing in importance, and the need to potentially bring back liquidity to the j B j GB market is increasing in importance. It's a relative switch. I think they're going to raise the limit, the upper limit on on j g B. That's what I wanted to get saved. That's gonna be the biggest shape Terry Wasteman and Macquarie, thank you said right now maybe your most important conversation of the day. We're fixated on yield. We're fixated on

bond price. Sarah Hunt looks at equities portfolio manager Alpine Woods Capital Investors. One measure I have, Sarah of bond price is back to a price of two thousand nine. That you can be the idea of an e t F A given bond market e t F. That's I don't know if it's a bear market, but it's a pretty ugly number negative eleven on price, and yet equities are resilient. Is it just money choosing? Is it flow

from fixed income to equity? I think it's the same problem that we've been seeing since you've had since two dozen and one, when you've had interest rates at historic lows. And I think that this fast, fast move in the bond marketing yield has caught people a little bit off guard. And I think that there is some belief that equities have more safety in them because you've got more growth

inequities than you have potentially in the economy. And I just don't I think that it's very difficult when bonds have more volatility than some of the things that are supposed to be volatile, like bitcoin, which you were discussing earlier, and I and this move is just taking people, I think very much by surprise. Do you have a gauge of the revenue line of the corporations you follow, the ones you like, the ones you hold, the ones you sell? And is the misestimation here? Nominal GDP will give us

better revenue growth than anybody cares to admit. I think that part of the upside to inflation in people's minds is that, yes, you will have an inflation in revenues. I think what is not being thought about is as deeply is what that does to margins and what that does to the costs on the other side. In the beginning, you have higher prices, but you don't have those costs

catching up. As those costs start to catch up, then it becomes a much more difficult balance between can I keep on margins and still be raising my revenue lines or not. And I think that's where in the in the near term that equities have the advantage. But I think that there is some question as to how all these infut costs, which are not going to be as easy to fix as people are hoping, come down. And that includes the energy price, which is a big part

of what's going on here. That's going to flow through to a lot of other things besides just energy prices themselves. So it just drilling down into the granularity of markets and frankly equities more broadly, how much can you bet on consumer discretionaries at a time like this. I have to say, I'm sorry, gentlemen, but I'm in camp Lisa

on this one. I am very concerned that all these higher prices are going to lead to different spending choices and for people to pull back a little bit and to worry that they are going to not have enough money to deal with things like higher energy price bills, higher heating bills, higher cooling bills in the summer, and higher food prices. So I do think that it makes

people more cautious about what they spend. You've got the conflicting aspect of coming out of the pandemic, which we're still trying to do, so there's also a little bit of excitement to both spend and travel. So those are competing forces at the moment. But if you don't have some changes longer term and energy prices, I think that really does confect affects consumer psychology and John. What's important here is we all know Camp Lesa is a lot

like Total Drama Island. The swim test alone is enough to kill you. Let the black flies. Camp Laser is not a place you might not want to go to. I mean, Lisa, what happens at Camp Lisa? What comes on that if you just you know, walk around and feeling kind of gluemy. No, in all honesty, what you do is you look at the data. Getting back to this point Sara, that you're raising, and I want to get a little bit closer to it. This this idea of not wanting to go into consumer discretionaries at a

time of pressure on some of these households. What counts as discretionary? Is it an Apple phone? Is it an iPhone? Is it an Apple watch? Is it? You know, some of the basic mainstays of households that cost a lot and used to be discretionary, but for apps no longer are. So I would argue that something like Apple went from being I agree as discretionary to something Can you imagine when you leave your house without your phone by accident? It feels like you you know, it's like something terrible

has happened. So I'm not sure that that counts as much as discretionary as on the margin people doing more on the both travel and entertainment side, Maybe you put something off for a little while longer, even though you're excited to travel. Maybe you only take one trip instead of too depending on what's going on with COVID, And

that's another thing that's still problematic. Look at China, you're seeing oil back and down today, partially on the back of the fact that China is once again having issues and is trying to curtail COVID by shutting things down. I think that there is so much going on right now it is very difficult to pass each and every piece. But ultimately we still have the problem of all the factors have moved towards a higher energy price and higher food prices. That is going to be tough for consumers.

However you define discretionary is still going to be a problem. I cannot keep up with this market at the moment. Sarah, thank you, Sarah Hunt Valpine. What's off of investas that she ducks out the way it heads towards. It's a really this is a joy and with the uproar over the last forty eight hours. I'm President Biden. In the trip, we thought we'd talked to the adult in the room

who actually can give perspective. Professor Schiller. Wendy Schiller's Tobbin Center for American Politics at Brown University is definitive in the span of American history. Wendy Schiller Obama two thousand eight. I know that I don't look like the Americans who have previously spoken in This Great City, Obama clearly talking about JFK. Reagan with Garbaschev June twelve, nine seven. That was the weight on this president to find the right tone.

Did he come near it or was it too much pressure? Well, I think that he is concerned about looking too weak. I think that's you know, one of the things that is sort of hangover the Obama administration, especially when it comes to Russia, obviously with Syria in particular. You know, how do you stop people from doing terrible things? How do you stop people from doing military exercises, invasions, you know, killing people, blowing up buildings. That's what Americans are seeing NonStop.

And they're wondering, with this massive apparatus and military approus we have, why we can't do more. So he's trying to urge everybody to say this guy should not be there. He's legitimate. Now it's borderline. You know, the United States is legally prohibited obviously from trying regime change short of declaring war. Um So I think that's the problem for him. I mean, that's to me, that's the problem form. But

that's what he's trying to do. It's the shadow of Obama and Syria that I think is really governing a lot of what they're doing here, the professor Shoulder, this goes to your classic textbook. It goes to Obama. Oh a, it goes to Reagan. They didn't have the speed of modern media. The President Biden faces, how is he doing

adapting to the new realities of news flow? Well, I mean, he's not of the generation, and he's been making gaffs ever since he you know, went to the United States Senate, so it's not as if he's going to change his style per se. What surprising to me is the team around him has been his team for a long time.

They're almost like fused as one person. But they should know better, or he should make sure to hire people who know better, who know how to manage these communications, or at least to try better than he's been doing. You know, the wisdom that comes with age is great, but if you're not willing to listen to people who are more in tune what's going on now and how

to communicate the message, then you can make missteps. But but Wendy, based on your comment there, that it should be who should definit his team to to call him out are you saying that this was perhaps a little bit predetermined cutting into this speech and not an ad lib as people said afterwards. Yeah, no, I mean I think he's trying to establish that there are certain people who should not be in power, that there's a legitimacy that comes with power, and that when you misuse military power,

particularly and you invade another country. Justice George W. Bush said about Saddam the sane, you know, going back all over the First Gulf War and his father's war. You know, this person should not be in power. They are not legitimate, and the world can do something about it. That was the message, and I think it was on purpose. One day. Is there a difference between the opinion of the President of the United States and the official policy of the

administration across the range of issues. I think we used to the President speaking and that being the policy. But is there a difference between his opinion and the policy. Well, yeah, there's certainly a you know, Royal ready used to say, you know, I'd issue an order or take a week for it to be implemented in the White House, because

you know, the policy is a huge bureaucratic apparatus. So the things that we do, and the people we have on the ground diplomatically, militarily, all those things are set in motion, you know, almost separate from the president. Even though it's the commander in chief. It should be the same, but in fact and how it plays out, I think it can be quite different. Right now, Wendy, we're heading into a mid term period with consumer sentiment at the

lowess is two thousand and eleven. President Biden is going to try to shift the message back to the United States in this speech at two pm today about the fiscal year budget. How much is this focus on taxing the wealthiest individuals an effort to try to channel some of the anger that people feel into this versus actually plugging a deficit gap and actually planning forward for a

policy measure. Well, I think the Democrats are counting on this message to be something they can carry through the summer and that will be popular over the long run. I don't think it does anything for anybody who's paying too much money at the gas pump today, or finds that there aren't enough products on the shelves, there's paying too much for rent, for food, for everything else. So it's not a short term boost. But he's trying to

lay out a message for the party. They can go into the summer with that sort of positions the Republicans on the wrong side of struggling people, people who are struggling economically. So it makes sense in the long game. I don't think it does anything for him in the short game, and it just quickly. Typically a president might wait until after the midterms to have a shake up of his camp. And do you think nice ju Now, do you think they need to get ahead of some

of this? Yeah, I mean, even though Clinton had to shake up before his first mid term, and certainly had to shake up after his first mid term, which was pretty disastrous for his presidency. Although let him get reelected in have the foil of the Republicans, that's the Achilles seal for the Republicans that they take to Congress in two then Biden can play off them. They Democrats some play off them going into twenty four. So um, yeah,

I mean I think it's really a problem. But you know, the political cycle has gotten so quick, but we just don't know how much is baked in for the outcome of the mid term and how much how much can change. Who do you think is letting him down. Who do you think is letting him down? I think I think his messaging staff. I mean, I think Jeff Zaki does a good job, but I think that his communications staff has not figured out how to shift him, how to

simplify things and the party itself. It has to be the same message on message as a party as the Republicans have been in a locked step. And you know that's simple to absorb in a world that is more confusing than ever, that is more scary really than it's been in a while. Coming out of pandemic. Is supposed to be happy. There's war in Ukraine. These are confusing times. Be simple, if you're a politician, have one message and

stick to it. Brand University, Wendy, thank you as a wis one person today I wanted to talk to I said, I don't know Paul one. Two am s get nord VICKI nord Vicks with us legendary with a phenomenal book on Europe, hugely Prussian a decade ago, and he joins us today on Japan, Yen, thank you so much with Accenity data for joining us this morning. What are the ramifications for the people of Japan and their government? If yen weakens out further one twenty dare I say to

one thirty and new trade weighted weakness. Yeah, Well, the yen has already weakened about to decent really over the last month, so it's a pretty significant move already. And clearly if you're importing oil or importing anything, uh, those goods will go up dramatically in price. Right, So those are the facts that people will see. That said, Japan is a different country from almost any other country in the world in that they have not had any broad

based inflation pressure yet. Japan is a country that's been stuck in mostly deflationary involved because just at the time, and Paul Sweeney wants to jump in here, I agree with that that they've been stuck in a disinflationary deflationary trend. But on a nominal GDP basis, they define zombie. How zombie is the zombie this morning? Well, so what we're seeing in the end is just very very dramatic. We've not seen yen moves like this. I frankly can remember

a weakening move like this in my entire career. So this is something we have not seen before. And what I would I would say is is so interesting now is that the Bank of Japan has been trying in different ways to maximize essentially the amount of easy monetary policy they deliver, right, And the last formerly they came up with was the yield curve control, fixing the ten

year yield. And what is so kind of ironic about that policy is that when global yields under upward pressure, as we're seeing everywhere in the world right now, they actually get forced because of the yield curve control to buy more. And the Bank of Japan had to announce overnight that they were buying an unlimited amount of Japanese bonds at an option. So you have this ironic situation when when the need to ease is going away kind of they actually have to do more. It's a pro

sickle called policy. And that's why the yen is getting really interesting now and having an explosive move. So yend And when I grew up, the yen was a safe haven. Is that still the case in any any regard? So? I think, uh, over the last month or so, we've seen just a dramatic reassessment of what the what the yen is and entails, right, So a lot of people have a type of yen hedge in the book, if something goes terribly wrong, we're going to make a bit

of money on having yen calls in our portfolio. Those yen calls essentially didn't work at all when you had the Russian invasion of retrain they again was just stuck right, So those calls were worthless. So I think part of the reason why the yen has then turned to become so weak if that there's a structural reassessment of whether it's worth owning that insurance policy. So people are getting out of that ensure runs, and that in the process

of adjustment entails actually selling the yen. Okay, we're gonna sell the yen. I get the dynamics, But I want to talk about the lessons we can learn in the West from the zombiefication and now this huge first derivative move of yen weakness. What does Europe learned from it? Where you wrote your authoritative book, Well, so, I think I think one thing we've seen in Japan right is the financial sector has really been suffering from just a

yield curve with with no motion at all. That's been very little bond trading in Japan for a while since these policies introduced. There's a lot of different banks that have been to serious trouble than the regional banks. Right, so they so having a yield curve that is entirely stuck, entirely flat, has since serial costs financial stability issues in the in the regional bank and just we're going to

run out of time? Is this our MMT experiment. It means Japan the has two for new fangled theories on monetary policy that pre perhaps suggest they don't work. I think what we're learning here is that pure inflation targeting,

it's a policy that can really be causing significant trouble. Right, you need to look at financial stability to and in Japan now they are facing an issue around stability of their currency that they've been not faced for a really decades, and that's going to create a change in how the Bank of Japan is thinking, I think. And short notice, thank you so much for the clinic today ens an ordering with excited data. This is the Bloomberg Surveillance Podcast.

Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom keene In. This is Bloomberg.