Episode summary
Yen is Onto Sixth Straight Day of Declines
Bloomberg Surveillance
· · 5 min · Guests: Jordan Rochester
Summary
Jordan Rochester says Japan is trying to run a big fiscal expansion, but that mix is awkward for the yen unless the Bank of Japan is pushed toward higher rates. He argues there is a political disconnect in markets because Prime Minister Sanae Takaichi has previously been skeptical of BOJ tightening, even as she now talks up stimulus, farmers, and cost-of-living relief. That helps explain why dollar-yen can stay elevated even with Japan’s broader policy shift.
He also points to Japan’s domestic politics and food inflation as important background. Rice prices, droughts, and reserve releases have all fed public frustration, and Rochester says the LDP’s election problems were tied in part to high food costs. On the currency side, he says 153 in dollar-yen is striking, especially alongside a very strong euro-yen cross.
Turning to the U.S., Rochester says markets are leaning for a firmer CPI print than economists expect, though he thinks the risk is to the downside. On the dollar more broadly, he says recent weeks have made FX unusually hard to trade: the old rate-differential playbook is not working, the euro-dollar short-dollars trade has lost momentum, and he expects a stronger dollar near term before seasonal weakness later in the year.
Key takeaways
- Jordan Rochester says Japan’s planned fiscal expansion would normally support the yen, but only if the BOJ is pushed to raise rates in response.
- He argues markets may be too optimistic about how dovish Japan’s new leadership will be, given Sanae Takaichi’s past skepticism about BOJ rate hikes.
- Rochester links Japan’s political pressure partly to food inflation, saying rice prices helped hurt the LDP in this year’s elections.
- He expects U.S. CPI to come in below the market’s pricing, even though economists are looking for around 0.3% to 0.4% month on month.
- Rochester thinks the dollar can strengthen in the short term as euro-zone data cools, before seasonal weakness returns later in the year.
Notable quotes
“They've got a few things on their plate. One is they're looking to do a big fiscal expansionary budget”
“typically leads to a stronger currency because you're boosting your growth. But they usually need the central bank to raise rates in response to this”
“It's been the most difficult market since Liberation Day”
“the markets are pricing a higher number than that”
“I think the risk reward is that actually we will have a lower number than that”
How the episode opens
They've got a few things on their plate. One is they're looking to do a big fiscal expansionary budget that typically leads to a stronger currency because you're boosting your growth. But they usually need the central bank to raise rates in response to this.
And that's the problem. There's a slight political lie in the markets pricing for the BBJ with the new prime minister, the first woman to ever lead Japan in that role, making it clear her views in the past about the BOJ being foolish to raise rates. And she's not saying the same now, but it's difficult for the end strength and time if you've got a Prime Minister who doesn't want wanting to hike my qualifications or Jordan, as I've seen the Shogun on Hulu, I've seen Shogun twice.
Yeah, okay, so I'm ready to talk about Japan. But Robbie Feldman, as you know, Jordan over at Morgan Stanley, has been on the watch for 30, 40 years. He would take it back to the agricultural lobby in Japan.
And the power of rice is a staple commodity is that stereotype is still true? I mean, they've shifted back to that. If you look at their the sort of administrations that put together this new cabinet and the focus will be more on supporting farmers once again, Saudi peace.
So they have shifted to the right on cultural issues in a big way. And that's kind of why you had a bit of a furore about who would the PM be able to get over the line in terms of the votes she needed because of the shift to the right culturally. So for example, that this past year the Japanese had extreme rice inflation, they had fears of a super earthquake which didn't actually materialize, but they also had droughts the previous summer and poor weather and the government, rather than allowing rice prices to be high and that would support farmers, of course, they were actually releasing rice reserves to try and lower the price because a lot of the inflation that Japanese consumers faced was from food and it really weighed on them in the polls as well.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- yen declines
- japanese fiscal policy
- us dollar outlook
- cpi cooling
- japan bond issuance
Companies and tickers mentioned
- Mizuho
Watch the episode
Watch “Yen is Onto Sixth Straight Day of Declines” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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