How Long can the US$ defy gravity?
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Japan is the largest foreign holder of us treasuries.
"so where the Yen goes directly influences their appetite for US treasuries Japan Imports about 95% of their energy needs"
I'm curious to get your thoughts on uh treasury yields uh you know jumping just this week as investors reacted to a hotter than expected real retail sales report and Rising geopolitical tensions and we have the dollar ripping hitting its highest level against the Japanese Yen since 1990 talk to me about the incredible moves we're seeing in 10 year yield and the dollar what do we need to know about it will it stretching back when you look at the first spurt to that 5% level in the 10year uh it really started at around uh July 27 28th when the bank of Japan decided because I'm going to tie this to the Japanese Government Bond also when the when the bank of Japan decided to again widen yield curve control from 50 basis points to 100 and JGB yields Rose and to me that was the trigger for the 10 year yield to go from about 380ish up to five and then after it got to five the boj actually backed off from uh getting out of negative interest rate policy uh the FED started talking about possibly cutting interest rates in 2024 and then we've we started to price in as many as six rate cuts into the FED funds Futures market and that's why you saw the back uh down in the in the ten year yield back to around flourish, again but now we're right back up again because maybe the fed's not going to be cutting at all this year with sticky inflation uh that um is very is complicating their plan and plus you have the crb index at the highest level since August 2022 that further complicates what the FED wants to do and also the conversation that was alive and well in the fall of last year about Rising debts and deficits that sort of went away when yields fell well those debts and deficits only get worse every single day and for the first time in our life lifetimes I do believe theymatter and you know getting back to the Japanese and sorry to sound hyperbolic here but when we had 18 trillion dollar dollars of negative yielding bonds around theworld that was the biggest bubble in the history of all bubbles in terms of dollars and we're now seeing the unwind of that and the higher rates that we've seen in Japan where the 40-year JGB yield and the reason why I bring up the 40 year isbecause it's furthest out from uh boj manipulation and basically zero short-term interest rates so it's the most Market driven area of that yield curve that yields the highest level since 2011 and where jgb yields go helps to determine where German Boon yields go helps to determine where US Treasury yields go and we're all in this together and with respect to the Yen Japan is the largest foreign holder of us treasuries. uh they own less than they did at the peak but they're still the largest holder sowhere the Yen goes directly influences their appetite for US treasuries JapanImports about 95% of their energy needs maybe it's a little less based on the last um uh data because uh they're beginning to turn on nuclear plants but they basically import a majority and when the Yen gets weaker that gets more expensive for them well that what helps to finance those energy needs is they sell us treasuries and they bring that money back uh so I think that that interrelationship between the rise in oil pricesthe weakness in the yen, the rise in long-term interest rates are veryintertwined it's not the only reason why we're seeing these moves because we also have interest rate differentials between the Yen and the dollar and oil prices are still moving with geopolitical reasons so it is a factor that flows through, sowhen people wonder like who cares about the yen well youshould care very much about the Yen because it flows into US markets usinterest rates very directly exactly and you know along the same thought pattern here Bloomberg had a good article Peter um basically you know the headline, Powell us rates warning means headaches for the rest of the world um Federal Reserve chair Geral Powell is making life tougher the article says for his peers around the world is the prospect of higher for longer us interest rates reduces room for easier policy elsewhere so that's actually an interesting question, is whether called the ECB the Boe and some others are they going on to sort of wait for the FED to lead them in terms of Direction rates or will they go their own way because interestingly enough Powell spoke this week and purposely said higher for longer we're not looking to cut rates anytime soon the same day that Christine laggard was interviewed on CNBC saying you know we're going to go our own way and we're going to be cutting rates in June she basically told you that and other colleagues of hers have told us that too so now whether that that's the right thing to do and whether that works out for her remains to be seen because the commodity price inflation we're seeing in the US she's seeing it there so it's not like she's seeing that much different of an inflationary Dynamic but what she's dealing with is no growth in the Euro zone so she's in a more difficult stagflationary position right than J Powell has here,J Powell at least has some growth that's going along with the inflation which gives him more flexibility to stay tight longer.
" Powell at least has some growth" Yes growth in the currency Supply
