Wait is the argument that the Yen would depreciate more absent US intervention since the economy is strong, and that depreciation is not desired by the US since we want a weaker currency? Or do I have it all backwards
Well it's positive carry to be short the yen versus the USD, and rates are being suppressed which encourages the trade. That's far more powerful than anything on the USD side
All agree, and I have to admit what Brad Setser argues is something I never thought about. With all that, market now prices in 1.5 BOJ hikes by Dec 2026, then another 1.5 hikes by July 2027. Do you agree or disagree with this market pricing? Thanks.
Wait is the argument that the Yen would depreciate more absent US intervention since the economy is strong, and that depreciation is not desired by the US since we want a weaker currency? Or do I have it all backwards
Well it's positive carry to be short the yen versus the USD, and rates are being suppressed which encourages the trade. That's far more powerful than anything on the USD side
The "(JPY)" on the note made me laugh out loud.
Conflict of Interest Rates
All agree, and I have to admit what Brad Setser argues is something I never thought about. With all that, market now prices in 1.5 BOJ hikes by Dec 2026, then another 1.5 hikes by July 2027. Do you agree or disagree with this market pricing? Thanks.
3 hikes over 15 months sounds about where pricing should be, but I'll think they'll only want to deliver 2.
Intervention will likely work now and allow them to only go twice, but pricing needs to include Hormuz risk....
Could the joint intervention also be a try to contain worldwide long end yields as they compete?