Latest / Bloomberg Intelligence / Wells Fargo's Viloria: Kuroda Easing Could Weigh on Yen (Audio)

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Wells Fargo's Viloria: Kuroda Easing Could Weigh on Yen (Audio) · Bloomberg Intelligence

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  Speaker 1: also a gain of six tenths of one percent. I'm
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  Speaker 1: Charlie Pallett, and that's a Bloomberg Business Flash. This is
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  Speaker 1: taking stock with Pim Fox and Kathleen has on Bluebird Radio.
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  Speaker 1: Massive stimulus. Is this what is going to take for
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  Speaker 1: the Bank of Japan to finally weaken its currency to
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  Speaker 1: help Japanese exporters who have certainly been clobbered by the
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  Speaker 1: rise in the end which has occurred despite already some
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  Speaker 1: pretty significant easing steps by the b O J Joining
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  Speaker 1: us now is Eric Valoria. He's currency strategist at Wells
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  Speaker 1: Fargo Securities right here in New York. Eric, Welcome to
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  Speaker 1: the show. Thanks for having me. Kathleen, So I certainly
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  Speaker 1: was paying close attention on Saturday, late Saturday morning in
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  Speaker 1: Jackson Hole, the Kansas City feder WID Deserved Symposium, where
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  Speaker 1: I was fortunate to be attending, when Governor Kuroda was
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  Speaker 1: on a wrap up panel and overview of the last
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  Speaker 1: two days of papers and discussions in Jackson Hole and
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  Speaker 1: Boyle Boy when he basically said that the Bank of Japan,
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  Speaker 1: far from maybe reassessing a stimulus and pulling some back
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  Speaker 1: or going an other direction, very determined to do what
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  Speaker 1: needs to be done to get inflation higher and boost
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  Speaker 1: the economy. Yeah, the Bank of Japan and Corota specifically
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  Speaker 1: have been committed to achieving their inflation target. UM. I
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  Speaker 1: think the comments that we heard from him over the
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  Speaker 1: weekend at Jackson Hole were reinforcing some previous comments that
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  Speaker 1: he had not too long ago, just about a week
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  Speaker 1: and a half ago, he had said that there's a
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  Speaker 1: sufficient chance for more easing in September. So certainly dubbish
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  Speaker 1: in terms of the monetary policy bias by the Bank
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  Speaker 1: of Japan, and this should keep the Japanese gen restraint.
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  Speaker 1: So in terms of more stimulus, we know that yes,
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  Speaker 1: Japanese rates are negative, but they're only the key rates
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  Speaker 1: only negative by point on one per cent. Right, that
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  Speaker 1: that's a rounding here, right. Uh. We know they are
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  Speaker 1: buying so many etf that they become a very large
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  Speaker 1: owner of stocks in Japan. We know that they've done
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  Speaker 1: quantitative easing type moves. What do they need to do
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  Speaker 1: in your view to weaken the en Well, they could
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  Speaker 1: do more of the current policy tools that they've been implementing.
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  Speaker 1: You know, as you mentioned, with the negative interest rates,
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  Speaker 1: it's just a negative tent basis points. So um, there
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  Speaker 1: there could be further deepening of negative interest rates, and
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  Speaker 1: Kuroda hinted at that, saying that you know their current
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  Speaker 1: rate is still far from the lower bound, suggesting that
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  Speaker 1: they could go more negative. Um, and then you know
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  Speaker 1: the the asset purchases, a quantitative and qualitative easing UH
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  Speaker 1: could also be expanded further. So there there's still um
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  Speaker 1: those three dimensions that they could use in terms of
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  Speaker 1: easing policy further. So you know, your currency analysts, you're
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  Speaker 1: watching these markets and the traders, and you know on
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  Speaker 1: the desk, et cetera. What is it going to take
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  Speaker 1: to move the dial for those people? Because shakunaw some
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  Speaker 1: have said, is almost what Governor Krota needs to come
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  Speaker 1: up with to really shift this this dynamic which has
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  Speaker 1: taken hold where seems no matter what the Bank of
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  Speaker 1: Japan does, the end strengthens. Yeah, and I think that
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  Speaker 1: the strengthening of the end that we've seen earlier this
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  Speaker 1: year UH came from when you look at the strengthening
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  Speaker 1: of the end or surrounding the policy meetings and the
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  Speaker 1: policy easings by the Bank Japan UH. It appears though
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  Speaker 1: the market we're expecting the Bank Japan to be more
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  Speaker 1: aggressive and easing. I mean, the last time they ease
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  Speaker 1: was just a tweak of the et F purchases. UM.
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  Speaker 1: Earlier in the year we saw that introduction of negative
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  Speaker 1: interest rates, but again, you know, just a small move
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  Speaker 1: and not really being applied to a broad base of cash. So, uh,
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  Speaker 1: they could be more comprehensive in terms of the policy
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  Speaker 1: measures announced and implemented um or expanded upon. And the
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  Speaker 1: other side of that is also the U S and
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  Speaker 1: the Fed. So we think that if the Fed raises
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  Speaker 1: interest rates, and we are expecting the Fed to raise
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  Speaker 1: interest rates um by another twenty five basis points this year,
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  Speaker 1: that would also help to weaken the Japanese yen relative
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  Speaker 1: to the US dollars, so supporting a higher dollar end
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  Speaker 1: exchange rate. So we can only wonder if maybe over
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  Speaker 1: one of those uh, you know, cups of coffee or
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  Speaker 1: or you know, lunches, if Governor Kroda perhaps didn't whisper
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  Speaker 1: in Janet Yellen's here are just course imagining this, but
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  Speaker 1: still that because it would be awfully nice, wouldn't it. It
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  Speaker 1: It seems it would make the Bank of Japan's steps
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  Speaker 1: more effective if as they eased more and as you said,
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  Speaker 1: did something you know, bigger and more substantial, the said
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  Speaker 1: made his first interest rate in increase in you know,
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  Speaker 1: over nine months. Uh yeah, So I mean, certainly policy
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  Speaker 1: is monetary policy is is a key driver of the
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  Speaker 1: foreign exchange markets in the US dollar exchange rate, and
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  Speaker 1: in particular, and that's because of the impact that it
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  Speaker 1: has on on bond yields, and when we look at
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  Speaker 1: the bond yield or the interest rate differential between US
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  Speaker 1: Treasury yields and Japanese government bond yields, that that has
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  Speaker 1: a strong correlation with the exchange rate. One of the
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  Speaker 1: other things that we look at is the broader risk environment.
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  Speaker 1: You know, the Japanese yen has strengthened significantly this year
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  Speaker 1: also because of UH more volatile UH global market conditions.
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  Speaker 1: So we saw a significant strengthening in the end following
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  Speaker 1: the UK vote UH who leave the European Union. So
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  Speaker 1: you know, UH, if if markets remain calm um as
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  Speaker 1: they have or relatively benign H, then you know, this
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  Speaker 1: could also be another factor that that could help to
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  Speaker 1: weaken the end overtime. So interesting story today on the
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  Speaker 1: Bloomberg and also on our website Bloomberg dot Com from
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  Speaker 1: our one of our colleagues on our Tokyo team talking
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  Speaker 1: about forget helicopter money. Maybe in this direct you know, UH,
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  Speaker 1: dispersion of cash somehow to consumers in Japan to spend.
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  Speaker 1: Bank of Japan might next target financing a bit closer
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  Speaker 1: to the ground trains, hospitals, power plants, and sewers, in
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  Speaker 1: other words, infrastructure by buying bonds of local governments and
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  Speaker 1: public corporations. Does that make sense to you, Eric, Um, Well,
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  Speaker 1: it makes sense in in the in the sense that
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  Speaker 1: helicopter money is probably a very well likelihood. I think
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  Speaker 1: that Governor Corota earlier this year um pretty much rolled
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  Speaker 1: it out. I believe his comments were that there was
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  Speaker 1: no needing, no possibility for helicopter money, is what he
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  Speaker 1: said a couple of months ago. Uh. And then the
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  Speaker 1: comments that he made over the weekend Attack and Hole
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  Speaker 1: that their scope to move lower and interest rates and
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  Speaker 1: that they could um expand easing for their just kind
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  Speaker 1: of reinforced that they could still use the tools available
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  Speaker 1: to them. Um. If they were to go with other
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  Speaker 1: bond purchases, UM, you know, then that would certainly be
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  Speaker 1: additional easing and could further way on the end here Florida,
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  Speaker 1: thank you so very much for joining us today. Derek
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  Speaker 1: is currency strategist at Wells Fargo Securities here in New York.
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  Speaker 1: So oil boilers was up above fifty bucks, now it's
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  Speaker 1: back below again. What's driving it? And how much lower
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  Speaker 1: will it go this time? I'm Kathleen Hayes. This is
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  Speaker 1: Bloomberg coming up and in the in depth look at
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  Speaker 1: the state of energy markets in wide demand recruit Oil
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  Speaker 1: will continue to be slow to recover with stron hein
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  Speaker 1: rock from a T. Kearney