Ross Mould

How are you, Sarah?

Sorry, how are you?

Well, it's a good question because the Japanese did raise rates and bond yields went up on Friday.

But I think it's because Bank of Japan Governor Katsuo Ueda promptly waffled about when the next interest rate increase would be.

So there wasn't an awful lot of conviction in financial markets that the Bank of Japan was taking a tough enough stance on inflation.

And the weaker the yen goes, the more important inflation there could be.

And so the more that the Bank of Japan may need to act.

The other thing that's going on is that there is no doubt, given that Japanese interest rates are incredibly low, that global financial institutions, particularly hedge funds, are using the yen as a source of funding for their buying and trading around the rest of the world.

So they're borrowing yen at low levels.

or even short the currency and borrow it, and then put that money to work overseas and try and get higher returns, which shouldn't be too hard if your cost to borrow is only 0.75%.

The challenge, therefore, of course, is if the yen ever starts going up and they start losing money on their...

positions against the yen, are they then forced to sell the positions they bought overseas?

We saw a squall like this in summer 2024.

So although everybody thinks about the dollar as being the global reserve currency, which it is, the yen may be the most important one from financial markets point of view in 2026.

It is, in fact, a big short of the yen, and it is currently greasing the wheels of the global financial markets.

And so if that year currency starts to rise and it starts to gum up the works next year, then we could be in for a very, very interesting year after what's been actually a fantastic year for financial markets, even though we've had...

Wars in the Middle East and Eastern Europe.

We've had Liberation Day.

We've had worries over AI bubbles.

It's been a fantastic year, particularly for global stock markets.