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What are the latest developments in the Japanese yen's exchange rate?

Susan Hayes Culleton 0:01

First up, we are going to get straight into it and look at some of the stories in the papers this morning with Ross Mould from AJ Bell. Good morning, Ross.

Ross Mould 0:18

How are you, Sarah? Sorry, how are you?

Susan Hayes Culleton 0:21

I'm great altogether. Thanks so much indeed for joining me. So first up, Ross, the euro is now worth 184.33 yen. I checked it just before we went in and I can see here that it now means the yen is trading at an all-time low after the Bank of Japan raised rates. What's driving that?

Ross Mould 0:39

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.

How is the Bank of Japan influencing global financial markets?

Ross Mould 0:56

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.

What are the implications of Binance's recent troubles?

Ross Mould 1:17

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.

Susan Hayes Culleton 1:55

So a big short of sorts.

Ross Mould 1:58

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.

How is the US responding to the situation in Venezuela?

Ross Mould 2:21

We've had worries over AI bubbles. It's been a fantastic year, particularly for global stock markets. But you've been able to make money in bonds, able to make money in commodities. So it's been, on the end, a pretty straightforward year. Something like a yen shakedown could make next year less straightforward. And we're probably overdue a bit of volatility.

Susan Hayes Culleton 2:38

Well, speaking of volatility, now that you've mentioned it, we have a breaking story in the FT this morning about Binance, the world's largest cryptocurrency platform. What's going on there?

Ross Mould 2:49

Well, this is an intriguing one.

What are the geopolitical factors affecting Venezuela's oil supply?

Ross Mould 2:52

The company got into trouble with the US federal authorities in 2023 for having weak controls, for sanctions busting, money laundering, and was fined something around €4 billion, I think, by the federal authorities. The FT has now done a really deep dive investigation, as it's very good at doing, and they think they've got proof that the company is still moving money around between sanctioned individuals, terror organizations, and money laundering. They cite an example of somebody who allegedly lives in a Venezuelan ghetto who's moved around $90 million around through the platform. So they're saying that there is still a problem here. The company has been given a chance to comment, and it's understandably pushed back, saying we've got robust systems, stout controls.

Ross Mould 3:35

No, no, no, you've got it wrong. And don't forget that their founder, Changpeng Zhao, was actually pardoned by President Trump back in the autumn, which I think is part of the... the White House's drive to position America as the center of cryptocurrency worldwide.