Weekend Edition: Return of the Japanese Carry Trade
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What is the current state of Japan’s inflation and the BOJ’s monetary policy?
So, Japan with inflation. Today's guest back in July said it was the best news ever for Japan, the inflation revolution, he called it. So today, with the Boj likely to raise rates again soon and the yen fluctuating a fair bit over the last few months, is it still all good news? And what happens when we throw Donald Trump into the equation? And are conditions still right for the Japanese carry trade? All that today. The morning call.
Nav with Bill Dobby. The weekend edition
Well, it was back in July when we first spoke to Harry Ishahawa on the morning call. Harry is a macro strategist contractor for Macro Bond and Japan Exchange Group. Uh we thought it would be good to get him back for an update, 'cause a bit's happened since then, particularly as the uh the Bank of Japan seems to s uh set to raise rates again. So last time uh we spoke, Harry, you talked about the resurgence for Japan, the return of inflation. Allowed companies to raise prices, claim a margin at long last, and that would help the economy grow and that would drive some local investment and it would create jobs. Is that still the story? Is it happening the way you expected it would back in July? Um thank you.
It's uh
actually feels stronger than that. The the phrase that the BOJ is using is called that Japan is still in a moderate recovery. That's the phrase they're using. But to me it feels much stronger than that. And there's evidence of that in the markets. For example, thirty year Japanese yields, Japanese government yield, they've been creeping up. And they've actually traded places with China thirty year yield. The reason why they're creeping up is the biggest movement was um a higher expectation for Japan's potential growth. That was the initial trigger and it's been creeping up. And to me that's that's The best evidence. Other than that, I'll give you some anecdotal evidence. The quality of um TV commercials has gone way up.
There's wage growth headlines all over the place, like 5%, 7% wage growth headlines every day. There's all this over tourism, which I remember you told me that that's not just Japan, but Japanese people are being shut out of their popular destinations. So and then uh Let's see what else. Yeah, uh for example from where Act 11s, um the um department stores in Japan have uh food halls. They're very beautiful, very um very very good food there. Um and you would have very expensive cakes. They're like uh about what, seven dollars per piece? Um and people are lined up to buy them. Which is which is a change for me. And finally, m um my wife's friends, they invite her out for uh quote unquote afternoon tea. But um it's uh it's ten thousand yen now.
That's like um I know that's about what, eight thousand yen, eight thous um eighty dollars in the US, but I mean afternoon tea, even at hotels, it used to be like three thousand yen. And now it's ten thousand yen.
How are Japanese retail investors (“Mrs Watanabe”) influencing the carry‑trade?
And when my wife said uh to her friends, Oh wow, that's expensive. They said, No, you're behind the curve
Well there we are. And I love I love those anecdotes. I particularly love the one about, you know, well, people are spending more money on T V adverts, so uh so they must be doing all right. But I mean the change has been quite dramatic. And you sent me a graph uh the last time we spoke Going back from the Tanken survey on output prices, going back five decades. And that was very clear. You know, you had right up to uh d the last uh few years, basically the number of companies that were cutting prices at its worst at the beginning of this century, then suddenly the last couple of years, around thirty percent of companies raising prices. That was quite a telling graph. Yeah, and it what's interesting is that um
The B OJ stood packed. Um it's difficult for them to take credit. You know, well it I guess you can say, well we stood pat. We didn't raise rates like the Fed. People argue about who should we thank
for the exit from deflation. Aaron Powell And you think it should be the Bank of Japan. But I mean will they if they do move now though, will they will they stifle that recovery?
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Chapters
8 chapters
1
What is the current state of Japan’s inflation and the BOJ’s monetary policy?
0:01–2:59
2
How are Japanese retail investors (“Mrs Watanabe”) influencing the carry‑trade?
2:59–6:00
3
What evidence shows that domestic consumption and wages are improving in Japan?
6:00–9:15
4
How might the new Trump administration affect Japan’s export‑driven economy?
9:15–12:25
5
What role does the Japanese government’s five‑pronged strategy (GX, DX, infrastructure, tourism, healthcare) play in attracting inward investment?
12:25–15:45
6
What are the key factors shaping the future path of the yen and interest‑rate differentials?
15:45–19:17
7
How could the revival of the Japanese carry trade impact global markets?
19:17–22:02
8
What are Harry Ishihara’s predictions for Japan’s economy and the yen in the coming year?
22:02–24:26