The Return of the Yen?

Macro D Article

We certainly cannot expect the markets to write down their intentions between Christmas and New Year. Trading volumes are slowing down, so we are taking advantage of this to reinvigorate ourselves with one of those activities macro thinkers like so much: looking around. Let's start from the Old Continent and immediately take stock of the situation. In 2024, the ECB cut interest rates (four reductions of 25 basis points in the June, September, October and December appointments, for a total easing of 100 bp), while in the period between July 2022 and September 2023, the cost of money had increased by 450 basis points.

Source: Dall-E

And now, what should we expect? Everything and nothing. The Governing Council has changed its language, suggesting that the restrictive political stance is numbered. Now, there is talk of "ensuring that inflation stabilizes durably at the 2% medium-term objective". It is not the language of Ludwig Wittgenstein[1], but we will try to trust this European-style narrative voice anyway. Now, once I have confessed that I believe that the near future will depend heavily on the progress/regression that could occur in the inflation of services, it is not a good omen to try to imagine the timing of new cuts. Still, it is enormously more fruitful to reason around the possible occurrence of a particular event from which another could arise in the period immediately following. In the face of an early and robust rapid deterioration in growth, the ECB would react with a clear and decisive rate cut. One might say, "You can't command your heart", but above all, one could say, "You obey Germany and France". Meanwhile, in the rear (not at all greased by the fog), the image of the Sword of Damocles is becoming increasingly vivid. What will the implementation of the protectionist policies promised by Donald be like? Black or white? Inflation or deflation? January 20 (the date Donald will return to the White House) is just around the corner, and we can only prepare for any scenario. How?

In this piece, we will evaluate the trade that reigns over all the others. The USD/JPY exchange rate has reached the highs of July, and in the face of a lack of initiative by the Boj, it could even continue its run. Will it? Who knows what the good Kazuo Ueda has in mind...

Let’s explore.