Yen Intervention and Market Drivers

**SPEAKER_1** (0:02)
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**Tom Keene** (0:27)
Sonja Marten joins us. She's the chief economist for DZ Bank. Sonja, what do you make of this move here by Japan and the US to kind of support the Japanese yen here? What's your take?

**Sonja Marten** (0:38)
Actually, I think it's a pretty clever move. I mean, the Bank of Japan has been trying to, you know, to manage the yen. They've been trying to support the currency for some time. They have intervened time and again, and every time they intervene, the dollar yen does end up going higher afterwards. So it wasn't a particularly successful intervention story.
So moving in together with the Americans is a much, much smarter move. And it's much more likely to have some success in it so far is that it may well serve to draw a limit to the upside in dollar yen. It's not going to change the fact that the yen is a weak currency, but it might be more successful. And it's a very, very strong signal to the market, in particular, because it seems to be the case that there might be further intervention if need be.

**Paul Sweeney** (1:20)
Investors were heavily positioned, though, for a weaker yen before the intervention. It may be early to tell, but how much of the move we're seeing in your view is about a policy shift versus maybe an unwind in positioning?

**Sonja Marten** (1:33)
Yeah, well, we'll have to wait about a week until we get some data on this. But I suspect strongly that quite a few of these positions have been wiped out.
And that is a good thing because it's a clear signal to investors that speculating against the yen is no longer going to be sort of a free lunch as it were. I mean, we have been having this problem that investors have been speculating heavily against the currency. And maybe this move will at least curtail this happening in the future.

**Tom Keene** (2:03)
One of the interesting mechanics here of this potential intervention have been reports that the US Treasury used euros rather than dollars to fund its purchases. Talk to us about that.

**Sonja Marten** (2:13)
Well, it's very unusual, certainly unexpected. I wonder whether they called the ECB to at least let them know, you know, a courtesy call, that this was going to happen.
So yeah, a bit unusual. There's a lot of speculation about why they might have done this. And I think that the current consensus seems to be that they didn't want to open the Pandora's box of the strong dollar policy. So by intervening in the euro year, they circumvented having to use to sell dollars, which again may have raised questions about the official strong dollar policy that US governments have held for decades. So maybe that's why they did this. That's the, I think, the most logical explanation. We'll see if they have to intervene again, whether they stick to that. And if they do, what the ECB might have to say about that as well.

**Paul Sweeney** (2:58)
And what about the Fed? I mean, we have Chair Kevin Warsh signaling a different approach to Fed communication with less forward guidance. And we have the New York Times reporting that it may even be, I think, six times a year. And how is that going to change the way fixed-income investors think about risk more broadly?

**Sonja Marten** (3:15)
I think Kevin Warsh is a big challenge for the bond market right now. He's very different than his predecessor or predecessors, I should say.
He obviously has plans with the Fed. There's all these working groups that are active trying to change certain things about the way that the Fed does business. Then there's the talk about less meetings. He is a bit of a closed book when it comes to communicating with the market. It's very different. I think people are not sure how to read the Fed. That ultimately creates more volatility, I think, because it leaves much more room for speculation. Given the fact that there's so much political pressure on the Fed from the White House, I think personally, I'm not sure if this is the right moment to scale down the communication with the market because that could be interpreted as something rather unfavorable. So more volatility, more uncertainty, I think, and maybe over time we'll get to know Kevin Warsh better. You can read him better, but for now it's a bit of a black box.