The comments from US Treasury Secretary Scott Bessent from late yesterday are worth repeating.
“I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do, bet against me if you want” Bessent said at a Southern Methodist University event in Texas.”Whenever people say, ‘The Treasury Secretary is taking a risk’… it’s my dream. I have asynmettic information,” he said.
This raises a multitude of questions. The first one that comes to mind is: Who is pulling the strings at the Bank of Japan? It’s not an ‘independent’ central bank as the Fed claims to be but there is a 9-person board that presumably votes on these things and hasn’t met yet.
Or does Bessent have an idea of what is happening at the GPIF, Japan’s gigantic government pension investment manager. They hed an unusal meeting on August 21 and there is speculation they could shift their holdings allocation to more domestic bonds. That would be an inflow into the yen and help to drive down Japanese yields, diminishing the attractiveness of holding the currency.
What strikes me most is the ego. Many in the market have strongly suspected Bessent has been working in the oil market to push down crude prices and — until now — that’s been relatively successful.
Now he’s dabbling in FX and bonds and daring the market to counter him. That’s the most-dangerous game in finance and it’s ironic that a guy who claims to behind the Soros ‘break the Bank of England’ trade would think government firepower could outsmart the market.
Playing god is a dangerous game and the market humbled Bessent twice as a hedge fund manager. It seems as though he thinks he only needed more firepower to win.
Time will tell if he’s right but I’m not ready to take the other side at the moment. I’ve been repeatedly warning that buying USD/JPY at 160 was a mistake and that’s proving to be salient. Now, we have the interests of both Bessent and Japanese officials aligned: They both want to see a lower USD/JPY.
This article was written by Adam Button at investinglive.com.