Morning Brief – Yield Curve Control

Humphrey Percy
Chairman and Founder
Wed 23 Nov 2022
Yield Curve Control

One of our most distinguished and long running customers has raised the question of Japan’s YCC or Yield Curve Control policy and how long Japan can continue to maintain its dovish interest rate approach (-0.10% since 2016) when the rest of the world and particularly the US Federal Reserve is raising interest rates aggressively to crush inflation. FX market intervention by the Bank of Japan sent USD/JPY back from 150 to its current level of 141.30. But what underpins the BoJ strategy? Apart from the healthy reserves of USD11,510 billion as at July 2022, the strategy is based on the US rate rise programme ending in Q1 2023 and also on the fact that so far the all important USD/JPY rate is not in immediate danger of breaching 150. Seasoned FX market practitioners believe that the 145 level is the one that activates alarm bells in Japan, so that is worth watching. Crucially with Japan inflation at a recent high of 3.7% in October, the annual pay round kicks off in early 2023. If wage inflation is towards the top end of the 3.5-4.5% range, that too could upset the apple cart.

Scottish Independence

This morning will see the Supreme Court decision on whether the Scottish Government can legally bring a second referendum without the consent of Westminster-the First Minister of Scotland’s wish is to have a second referendum in September 2023. There are 3 outcomes: victory for the Scottish government, defeat for the Scottish government or the Supreme Court declining to take a decision either way. That would broadly kick the can down the road and allow a further court case. Pretty much whatever the decision, it will provoke a strong political reaction. Given that the most recent indication was that Scotland would need to retain GBP in the event of independence, FX traders have discounted the potential for trading GBP/SCP as in Scottish Pound.

Koi Carp

Anglers worldwide and particularly British anglers are thrilling to the news of a Kidderminster UK man catching a 30KG koi carp in a lake in the Champagne region of France. Having secured his catch the angler released the never before (20 years) caught monster who is apparently nicknamed Carrot or even Carotte. GBP slightly less strong on this fish feat with GBP/EUR 1.1510.

Rock n’roll legends

This day in 1976 Elvis invited Jerry Lee Lewis to visit him at his home, Graceland. Late at night and over refreshed, JLL crashed his brand new Lincoln Continental into the gates and emerged  brandishing a pistol demanding to see the King. The security guard did not recognize JLL and called the police. The two rock n’roll legends never saw each other again. Here is Great Balls of Fire:

You shake my nerves and you rattle my brain
Too much love drives a man insane
You broke my will, but what a thrill
Goodness gracious, great balls of fire

I laughed at love ’cause I thought it was funny
You came along and you moved me honey
I’ve changed my mind, this love is fine
Goodness gracious, great balls of fire

Kiss me, baby, ooh, feels good
Hold me, baby
Well, I’ll still love you like a lover should
You’re fine, so kind
Got to tell this world that you’re mine, mine, mine, mine

I chew my nails and then I twiddle my thumbs
I’m real nervous, but it sure is fun
Come on, baby, you drive me crazy
Goodness gracious, great balls of fire

Well kiss me, baby, ooh, feels good
Hold me, baby
Well, I’ll still love you like a lover should
You’re fine, so kind
Got to tell this world that you’re mine, mine, mine, mine

Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter

    Get news and insights, delivered directly

    Start your day with a sharp, concise and relevant financial briefing from our team of experts.

    Stay ahead of the curve and get your daily briefings direct to your inbox. By signing up, you agree to our terms & conditions.