Reversal of Japanese capital flows could surpass market shock of 2024 yen unwind
- Adam German
- 2 hours ago
- 1 min read
On September 11th, Nicholas Smith of CLSA sat down with CNBC’s Squawk Box to discuss where the Bank of Japan sits given domestic inflation and compared to its central bank peers.
Smith says the yen could climb toward 135 per dollar and argues that a firmer currency is essential to ease food-driven inflation and support consumer spending.
Screengrab courtesy of CNBC, where the video interview is found. Clicking here or on the above photo will take you to the interview.
Key Topics Covered
Smith discusses how central bank independence shapes policy shifts in Japan.
He explains why the Bank of Japan’s slow pace contrasts sharply with the U.S. Federal Reserve.
Smith traces how decades of zero interest rates pushed trillions of yen overseas.
He describes how the yen carry trade has magnified Japan’s role in global markets.
The vulnerability of the yen, with past swings from the 70s to nearly 150 per dollar, is highlighted.
Smith forecasts where the yen could move next and what that means for investors.
He outlines the risk of a yen-carry trade feedback loop where repatriated capital accelerates currency moves, a taste of which global markets experienced in 2024.
The Bank of Japan’s costly currency interventions are put into perspective.
Smith shows how Japan’s dependence on imported food fuels inflation pressures.
He notes that the biggest wage hikes since 1991 have failed to boost household spending.
The outlook for Japanese consumption is linked to the direction of the yen.
