The MUFG Global Markets Podcast

With a tug-of-war ongoing in the third wave of Japan’s struggle against the COVID-19 pandemic, the Suga Administration will have to decide about extending the current State of Emergency. The Bank of Japan has started to gradually lay the groundwork ahead of the assessment of monetary easing planned for March, and downside room for JPY rates appears to be more limited. With yield gaps among key currencies still narrow, USDJPY has remained in a tight range and JPY basis have not shown much volatility.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses the BoJ’s JGB buying plans for February and the Summary of Opinions from the Monetary Policy Board meeting last month. He also presents his recent study on the relative size of central bank balance sheets on cross-currency basis and shares his outlooks for Dollar/Yen, Yen rates, and Yen basis.
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The UK has been veering into potential negative rate territory for some time - could Thursday’s Bank of England meeting be the final decider?
Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, explains the key reasons why he believes that despite the prospect remaining a possibility, the outlook for the UK is still positive enough to keep monetary easing action at bay.
As well as this, the podcast looks at the likelihood of a U.S. fiscal stimulus package and gives an update on FX trade ideas. Listen here.
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In the prepared statement and in the press conference, the Committee assessed that the U.S. economy likely slipped into a ‘soft-patch’ over the final seven weeks of the year 2020 and likely over the first four weeks or so of the year 2021. So, while the Committee downgraded the very near-term assessment of the economy, the Committee strengthened its medium-term outlook. Net-net, at the upcoming March Meeting’s SEP projections, the Committee likely may strengthen its real GDP growth estimate for years 2021 and 2022, we believe. Can the FOMC catch up to our models forecasts of +5.00% YoY growth in 2021 and +4.00% YoY growth in 2022?  Please, stay tuned!
In this episode, MUFG U.S. Rates Strategist, John Herrmann, previews the 4th Quarter GDP report, parses the various nuances and subtleties of the FOMC’s economic outlook and monetary policy stance, as well as tells listeners what it means for his core strategic investment stance for a 2s-30s Treasury yield curve steepener.
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The Suga Administration has applied its state of emergency to 11 prefectures, but uncertainty about COVID-19 remains. With the inauguration of the new U.S. administration, risk sentiment has continued to improve keeping U.S. and Japanese stock markets calm. Downside room for yen rates is limited, and yen basis is steady. The dollar/yen rate has stayed in a narrow range. The Bank of Japan’s January Monetary Policy Meeting made no policy changes. Decisions appear to be on hold until the monetary easing assessment comes out in March.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses the BoJ’s January monetary policy meeting, policy board personnel, U.S. TIC data, and recent cross-border flows. He also shares his outlooks for dollar/yen, yen rates, and yen basis.
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In today’s podcast, Lee Hardman, currency analyst, looks at the upcoming FOMC meeting and how this will be important for the dollar performance, giving his views on the likelihood of Chair Powell giving any signal of slowing of QE.
On the upside, the pound has been outperforming with cable rising above the 1.3700-level. The pound is tightly linked to the general improvement in risk sentiment with Global Equity Markets having risen to near record highs. This shows hopes for recovery in the second half of 2021, a welcome break in the clouds in what has been a dreary start to the year for the UK.
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In today’s podcast, MUFG U.S. Rates Strategist, John Herrmann reviews his models arguments over the five economic tailwinds for the U.S. recovery in years 2021 and 2022. Even with a timely rollout of vaccinations, there remains lingering, yet quite pronounced, structural deficiency within the economy. Namely, a labor force that was depleted by nearly 3 million individuals over the entire year of 2020, the largest annual decline in the labor force for any year since 1945, and by a wide margin.
The economy over the near- and longer-term beckons for fiscal policy to remain both activist and aggressive, we believe.
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Higher U.S. yields have not been tightly correlated to Japanese yields, but they have started to exert a gentle effect. While Japanese non-manufacturers have been hit by uncertainties surrounding the COVID-19 pandemic, Japanese manufacturers are enjoying a recovery for exports and production. The real economy and financial markets have not been moving in tandem. USDJPY, JPY rates, and JPY basis have remained in tight ranges, reflecting risk management mode amidst the pandemic despite a large pick up in cross-border flows at the start of 2021.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, dissects cross-border flows at the end of 2020 and the beginning of 2021. He also shares his outlooks for Dollar/Yen, Yen rate, and Yen basis.
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All eyes are on the U.S. this week, where Joe Biden will be inaugurated as President on Wednesday. Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, believes the markets will remain steady due to no expectations of social unrest.
This week, Derek talks through the priorities for Biden and his administration, including tackling the pandemic head-on and the related fiscal stimulus package; trade policy and rewriting “the rules of the road"; and executive orders to reverse some of the steps taken by President Trump.
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Both the press statement and the minutes from the December FOMC meeting make the end of the Fed’s asset purchase program pretty clear: the official “taper and cease” program is conditional upon the economy attaining “substantial further progress toward the Committee's maximum employment and price stability goals.”
The latest December employment report fits quite well with MUFG’s U.S. Rates Strategist, John Herrmann's view that the U.S. economy is on track to attain: (a) a complete recovery to the aggregate level of real GDP by mid-summer 2021, (b) full year growth of +5.7% YoY in 2021, (c) a +4.2% U3 unemployment rate by year-end 2021 and (d) the economy adding a net +6.1 million new jobs by year-end 2021.
By the end of the 3rd Quarter 2021, and possibly sooner, most investors are likely to believe that an official “taper and cease” announcement may occur prior to the end of the year. Unlike in 2013, however, we believe that most investors will not wait until the FOMC unveils an official “taper and cease” announcement to invest and trade it. Hence, our core strategic investment stance remains a 2s-30s Treasury yield curve steepener. Investors desirous of a little extra optionality from, say, mortgage convexity selling in the spring and a little extra juice, may consider a 2s-10s Treasury yield curve steepener, we believe.
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In this episode, MUFG Head of Agency Mortgage Strategy and Prepayment Modeling, Glenn Schultz, discusses MUFG’s 2021 forward outlook in prepayment speeds, mortgage origination volumes, primary and secondary spreads, and investor appetite.
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Now that the U.S. Presidential and Congressional election results have been confirmed, the U.S. yield curve is likely to steepen over the near-term. Japanese investors will have to adjust their developed economy bond portfolios, not only with U.S. Treasuries, but also European bonds and JGBs. Developed economy stock markets have reacted favorably to the confirmation of results of the U.S. elections. The BoJ’s ETF purchases are clearly helping to drive the Nikkei Average upward. Meanwhile, the COVID-19 pandemic is growing more serious and on January 7, Prime Minister Yoshihide Suga declared a state of emergency for the Tokyo area. The spotlight will be on the government and BoJ’s pandemic support measures, and investor behavior could change. Understanding fiscal and monetary policy will be key to prognosticating the next trend for JPY cross assets.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses developments with fiscal financing, the BoJ’s monetary operations, and the monetary base in December and what they could mean for the BoJ's monetary policy review in March. He also shares his outlooks for USDJPY, cross-currency basis, and JPY rate.
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This week, Lee Hardman, senior currency analyst, gives his expectations for the future of U.S. fiscal stimulus and monetary policy now the surprise results from the Georgia run offs mean the Democrats have narrowly taken back control of the Senate.
Meanwhile in the UK, the economic forecast is far from rosy; a sharp acceleration of COVID-19 cases has led to nationwide lockdowns with possible tighter restrictions on the horizon. Is it time for the Bank of England to introduce negative interest rates? Lee Hardman gives his view.
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USDJPY fell gradually on limited downside room for JPY rates. JPY basis has started to slowly tighten as overseas traders make more JPY cross-currency flows. JPY rate swap spreads have also turned positive and started to widen. The government has started to consider declaring a state of emergency for Tokyo and three neighboring prefectures as the third wave of the pandemic worsens. On January 4, Japan stocks fell as the country’s economy makes only halting progress toward normalization in a post-COVID-19 world.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, reviews JPY rates and basis at the end of 2020 and the start of 2021. He also discusses the skewed JPY basis market and upward pressure on the front end of the JPY yield curve at the end of 2020. He offers his outlook for JPY rates, basis, and USDJPY.
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2021 is upon us, and kicking off the year is the Senate runoff elections. Following a tumultuous U.S. Presidential election, this is the final hurdle for Joe Biden and the Democrats to seize control over Congress.
This week, Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, looks at the polls and the potential impacts on USD and the markets. Derek also gives his view on key issues for the week, including vaccine efficacy rates as new strains of COVID-19 lead to tighter restrictions in Europe and beyond.
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On December 18, Bank of Japan Governor Haruhiko Kuroda announced that the central bank had agreed to extend pandemic response measures and will assess monetary policy, with results to be announced at the March Policy Board meeting. On December 21, Prime Minister Yoshihide Suga’s expanded JPY106 trillion budget was passed, and an increase in JGB issuances was approved. At this time, JPY rates basis and USDJPY are steady, ahead of the end of the 2020 calendar year.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, shares his thoughts on the BoJ’s monetary policy assessment, the Suga Administration’s FY21 JGB issuance plans, the BoJ’s USD fund buying from the MoF, and cross-border flows. He also goes through his outlook for Yen rate, cross-currency basis, and Dollar / Yen.
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‘Uncertainty’ is the key theme for this week. After a huge run up in risk across global markets, a new variant of COVID-19 is bringing a number of questions, such as will the tier 4 restrictions currently placed on London and the South East of England spread to the rest of the UK? How will Europe shield itself? Are there implications for the vaccine?
Derek Halpenny, Head of Research for Global Markets EMEA and International Securities, gives us his insights into how this news has been priced into the market and his view for the week ahead.
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Chair Powell put it quite succinctly in the Q&A portion of the FOMC’s Press Conference to the December 15-16 Meeting, “The combination of the Cares Act and the strong monetary policy stimulus propelled a recovery that was, frankly, far stronger than we expected back in April, May, and June.” In this much anticipated FOMC Meeting, Chair Powell covered so much ground, and in this podcast, MUFG U.S. Rates Strategist, John Herrmann, attempts to bring it all to life. 
First, over the very uncertain path of the Fed’s monthly Treasury security purchases, the Committee concluded that neither the pace (at $80.0 billion per month) nor the composition (proportionately across the yield curve) would change – matching our forecasts. Second, of the important forward guidance over the “horizon” of asset purchases, the Committee introduced “qualitative outcome-based forward guidance” that matched our predictions. Third, Chair Powell acknowledged that the coming three-four-five-months would be quite challenging – with the pandemic raging – but the growth rebound that follows would be a strong one, he believes.
Chair Powell strengthened the Committee’s projection for GDP growth over years 2021 and 2022, while lowering the projection for the unemployment rate. The Committee’s projections are not nearly as optimistic as our models forecasts, but Chair Powell is closing the gap, and catching up quickly. We commend the Chair and his Committee upon their excellent and thorough hard work in this most difficult of a year!

The Suga Administration unveiled additional economic stimulus is huge, including JPY73.6 trillion in total projects and JPY40 trillion in fiscal spending. Interestingly, the JGB market has taken all that issuance in stride, even last week’s 20Yr auction. USDJPY has stayed in a narrow range and JPY basis is tight. Tokyo market trading at year’s end has been quiet, but there is a slew of market events, including the release of the third supplementary budget on December 15, the BoJ’s meeting on December 17-18, and the Ministry of Finance’s release of FY21 JGB issuance plans on December 21, for investors to navigate before the calendar year’s end.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, discusses JGB trends in light of Prime Minister Suga’s additional economic stimulus measures and the third supplementary budget, as well as takeaways from the December Tankan survey. He also reviews recent cross-border flows and shares his outlook for Dollar / Yen, cross-currency basis, and Yen rate.

The market is getting increasingly pessimistic over no-deal Brexit fears and what that could mean for the UK economy. Reports this morning are suggesting positive developments over the weekend, however, with vows to “go the extra mile” to get a deal reached.
Will this be enough to stave off elevated risk for GBP? Lee Hardman, currency analyst, looks at outlook for the pound amid continued Brexit chaos and his forecast for the upcoming Fed meeting this week.
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Over the past 8 months, it has been ironic to watch Chair Powell strengthen his economic growth and employment tracking projections, while he doubles down upon his view over the downside risks to the outlook and of the need to enact greater fiscal and monetary policy measures over the near-term. The latest news on the roll-out and effectiveness of COVID-19 vaccines suggests upside risks to the dour outlook over the medium-term.
In this episode, MUFG U.S. Rates Strategist, John Herrmann, previews the December FOMC meeting. John expects the FOMC to strengthen its GDP growth estimates and to lower its unemployment projections. He also thinks there is a decent chance that Chair Powell convinces the Committee to extend the duration of its Treasury security purchases and/or increase its monthly pace of Treasury purchases. These actions would support the economy in the face of current COVID-19 strains and also serve to restrain the extent of the sell-off in the back-end of the yield curve as the economy moves into many consecutive quarters of strong economic growth starting in Q2 2021.

The autumn Diet session ended on December 5. A risk of increased JGB issuances is lurking amidst the government ruling coalition’s announcement of a 15-month budget in mid-December and the Ministry of Finance’s release of its FY21 JGB issuance plans later in the month. Ahead of this, spot Dollar / Yen and Dollar / Yen cross-currency basis have been fairly flat and the Nikkei Average has stabilized around 26,000. The coronavirus crisis roiled markets in 2020, but markets in Tokyo are closing the year calmly.
In today’s episode, MUFG Chief Japan Strategist, Takahiro Sekido, previews economic stimulus, reviews the Bank of Japan’s monetary operations in November, discusses fiscal fund supply and demand in December, and examines recent investor cross-border flows. He also offers his outlook for Yen rate, Dollar / Yen cross-currency basis, and spot Dollar / Yen.

With ongoing speculation around a no-deal Brexit, the markets continue to bounce as sterling’s volatility continues. With the ECB meeting on Thursday, the expectations of an extension to the quantitative easing programme and no rate cuts will strengthen.
MUFG’s Research Desk highlights a short US dollar and Swiss Franc, outperforming other G10 currencies, as well as a short Aussie dollar against the US buck (please note Derek meant to say “long Aussie dollar” at 10.22).
Derek Halpenny, Head of Research Global Markets EMEA and International Securities, discusses how the next 48 hours will be crucial in determining the outcome for the markets and Britain’s future as a whole.
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As we get closer to the start of the next calendar year, we are tightening up our models forecasts, while assessing the recovery, thus far, over the year 2020. For the November employment report, John Herrmann outlines his models forecasts for another sharp decline in the U3 unemployment rate and for a solid gain in private sector payrolls. However, John’s models glean adverse risks for employment growth over the coming few months thereafter. By early spring, however, John’s models turn strongly constructive, and the 3rd Quarter may achieve a growth rate in real GDP in excess of +8.00% q/q SAAR.
In this episode, MUFG’s U.S. Rates Strategist, John Herrmann, shares our clients’ concerns for the very near-term, over the medium-term, and longer-term and also how his forecasts for economic and employment growth significantly outpace both the consensus estimates and the official projections of the FOMC. Is another “taper tantrum” in the offing over the second half of the year 2021? 

2020 was altered in previously unimaginable ways by the COVID-19 pandemic. In March, global financial markets became extremely volatile in reaction to the huge disruption in the real economy. Across the globe, governments and central banks responded with coordinated policy measures that boosted both share and bond prices, as well as basis arbitrage trading of key currencies, which kept FX spot rates in tight ranges. The Bank of Japan responded to the crisis by aggressively supplying funds to the market and buying corporate bonds and ETFs. The USD supply operations helped to stabilize USD funding for Japanese investors, while the corporate bond and CP buying supported the credit market. These moves helped to quell risk contagion for global financial markets, and the Tokyo market is fairly calm as 2020 draws to a close. Compared to previous crises, like the late 1990s and 2008, JPY cross-asset pricing was very different this time.
In today’s episode, MUFG's Chief Japan Strategist, Takahiro Sekido, looks back on 2020 and shares his outlook for 2021. He also discusses the lessons learned from the COVID-19 crisis and his outlook for Dollar/Yen, Dollar/Yen basis, and Yen rate.