The Ukraine war roars back into importance for investment markets, not that it should have gone away, and there is little doubt it is inspired by Donald Trump winning the US election. Would President Biden really have given permission for Ukraine to use US made long-range ATACMS missiles and anti-personnel mines if the status quo had prevailed in the White House? For many, a Trump win brings an altogether different dynamic with Russia, one that will see Ukraine's territory and military capability bartered away if Mr Trump holds true to his word of ending the war within days of taking office. Sadly, the war is likely to become intensified in the near future because if a ceasefire brings a hold in hostilities, it will come about at the geography where the two warring armies are faced off, it is then important for each to claim as much territory as possible before such negotiations begin. 

Russia's psychological bear looms large on the international scene and finds allies in silence. At the G20 summit in Brazil, the closing remarks of the country's President Lula da Silva, was roundly criticised by Germany, Canada, France, UK and the US for not directly naming Russia as the blame piece for the Ukraine war. President Putin has absented himself from the G20 for 3 years, but there are many nations who would rather not feel any vindictive action from Russia and its menace remains profound with use of 'hybrid' war where disinformation is injected into elections and unsettling cyber-attacks occur on sensitive infrastructure.  The Russian leader dialled up global anxiety as he revised nuclear weapon doctrine by lowering the threshold for their use. Mr Putin is said to be open to a ceasefire if initiated by Mr Trump without making territorial concession and that Ukraine is refused NATO membership. The CBOE Volatility Index (VIX) or 'fear gauge' for stock markets has moved higher by some 10% reflecting a new binge of buying in safe-have currencies beyond the US Dollar such as the Japanese Yen and Swiss Franc. Bourses across the globe checked back sharply yesterday, eventually regaining composure, but it has to be said that some of the shyness is exacerbated by today's publication of Nvidia results which according to Reuters might see a swing in its value of up to $300 billion. 

Oil could not resist the pull of what might be with such language from Russia and the weapon developments in Ukraine. The thought of President Zelensky's forces firing missile deep into the heart of its enemy's oil network is indeed a worrying notion. However, with the US so sensitive to oil price fortunes, the use of American missiles must come with a caveat that they may not be used for such attacks. Still, two ongoing wars in and around global oil resources is impossible for oil prices to ignore and upwardly they reacted. Overnight, the APIs see little reaction as Crude increased in stock by 4.8mb against a 1mb call, with Gasoline -2.5mb versus a 0.9mb build, Distillate at -0.7mb and Cushing -0.3mb coming in at within tolerance of expectation thereby giving an overall neutral state. China again disappoints markets as the PBoC leave Loan Prime Rates at unchanged, which ought to get more scrutiny but is obviously drowned out by other pressing matters. The oil market will once again enter into another bout of geopolitical versus supply push and pull, which will change in importance on a daily basis.

The Land of Rising Concern

Bearing in mind the influence the fortunes of Japan’s investment suite have on the fortunes of the world, it is a sign of the times that it, and along with everything else in current affairs has been completely drowned out by Trumphoria. Yet, the goings on should be well remembered in the third or fourth (Germany and Japan regularly jockey) largest economy of the world after the recent events of August. Briefly, and after a very poor Non-Farm Payrolls reading of 114k job additions against a 175k expectation and at the time, talk of a US recession, the spectre of large US interest rate cuts coincided with the BoJ defending a falling Yen and carnage unfolded. Therefore, the ‘Yen carry trade’, in which debt is undertaken in a low interest rate country and invested in a high interest rate one, became briefly undone. The diverging paths of the Federal Reserve, cutting rates to defend the economy, and the Bank of Japan, raising rates to defend its currency led to a perfect storm of unravelling.
Times are a changing, as the song writing poet, Bob Dylan says, but maybe not so the long-standing foreign exchange policy of the central bank of Japan. The way forward for Japan in terms of economic policy has been made all the more complicated due to the almost stalemate result in the recent election. Although the National Diet, the parliament or legislature of Japan, has again appointed Shigeru Ishiba as Prime Minister after he called a snap election in which he sought a mandate after ascending to the Premiership the month before, his LDP party’s majority was crushed and so then his ability to formulate policy is limited. Before his initial escalation, his reputation as a hawk saw the pricing of interest rate raises increase and the Yen moved away from foreign exchange currency pair values where the BoJ has previously intervened. However, as is the form of the rest of the world, the new PM showcased pragmatism and in the strongest terms showed a political two-step by saying the Japan’s economy was not in an environment to tolerate a rate hike which was very much aimed at appeasing a populace whose economy was/is fuelled by loose money.

Life as the leader of the BoJ is no walk in the park either. After the fallout of August, Kazuo Ueda, the Governor of the Bank of Japan, had to similarly shelve plans to address interest rates. With inflation staying around the 2% mark and an economy signalling conservative growth, the time did indeed seem opportune for the BoJ to take its interest rate away and higher from historical lows. Yet, the bank could not risk another bout of the August lunacy and language has recently been adopted that might quell the anxiety of twitchy investors. The trouble is a reckoning does seem to be overdue. Call it Abenomics, or what you will, Japan has feasted on a quarter century of easy monetary policy which has never been given the opportunity to assess, the answer has always been to print more money. However, the BoJ has undertaken a close review on the effect of such historical dovishness and the findings will be published in the near future.

Whether or not this is the inflection point that so many economists for so many years have predicted, remains to be seen. Pulling the habitual years of dovishness from a nation would cause incredibly nearby harm, but there does seem a confluence of events that give at least an ability to contemplate. Frankly, with the roaring US stock markets some of the carry trade risk has receded not just from greater wealth created from the Trump trade, but also the sky-rocketing US Dollar that might just give pause in the aspirations of US money guardians to decrease their own interest rates. Although oil prices regained losses after the carry trade rout, it is again worth remembering that Brent alone dumped nearly $5/barrel during the carnage. Japan’s influence in the world’s investment basket remains vast, particularly as it is so aligned with the United States. The Land of the Rising Sun and its economic fortune is as every bit important as our many current drivers and should never be overlooked.
 

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