The Macro Minute: Will Japan force the Fed to Ctrl+P? — Transcript

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1. 0:00Happy Monday out there, team 42. It's
2. 0:01your skipper here at Darius Dale, to
3. 0:02present our macro minute for Monday,
4. 0:04August 3rd, 2026. Hope everyone had a
5. 0:06great weekend. So, as always, we'll
6. 0:08start with the executive summary from
7. 0:09today's lead-off morning note, so let's
8. 0:10dive right in. Today's key macro
9. 0:12question is, will Japan force the Fed to
10. 0:14control P, print? The short answer is
11. 0:17yes, it already has, and it will likely
12. 0:19continue to do so in increasing
13. 0:21quantities over the long term, amid
14. 0:23Prime Minister Sanae Takaichi's
15. 0:25aggressive reflation agenda. The
16. 0:28prospect of a larger, more lasting
17. 0:29allocation shift by Japanese capital
18. 0:32allocators out of the US Treasury market
19. 0:34and back into the JGB market represents
20. 0:37a structural risk to the marketable
21. 0:39Treasury securities asset class,
22. 0:41something we have been warning about for
23. 0:42over 3 years, since we first published
24. 0:44our Investing in a New Normal Turning
25. 0:46Regime analysis in the summer of 2023.
26. 0:49It is in US policymakers' interest to
27. 0:51convince their Japanese creditors to
28. 0:53delay this inevitable outcome. While
29. 0:55expanding usage of the Fed's FEMA repo
30. 0:57facility buys them time, it does signal
31. 0:59an erosion of Fed independence, because
32. 1:01the Fed is choosing to debase the US
33. 1:03dollar in a controlled manner to comply
34. 1:06with the Treasury Department's desire to
35. 1:07avoid foreign investors dumping US
36. 1:10dollar-denominated assets in the open
37. 1:12market in an uncontrolled manner, akin
38. 1:15to what we saw in March of 2020. So, um,
39. 1:18obviously we we we we did a deep dive on
40. 1:20all these dynamics in today's lead-off
41. 1:21morning note, particularly from the
42. 1:23perspective of the global dollar res-
43. 1:25cycle, you know, the global credit
44. 1:27growth, uh, I'm sorry, global global
45. 1:28savings growth, and and also how that's
46. 1:30impacting global bond markets. Uh,
47. 1:31obviously we got the JGB yields at a
48. 1:3430-year high, uh, US and UK, uh,
49. 1:36long-term bond yields at a 20-year high,
50. 1:39UK, uh, eurozone, uh, long-term bond
51. 1:41yields at a 15-year high, and this is
52. 1:43all in the context of the
53. 1:45ever-increasing demand for capital that
54. 1:46we're seeing out of the AI, uh, CapEx
55. 1:49bubble. So, uh, these things are all
56. 1:50coming to a head, and so ultimately we
57. 1:52think the the prob- possibility, uh, uh,
58. 1:55the increasing possibility that the
59. 1:56Federal Reserve is going to get forced
60. 1:58to tight monetary policy by the bond
61. 1:59market. Uh, we believe that that risk
62. 2:01continues in in probabilistic terms. So,
63. 2:04uh, we'll transition to our uh, 42 macro
64. 2:06dashboard here. As always, I'll wrap up
65. 2:08with the question from our community.
66. 2:09It's titled Market Intervention {slash}
67. 2:10Manipulation. It says, "Can the market
68. 2:12ever correct if the admin keeps
69. 2:13intervening uh, intervening with in it?"
70. 2:16Or I assume it's interfering with it.
71. 2:18Uh, "Does the yen intervention uh,
72. 2:20correct or postpone uh, the inevitable
73. 2:22uh, downturn?" Uh, so, in my experience,
74. 2:25you know, regulators and policy makers
75. 2:27tend to break out the brooms and the
76. 2:29mops after a spill occurs. And so,
77. 2:32unless they're doing some sort of
78. 2:34open-ended yield curve control uh,
79. 2:36whereby, you know, they're essentially
80. 2:37capping yields and and and and expanding
81. 2:40the balance sheet, the Fed being uh, the
82. 2:41operative central bank here. If they're
83. 2:43capping yields and expanding the balance
84. 2:44sheet, which we ultimately think they
85. 2:45will get to at some point, we still
86. 2:47think that's ahead of us. Uh,
87. 2:48not an immediate risk, but a longer-term
88. 2:50market risk. Um, you know, ultimately
89. 2:51they're going to be doing things like
90. 2:53that in response to adverse outcomes in
91. 2:56the Treasury market, adverse outcomes in
92. 2:58the currency market, etc. And so,
93. 2:59clearly, with this back up in long-term
94. 3:02bond yields around the world, the
95. 3:03Treasury market included, you know, in
96. 3:05our opinion, we think part of that is
97. 3:06investors are selling. Uh, could be, you
98. 3:09know, investors to Japanese investors
99. 3:10are selling cuz they need to go buy
100. 3:11their own bond markets. The European
101. 3:12investors need are selling cuz they need
102. 3:14to go buy their own bond markets in the
103. 3:15context of their remilitarization. Uh,
104. 3:17China doesn't want to be long Treasuries
105. 3:19anymore in the context of our uh,
106. 3:21strategic decoupling. Um, there's just a
107. 3:23lot of countries in the global south
108. 3:24that, you know, really don't that that
109. 3:26that disrespect the dollar as the global
110. 3:28uh, hegemonic currency. So, all these
111. 3:29dynamics are ongoing. We've been talking
112. 3:32about them for years in the context of
113. 3:34our macro scouting reports. Uh, if you
114. 3:35want our latest deep dive thoughts on
115. 3:37this entire subject matter, just refer
116. 3:39to the
117. 3:40uh, the fiscal policy cycle and the
118. 3:42liquidity cycle uh, and and positioning
119. 3:44cycle uh, components of our most recent
120. 3:47monthly macro scouting report. So, we'll
121. 3:49wrap it up there. Darius Dale here
122. 3:50presenting our macro minute for Monday,
123. 3:52August 3rd, 2026. Best of luck out there
124. 3:54today. We'll catch back here tomorrow.
125. 3:55Cheers.