FICC Focus FX Moment: Mizuho's Rochester on the Yen
Oct 8, 2025
Jordan Rochester, Head of FICC Strategy for EMEA at Mizuho Bank, dives into the implications of Sanae Takaichi's election on Japan's fiscal policies and the yen. He unpacks the uncertainty surrounding future cabinet appointments and how they could impact the currency market. Discussions on the relationship between fiscal expansion and yen weakness reveal intriguing debt dynamics. Additionally, Rochester explores how political pressure might influence the Bank of Japan's decisions and assesses the broader impacts on the dollar and euro amidst shifting European fiscal landscapes.
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Fiscal Promises May Be Bigger Than Reality
- Japanese fiscal loosening could be large in theory but coalition dynamics make big cuts unlikely.
- Consumption tax cuts alone were discussed as ~2.4% of GDP, implying much larger totals if combined.
Wait For Cabinet Appointments
- Avoid taking strong yen positions until the finance minister and cabinet are announced.
- Wait for named officials to reduce political uncertainty before reestablishing directional trades.
FX Moved Before Rates Did
- FX reacted sharply while rates markets barely confirmed a regime change, showing a disconnect between FX and bond markets.
- FX vol and hedging gaps amplified the dollar/yen move because participants were under-hedged.