Is Kamala Harris attempting to boost her business bona fides via the Japanese yen?

When I saw today’s presser that Vice-President Kamala Harris was convening a group of Japanese businessmen to discuss increased investment in the United States, I immediately thought of two things: carry trade and the 2024 elections.

Mrs Harris should be using interest rates as a sales pitch to the businessmen. For example, while the Bank of Japan‘s monetary policy rate is -0.1% (yes, minus), the Federal Reserve System‘s monetary policy target rate is between 3.00% to 3.25%.

In addition, the rate on ten-year U.S. Treasurys is, according to the Federal Reserve, approximately 3.88% while the Japanese 10-year notes are paying .25%.

And the prime lending rate in Japan, according to their central bank, is 0.3% while the U.S. prime rate, according to the Federal Reserve, is 6.25%.

The differences in yields between the United States and Japan should sell Mrs Harris’ guests on the idea of taking advantage of the investment climate here in the US. Borrowing in their currency at their low rates, converting their yen to dollars, and investing in dollar-denominated assets at higher rates provides an opportunity for higher returns, all things being equal when it is time to convert their currencies upon repatriation to Japan.

Pivoting toward bona fides, keeping Mrs Harris on some portion of the world stage buttresses an argument that should Mr Biden decide not to run in 2024 that the Democrats would have a candidate with some international experience.

Commercial experience in particular should help given closer economic co-operation between the BRICSS nations (Brazil, Russia, India, China, Saudi Arabia, South Africa). America may have to start getting used to being just another competitive option for global investment versus being the only game in town and Mrs Harris will have to start engendering confidence now that she can lead the team.

Alton Drew

28 September 2022

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