A 40-year low for the yen and it's a one-way bet.
You can borrow in Japan for 1.
You can invest in America for about 4, pocket the three percentage points different and play golf on Nice work if you can get it.
It's World Business Report from the BBC World Service.
I'm Sam Fenwick.
The Japanese yen has sinks to its lowest since 1986.
What can stop the decline?
Gold's meant to shine when the world's nervous.
So why is it heading for its worst quarter on record?
Nike bets a fortune on football.
We'll ask if the gambles paid off.
So the Japanese yen is at its weakest since 1986.
On Tuesday, it slipped past 162 to the dollar, a level it hasn't touched in nearly 40 years.
And here's the puzzle.
Japan's central bank has been rising interest rates.
The government spent a record $72 billion in the spring trying to prop up the currency.
Yet it still falls.
If you're in Japan, that means a more expensive shop at the grocery store or a pricier tank of fuel.
And for businesses like the one Robert Applin runs Benchmark, a small construction company in Tokyo, then life is really tough.
When our materials are imported, that really affects the price of materials.
It's really difficult.
But I'm locked in on a lot of contracts in the moment that I set prices like six months ago.
I can't change that at the moment.
We're stuck within a rock and a hard place, I'll say.
How much are you losing then?
I'd say 10-15% is very, very difficult.
And how long can you go on like that for?
Not for much longer.
Some job I'm going to make a loss on at the moment.
The economy here is so stagnant.
I mean.
Another problem we've got at the moment is because of the Iran war.
There's lots of issues with materials that we can't get at the moment, like certain type of foam insulation for flooring.
Anything that's oil-based paint-wise is a real issue.
How long can we go on for?
If things get really bad, 18 months or so, we can carry on like this maybe.
Rob Applin there was talking to my colleague Sarah Rogers.
But if you're in Tokyo selling cars abroad, it's quite good news for you.
So why won't the yen stop falling?
And is anyone going to step in to catch it?
Jesper Kohl has watched Japan's economy up close since the 1980s.
He's the expert director at Monex Group in Tokyo.
Yes, interest rates in Japan here are going up, but they're going up at a very slow and very measured pace.
And meanwhile, particularly in the United States of America, there is now growing confidence that the Federal Reserve, that American interest rates are actually going to go up again rather than down.
So what does it actually mean?
If you're a Japanese financial firm, you can borrow in Japan for 1.
You can invest in America for about 4, pocket the three percentage points different and play golf all afternoon.
When you put it like that.
And it's very interesting.
I mean, look, currencies are always you can make them as complicated as you want.
But at the end of the day, the difference between your rate of return in one country versus what you can make in the other country gives rise to what is called a carry trade.
So you borrow in yen for 1%, you invest in America for 4%, and you live happily ever after.
And that fundamental is not going to be changing.
When you talk about that carry trade, is that how we understand it as people selling their yen?
Yes.
That's exactly what it is.
Whether it is Mrs. Watanabe, you know, the Japanese saver, basically saying, well, what's my choice?
I can get 1% in Japan. or I can get four and a half percent in the United States of America.
Well, I take my chances and I go with America.
And by the way, for the last two and a half years, the yen has been weakening.
There have been very short periods of government intervention, but basically that's just a drop in the bucket.
The fundamental trend is one of yen weakness because money is being pulled out of Japan as the rates of return are higher elsewhere.
But does that not then contribute to the decline of the value of a currency if everyone's selling it off?
No, you're exactly right.
It is a debasement.
It is a devaluation.
And obviously, there is an impact on the different parts of the Japanese economy.
Specifically, large Japanese corporations benefit from a weaker yen.
Toyota, for example, does almost 80 of its profits outside of Japan, particularly in the United States of America.
So for every 10 yen, that the yen weakens, Toyota makes about 12% more profits.
So it's good for Japanese companies.
Conversely, it is bad bad for Mr and Mrs Watanabe because the cost of imports of energy, the cost of imports of food, keeps on going up.
And as a result of that, the purchasing power of Mr. and Mrs. Watanabe is going down.
And how hard are households in Japan feeling right now?
How hard pressed are they?
I mean, we are human beings, right?
We're creatures of habits.
And remember, for basically 30 years...
I had modest deflation, consumer prices falling by about half a percent to one percent, which gives you a natural boost to your purchasing power.
Now, for the first time in 30 years, it's the other way around.
Prices are going up and the government tries to intervene.
They put in some price controls, for example, for education or for gasoline prices.
But meanwhile other prices, whether it's for services, whether it's for clothing, whether it is for your refrigerator.
All of those prices are going up.
And since it's the first time in 30 years, it really is quite a shock.
When you look at opinion polls, you find that now 80 to 85 percent of the Japanese people are angry at the rise in prices that is eroding their purchasing power and their quality of life.
And how does the new prime minister deal with all of that?
Look, you should always be worried about politicians.
That's why we live in a democracy.
But Prime Minister Takaichi is extremely popular.
She runs a two-thirds supermajority in parliament.
She doesn't rely really on any coalition partners.
And for all intents and purposes, she's dead set on making Japan strong again.
They've just launched a huge investment initiative to boost and entice Japanese companies to invest more here in Japan.
So the priority is on companies rather than the consumer.
I was looking at some of the tourism figures.
So Japan recorded 42.7 million foreign visitors last year.
Yep.
That makes it Japan's second biggest export after cars.
And the weak yen is kind of the main driver behind that.
And you kind of think that that must lead to jobs and within the service sector, things like that.
So is that where the focus is?
It's about driving growth by job creation.
You talked about, you know, companies investing in country.
So Sam, what is very interesting is like, of course, you are making the right and correct argument.
The problem is that Japan is running out of labor.
I don't have a youth unemployment problem.
You find that already 98 of all university graduates have a job offer already for when they graduate next year.
There's a scarcity of labor.
There's a scarcity of skill.
So it's not this Western thinking, oh, this is good because it creates jobs.
Well, in Japan, it's actually the opposite.
Everywhere you look, there is shortages of labor.
And, as a result of that, wages are starting to go up as well, particularly for the younger generation.
What's going to have to happen?
How do we get ourselves out of this situation?
I think, you know, at the end of the day, the currency is not a policy tool or a policy goal.
The currency is the outcome of your monetary, your fiscal and your tax policy and your regulatory policy.
And right now, there is no change in Japan's policy mix.
You find that real interest rates here are still negative.
In fact, Japan is the only country where interest rates are lower than the rate of inflation.
And you know, you don't have to be a whizzy economist to figure out that when you've got real interest rates being negative, you should be investing overseas rather than at home.
And that's exactly what makes the yen weaker.
So I don't quite understand from talking to you where you sit on this.
Do you think that the policy is wrong that the government is kind of adopting?
What is the target that I have?
As a financial, as an investor, running my fund for the last three years I've been short the yen and bullish the US dollar.
And I think that for all intents and purposes, that yen dollar is likely to go towards 200%.
We've come from about 100, 110 to now 162, 163.
I think the drivers that have gotten us there are going to continue to stay in place, because neither the US government nor the Japanese government wants to dramatically change the direction of interest rates or fiscal policy.
So what dynamics got us to yen weakness is going to continue to stay in place.
Interesting.
So as an investor, you just have to play the system you've got in front of you.
Yeah.
I mean, you know, and again, what do you do practically?
You talked about the inbound tourism.
Obviously, if you now get on an airplane in England and you fly over to Japan, you will find that you can buy basically twice as much as what you could buy in England with your money here in Japan, which is exactly why the tourists are coming here.
They find, whether it's a beer, whether it's a Coca-Cola, whether it's an evening meal, you know, it's basically half price of what it would be in Manchester or in London or anywhere else in the UK.
And so as a result of that, everybody's coming here.
Conversely, you find that Mr. and Mrs. Watanabe is not traveling overseas anymore.
You're seeing this know, uk universities, uk boarding schools.
Basically, there's no more japanese kids because the parents simply can't afford it, because the yen has gotten so weak.
So is this good, is this bad?
We can have a long discussion about the societal impact on the whole thing, but from a finance perspective, what is the advice that you give to people When the authorities intervene in currency markets?
This will, of course, have a temporary effect of getting the yen a little bit stronger.
But that temporary effect is likely to be a buying opportunity to actually shift more money overseas.
That was Jesper Kohl there from Monix Group.
He was speaking to me earlier from Tokyo.
Jennifer Schneider is with us.
She's a financial advisor at Brighton Securities in Rochester, New York.
And she's actually one of those people advising on where we should all put our savings.
Jennifer, you just heard all of that.
Jesper had a great line, didn't he?
Borrow cheap in Japan, invest in America and then go and play golf.
Now, I know you're a very keen golfer.
That's quite good for a hedge fund, perhaps.
But what about the clients that might be saving for your pension?
Are they going to end up on the golf course?
Yes, I think they will.
Yeah, everything that your guest had just said makes absolute sense.
This is what hedge funds have been doing for years.
Imagine borrowing where rates are at half a percent and investing where you can earn five.
You do the spread, you pay back the debt, you're winning.
We as the individual investors it's important to note we're not really controlling markets as much.
And I think we all know this.
It is large hedge funds and institutions that do that.
But we are reaping the benefits.
So what does this mean for the average pension investor?
We're not paying for hedge funds directly, but pension funds and 401ks invest in the same market.
So this carry trade has helped push asset prices higher, which has boosted returns.
But if that engine suddenly shifts into reverse, if the yen starts growing again, investors around the world, including everyday retirees, could feel the bumps.
So you need to check out for that.
You're going to stay with us throughout the programme.
Jennifer, thank you very much for that insight.
You're listening to World Business Report from the BBC World Service with me, Sam Fenwick.
It's the most successful tennis tournament in the world, set to make around half a billion dollars in a fortnight.
And yet a ground ticket can still cost around $40, strawberries and cream under four.
And you won't find advertising hoardings around the court.
So how does Wimbledon make so much by selling itself so modestly?
And can it keep the players happy when they're saying that they get a too small a slice?
Where I think tennis is perhaps doing a better job is it's recognising that it is generating record revenues.
But then if you're giving away even 10 of that revenue in prize funds, then I think it's giving away a fair share of that revenue.
Of course players will want to earn more.
But what Wimbledon and what tennis are doing is ensuring long term legacy for the sport, so that they can pay the players in the next 10 20 30 40, 50 years and they're not completely destabilising the sport.
And you can hear more of his interview by searching for Business Daily, wherever you get your BBC podcasts, and on bbccom.
Now gold is meant to be the thing you run to when the world feels dangerous.
So with a war around the Gulf and talks on a knife edge, you'd expect it to be flying.
But actually it's doing the opposite.
The price is just about clinging on above 4000 an ounce and it's heading for its worst quarter on record.
Now, back in January, you might remember that we were talking about it touching $5,500.
So what's gone on?
I asked Adrian Ash, Research Director at Bullion Vault.
I mean all through the 2020s.
To date, you know, gold has really been rising very sharply on the kind of perma crisis that we've had since the pandemic.
So when we got to the new year, I mean, things were really aligned for gold.
You had what the U.S. president was doing in Venezuela, threatening to invade Greenland.
The U.S. dollar was its lowest in four years against other currencies.
White House was openly attacking the U.S. central bank, the Federal Reserve.
And as a result of US policy and, let's face it, the chaos of US diplomacy, Central bank demand for gold is making headlines.
So let's kind of get to where we are now.
And the US central bank and interest rates, it's still part of the issue, isn't it?
There is a suggestion that they might start to up rates.
Is that what's taking the shine off gold?
I think very much so.
I mean, if you look at that perfect storm you had in the new year that got gold to five and a half thousand dollars, a lot of those assumptions, a lot of those trends appear to have flipped entirely.
Interest rate expectations have completely flipped.
People and markets now expect the Fed will be raising rates because of what happened to oil as a result of the Iran war.
Presumably central banks have then bought up the gold.
It's very difficult to know.
China reports what it buys, but no one really believes that that's the full picture.
So it's difficult to know how much China is really buying for its sovereign reserves.
But what we do know is that as a result of the war in March...
Several central banks actually either slowed or reversed some of their gold buying.
Turkey, for instance, liquidated quite a chunk of its gold holdings because it needed the cash.
If you buy gold, going into what looks like a pretty dramatic crisis, and particularly in that region where Turkey is, and particularly for emerging market central banks where the dollar suddenly rebounded.
Interest rates suddenly shoot higher.
The cost of energy imports suddenly shoot higher.
Turkey needed to liquidate and get some cash.
And gold was the perfect thing because it was so very highly priced compared to where it had bought it.
So what you might want to do now then, if you have bought gold when it was at a very high price, you keep hold of it, don't you?
Gold is a long term form of kind of portfolio insurance.
I think is the way that many central banks and also money managers see it.
You know, wealth managers will look at gold as being a long term portfolio hedge.
It's something which tends to do well when other assets do badly.
And, of course, what we haven't had even with the Iran war, spiking interest rates and the cost of energy, et cetera, haven't yet had any kind of real downturn in the stock market.
We've had some wobbles, particularly in the big AI tech-centered stocks.
At the moment, the US stock market's up for the year to date.
Gold is down year to date now.
So you know, if people are thinking about gold as being a form of financial insurance, then I think it's definitely worth thinking.
Well, gold's a lot cheaper than it was.
And a lot of the heat has come out of the market.
And certainly I think you know it's an opportunity potentially for people who say well, I'll take it in the long term.
If I want to look at gold as a safe haven which I need to liquidate in a crisis well, it's cheaper today than it was.
Adrian Ash there from Bullion Vault.
Jennifer Schneider, do kind of ordinary people look at gold in the same way?
I mean, we're talking about, you know, central banks buying up massive chunks of bullion, if that's what you call them.
You probably don't, do you?
No, but there is a lot of push for gold.
Every other commercial on news is put your retirement in gold, etc.
And the truth is you have to speak to financial analysts advisors, people that understand the markets.
It's This is not necessarily the end of gold.
It's gone through many corrections over the decades.
But the biggest culprit, it's not that lack of the global uncertainty.
It's what your previous guest was saying.
It's the higher interest rates.
And when investors can earn solid returns in cash and bonds, an asset like gold that pays no income becomes less attractive.
Right.
That's interesting.
Well, thank you very much, Jennifer.
Stay there because you've probably seen this advert.
The cure's ready.
I'm ready.
Guys, what are you doing?
It's got Ronaldo in it.
It's got Mbappe in it.
It's got Haaland in it.
Somehow it's got Kim Kardashian in it and Ted Lasso.
And they're all tearing up a film studio.
It's for Nike.
And Nike says...
It has been viewed more than a billion times and it can't have been cheap.
And it comes while the brand's under real financial pressure.
Shares are down about 36% this year with Adidas, Hoka and On all taking some of that market share.
And in the last hour or so...
Nike's full year results have landed.
Now, they are better than expected.
Sales just under $11 billion and a jump in profit.
But the shares slipped anyway.
And that's because the bosses struck quite a cautious note.
So, Jennifer, you've been having a look at these figures as they've come in.
First reading is the competition.
Company turning a corner.
We hope so.
We have a good quarter, but it's not just going to be one quarter.
That's the big thing that we need to see.
Investors want to see the money.
We need to see continued profits.
And it seems like we're going in the right direction.
This was an incredible advertisement.
My head was spinning after watching it.
I'm not even sure what I had just watched.
We'll talk about that more in a minute.
Interestingly, their profits were boosted by a huge tariff refund for this fourth quarter.
Yeah, that's one of the benefits that Nike definitely saw.
So that and probably one of the only stories that we really hear about the tariff.
So good on Nike for that.
And we'll presumably we'll see more of that as more businesses start getting refunds with tariffs.
China.
Now, everyone was watching China yesterday.
It came in weaker, but no worse than expected.
So China sales coming back.
What does that tell us about the kind of that market?
Yeah, China, that was the lag down 12 percent.
And it's again on that competition, the more local competitors that they have there.
So Nike just needs to turn around the brand, the brand resonance that we all have with it.
That's what they're going to focus on.
The sales were poor because of relics that they leaned into and they're getting back to just do it vibe.
That's where they got everyone's attention, and that's what we want to see.
That's swoosh. means a lot.
Yeah, the swoosh, the swoosh.
Let's bring in a branding expert now, Pam Danziger.
She's the founder of Unity Marketing and is a senior contributor to Forbes.
How does a brand under so much financial pressure justify spending what must have been an absolute fortune on this advertising campaign Rip the Well?
That's because the World Cup represents a tremendous opportunity for Nike to affect the turnaround that they've been trying to affect.
Because they really have.
You know, as I look at the numbers, the Nike brand has really lost connection, particularly in footwear, with their customers.
So I think that the World Cup represents a tremendous opportunity.
So I can't fault them for investing hard.
What they did um in the, in the rip, the script uh, video and and videos are turning.
You know, more and more brands are turning to the long form video as a way of of deeper storytelling and that also, i think, comes across very well when, when you look at the, the nike um, And they've got all their stars.
I mean, it's littered with them.
I mean, there's eight minutes and there's literally like a new star every second.
But you've argued, haven't you, that Adidas is actually winning over the serious sports fans.
So why do you think they're getting it right where Nike might be going wrong?
Well, Adidas has really had tremendous momentum coming into the World Cup.
One.
They're an official FIFA global partner, so they get a lot more exposure in an official capacity and they're dressing 14 teams versus Nike dressing 12.
And This year RepTrack, which is a global corporate reputation tracking consultancy, found Nike, or Adidas was the number two most respected brand globally, second only to Lego.
And Nike was at 50.
Now, that wasn't a bad showing, but it Nowhere near Adidas.
So if you look at it, I mean Adidas is really coming on strong with a tremendous amount of momentum.
These adverts, you know, it's a bit of a rite of passage, isn't it?
You have a World Cup, you have a fantastic advert campaign that goes with it.
They feel like the Christmas adverts to me.
Everyone wants to watch them.
Everyone wants to talk about them.
But do they actually turn into products shifting out of stores?
Well, I think that they most definitely can.
And, you know, if we look at Nike's results.
Their direct revenues were down in the quarter and off the year.
So they really have lost a lot of connection with customers.
So that is going to, I think, be really important.
And who ends up in the final games, I think is also going to be really telling for both of these brands.
You can't control that, can you?
That is literally down to the players on the pitch.
Jen, we said before, you're a very keen golfer yourself.
Who's winning on the fairways these days?
Is Nike still the one to beat?
Yes, Nike dropped out of actually making equipment about 10 years ago, but that swoosh remained strong with Scotty Schleffler, Roy McIlroy and, of course, the one, the only, Tiger Woods.
He transformed Nike golf.
And I really appreciate the script the stop following everyone else's expectations and write your own story.
I hope it lands.
Why do you think that they're still dominant on the golf course but not so much on the football pitch?
Tiger Woods, everywhere you look.
Yes.
I mean, the man transformed it.
If you golf, you understand the intensity of the sport and it is so frustrating.
There's another four letter word to describe golf.
We're not going to say that, but it is a fantastic sport and the swoosh resonates with it tremendously.
Well, thank you both very much for joining us today on World Business Report.
Jennifer Schneider there from Brighton Securities.
Pam Danziger, founder of Unity Marketing.
That's all for today.
Don't forget to subscribe to our podcast, World Business Report.
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