This is an audio transcript of the FT News Briefing podcast episode: Catch a falling yen

Marc Filippino
Good morning from the Financial Times. Today is Friday, September 23rd, and this is your FT News Briefing.

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Marc Filippino
The European Union is working on yet more sanctions on Russia. The UN says Pakistan should stop making debt payments to overseas creditors. And Katie Martin is back. She’s gonna tell us what’s going on with the Japanese yen.

Katie Martin
It’s been getting absolutely trashed.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Marc Filippino
The European Union is drafting its eighth package of sanctions against Russia in response to its invasion of Ukraine and its military escalation this week. More hawkish EU members — Poland and the Baltic states — are pushing for tough measures like booting more Russian banks off the Swift global payments network. Officials say it’ll be difficult to find consensus among the EU’s 27 member states. Hungary says it doesn’t want any new sanctions. The European Commission’s main goal is to push through a price cap on Russian oil.

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Marc Filippino
The United Nations is recommending that Pakistan stop repaying its overseas debt. They want the country to prioritise disaster response instead. Last month, catastrophic floods put a third of the country underwater and displaced about 40mn people. The FT’s Ben Parkin has seen a draft of the UN report.

Benjamin Parkin
What’s happened in Pakistan with the floods is, you know, really shocking. But it’s not just an isolated local crisis, right? This reflects the kind of extreme weather events that stand to affect countries around the world. This paper is part of the kind of trying to rethink the global order to an extent, around death and the status quo because of climate change. So is it fair now to ask a country like Pakistan to pay billions of dollars in debt to wealthier nations who are not facing natural catastrophes? And it’s a story that’s gonna play out in countries around the world.

Marc Filippino
So Ben, how feasible is this? Are international creditors going to be OK with this kind of plan?

Benjamin Parkin
So there is some precedent. You know, during the pandemic, the G20 created a mechanism for creditors to offer limited debt relief to countries so that they could free up resources to fight Covid. But this, you know, the link with climate change in this case and the argument that because of climate change rich nations need to step up and ease some of the burden on vulnerable countries, that’s a Pandora’s box that could really open up a massive amount of debate and liability around the world. So I think countries will be a little bit anxious to engage with this.

Marc Filippino
Ben Parkin is the FT’s South Asia correspondent.

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Marc Filippino
It has been a week of interest rate rises, from the Bank of England to central banks in Sweden, Norway and Switzerland, and of course the US Federal Reserve. Japan is a notable exception. Officials there reiterated a pledge to not raise rates and stick with its ultra-loose monetary policy. That’s left Japan’s currency, the yen, increasingly vulnerable against the dollar. In fact, yesterday the yen sunk so low, Japan’s government intervened in currency markets to strengthen it for the first time in 20 years. I’m joined now by our markets editor, Katie Martin, to discuss this. Hey, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
All right. So what exactly did Japan do to prop up the currency and what does it mean when a government does this?

Katie Martin
So, yeah, exciting times on the Japanese yen. As you say, the Bank of Japan has been treading its own little path. Among all the kind of major central banks, it’s been going completely the opposite direction to everybody else and holding rates super, super low while everyone else has been jacking up rates like it’s going out of fashion. And that’s just left the yen, as you say, I mean, vulnerable is the polite word for it. It’s been getting absolutely trashed.

Marc Filippino
Yup.

Katie Martin
So the dollar’s just been cranking higher and higher and higher against the yen just, for months really. And it kind of got to the point where authorities in Japan were like, OK, enough. They dumped dollars to try and prop up the yen, which is super, super unusual for the Bank of Japan.

Marc Filippino
Why prop up the currency? Why dump dollars from their reserves instead of just raising the interest rate to strengthen the currency?

Katie Martin
So it’s a good question on a couple of fronts. One is, why intervene on the currency at all? Why not just let the thing fall? So the reason why the Bank of Japan is sitting on its hands and not doing anything on interest rates is because, unlike most central banks around the world, it does not have an inflation problem. It doesn’t have runaway inflation that it’s absolutely got to do something about. And the impact of a much weaker yen is actually quite mixed around Japan. Some companies are like great, you know, helps us to export. Some are saying this is incredibly painful for the dollar-denominated commodities that we have to buy in. It has a very, very mixed impact. But the reason why the authorities just decided, OK, enough, was that it was just one-way traffic in terms of the yen just falling day after day after day after day. And it gets to the point where it’s like, OK, the wheels could come off here unless somebody steps in to slow this down. Where’s it gonna end? That can get quite scary if you’re a policymaker on the other side of that.

Marc Filippino
How significant is this decision to prop up the yen, Katie?

Katie Martin
The really big thing to take away from what the Bank of Japan has done here is it’s just such a massive break with history. You know, for years and years and years, authorities in Japan have been obsessed with stopping the yen from getting too strong. And now the force of this dollar move is so significant that they’ve been forced into a total 180 on this. It’s forced them to intervene to strengthen the yen. This is absolutely not what people in markets have been used to for decades. And it’s really just a sign of how much this massive move in the dollar is bending around the whole financial system.

Marc Filippino
OK. But is this plan going to work?

Katie Martin
Generally speaking, interventions work if everybody does it. So Japan acting on its own is almost certainly not gonna have a lasting impact. It will slow down what’s been happening with the yen, but it’s not gonna turn it around because the Fed is not for budging. The reason why the yen is weak is because the dollar is strong. And you look at what the Federal Reserve has been saying over the past few days, and this central bank is not for turning. It’s gonna keep on jacking up rates until the pips squeak. So the dollar is not gonna turn around. So the yen doesn’t have an awful lot of hope of picking itself up. So now we’ve got this situation where it’s, you know, we’ve got markets in the blue corner and we’ve got the Bank of Japan in the red corner. And they’re just gonna have to fight this out and it could take ages.

Marc Filippino
Katie Martin is the FT’s markets editor. Thanks, Katie.

Katie Martin
No problem.

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Marc Filippino
Before we go, we leave you with a poem. It’s called “Arcadia”. It’s by Russian-born British poet Arch Hades.

Arch Hades
Now I feel this aching distance between me and something real.

Marc Filippino
And this? This is the poem. It’s not on paper. This nine-minute-and-48-second abstract animated video with music soundtrack and words read by the poet is an NFT or nonfungible token. Christie’s auction house calls it the first collaborative fine art NFT to come to auction. And when it hit the block, it sold for $525,000. That makes Arch Hades the highest-paid living poet of all time.

Arch Hades
I want to break free of this labyrinth, switch off all these screens.

Marc Filippino
And finally, don’t forget about our special offer, to you. No, it is not a $500,000 NFT poem. It’s a half-price annual subscription to FT.com. But now that I think about it, I guess I could turn this promo into a poem. A price once fold now is half. You can read the FT and all of its staff. A year-long subscription for all of our tales. Find it at FT.com/briefingsale. If you missed that last bit, here’s one final quote. You can find that link in our show notes.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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