The U.S. 20- and 30-year

The U.S. 20- and 30-year Treasury yields are above 5.0%, the 10-year Treasury yields are close to 4.5%. U.S. Treasury yields… It seems to show once again that it doesn’t go down easily. This level was back in April. Confidence in U.S. Treasuries is falling… It’s back to where it was when we talked about it, but… The cause is different. Inflation concerns are at the heart of it.

The U.S. consumer price index was in line with market expectations… It’s up a lot from last month. It’s about 3 percent a year in terms of core prices, excluding food and energy prices. And you have to remember, this is inflation over the last year. So that means prices are up 3 percent in June of this year compared to June of last year. And by the way, June of last year… It’s already been a huge increase in prices. They’ve already gone up a lot…. Even with that price, it still hasn’t returned to the Fed’s 2% target… Inflation looks like it’s not easy.

The only thing that’s encouraging is that the housing prices, which were so high last year, are now… getting caught. The problem is… The price of housing is okay now.. Commodity prices that were so quiet last year are rocking. And at the heart of that is the risk of tariffs. And while they’re relatively stable, we also need to keep an eye on service prices. And right now, we’re cracking down on illegal immigration in the U.S. If we can limit the immigration of low-cost labor with the crackdown on illegal immigration, and if we have that reasonable expectation… Your employer wants to tie up some of the existing employees rather than quit. Allow higher wages? And if you look at commodity prices… There’s something a little unexpected. It shows that the prices of used and new cars have fallen. Personally, I think it’s a matter of time difference… Maybe… I think next month or the month after that, there will be a pretty strong rise in used car prices.

Since the beginning of the year, companies in the U.S. have been trying to build up inventory by significantly increasing imports. And there’s involuntary and spontaneous inventory accumulation. If you produce something, you produce it, and it doesn’t sell it, it’s involuntary inventory accumulation. It’s not like this in the U.S. right now. On the other hand, if you expand production because you think it’s going to sell too well, you’re going to have voluntary inventory accumulation. But.. It doesn’t seem like this textbook stock accumulation right now. Before the tariffs, companies were willing to stock up at the lowest possible price before the tariffs were imposed. If you have three to four months’ worth of inventory, you’ll be able to withstand it even after the tariffs. Even if tariffs are actually imposed on August 1st… We still have some stock left… We can use that to keep the price increase from the tariffs going to the consumer, but the 10% basic tariffs already imposed, 25% tariffs on vehicles, 50% tariffs on steel… I think it will have an impact on the market in the near future. That’s why I told you that it’s important to look at the flow of new and used car prices…

This could come as quite a burden for the Fed. When Fed members hear this advice… Nobody is going to be able to easily think about it and walk by. Prices that are already going up in 2021… No, they’re not going to be able to move on to a rate cut, looking at prices that are very likely to be going up. And if there’s anything that shakes the Fed’s independence here, what about U.S. Treasury rates… The vigilantes in the bond market may be on the move. And such vigilante action can bring not only domestic but foreign investors to join the ranks. The tariffs are now driving global public sentiment toward the United States… If you can’t sell your existing U.S. government bonds, you can be passive in buying more U.S. government bonds. Japan’s relationship with the U.S. doesn’t look very good these days..

Yes, I pointed out about prices and interest rates. Next is the exchange rate. The dollar exchange rate has risen below the 1,390 won mark again. It has turned around quite a bit since the exchange rate fell sharply in May… It’s not that it’s weakened against the U.S. dollar, but because most of the world’s currencies are weak against the dollar… The dollar index has crossed the 98 level again. It’s not a problem for Korea… It is correct to interpret that the U.S. dollar itself has become stronger.

Let’s go back to May. Why did the exchange rate fall back then? There was talk of an imminent agreement between the U.S. and China. If there was a trade agreement, wouldn’t the agreement package contain a tolerance for a weaker dollar? That’s the Mar-a-Lago agreement. That’s what the Miran report says. Few people are talking about right now. First of all, there’s a strong perception that it’s too much… It’s going to be fast… There are going to be 90 agreements in the 90-day grace period, which is, today, three agreements have been made up to Indonesia, where we were expecting the dollar to weaken in advance as we saw the imminent agreement. But… Since we can’t reach an agreement yet… Until we reach an agreement… Shouldn’t countries weaken their currencies to some extent? That way… Pressure on the dollar to weaken… Even if the domestic currency is under pressure to appreciate… It’ll be less shocking as you’ve already made it weak..

How to move the exchange rate… There’s a lot of things, but… One of them is a rate cut. It gives a justification for a rate cut. As the tariff war with the U.S. slowed export growth, they cut interest rates to boost domestic demand. And that’s the logic. But actually, rather than that… If the U.S. slows down its interest rate cut and other countries cut interest rates… While widening the interest rate gap between the two countries… You can control the pace of your local currency’s weakness, or the dollar’s appreciation, probably throughout the second half of the year… In another sense, I think that the pace of the dollar’s weakening will appear.

And… It’s also paying attention to the movement of the Chinese yuan. The yuan strengthens against the dollar