Godzilla exits Japan = USD JPY 85-95, Tech Wars & Biden’s Asia Pivot

But the icing on the cake is that having short USD JPY exposure could potentially also be a great hedge if we run into market volatility linked to the US elections.

Secondly, structurally speaking, Japan and the BoJ are at the endgame of what everyone else (including the Fed) is doing. The only difference is that the US is four times the size of Japan, the Fed’s BS/GDP ratio is currently around 30% and the USD is a dominant global reserve currency.

All this implies that we could be in for a greater than 150% run in the S&P and a much deeper depreciation in the USD, perhaps up to -30% from the 103 highs of the DXY over the next few years.  

US/China, same-same yet different under a Biden administration 

A second term for Trump isn’t likely to bring too much delta for the Asia Pacific. However, a Biden/Harris win could see two conflicting changes in volatility.

US/CH relations, while unlikely to defrost, are likely to get more stable in regard to agreeing to disagree (meaning lower volatility on trade/commerce). But on the flip side, there could be an increase in volatility from a geopolitical territorial and sovereignty standpoint. A Biden presidency would likely pivot back into Asia – bringing Taiwan, Japan, Vietnam and the Philippines back into focus on their relationships with China.

What Tech Wars?

The next decade is likely to determine which nations and regions dominate the next big structural upgrade in technology globally. What potentially makes it different this time is the rate of technological advancements – like compounding interest or constantly rising ‘tech gamma’ in this case – which could lead to a scenario where no one can ever catch up to the number one.
 
While these leaps are always challenging to conceptualise, try to think about the upgrade of horses in the 1910s to cars, wood to steel tools, oil lamps to electricity.

China seems to be head and shoulders above most of its western peers in understanding that underlying tech infrastructure is going to set the bell curve of a multi-decade competitive edge. And with 1.4 billion people, the second biggest economy in the world and an ability to focus nearly limitless resources, in time this technological shift will be without question. 

In essence, in the next decade we are likely to see a fork between a western-led consortium and a China-led consortium on the adoption of NextGen technological architecture. This is the architecture that will power Augmented Reality, Virtual Reality, Artificial Intelligence, Machine Learning and Autonomous Vehicles – in addition to bringing unlimited streaming and cloud software anywhere.

This is likely to have waterfall effects, from chip suppliers choosing sides to beneficiary countries in the likes of Vietnam and Taiwan. While complicated for multinational corporations, from a wider perspective, greater technological competition is likely to be a huge net positive for long-term productivity and quality of growth, as well as acting as a force against the climate crisis.