CH70
Drrring! Drrring!
"What's going on? Why such a violent reaction to a mere 25bp increase?"
"Check the corporate bond situation too!"
Amid the chaos, Andrew, who had come out with Seok-won, hurried back to his seat to control the trades.
At that moment, a young trader with black hair, seeing Andrew, urgently said:
"The 10-year U.S. Treasury yield has surged by 11bp!"
"What's the situation with the 2-year?"
As he threw his outerwear onto the chair carelessly, Andrew asked.
"It's up by more than 28bp."
"As expected, the 2-year bond is reacting strongly due to its sensitivity to changes in the policy rate."
Andrew, who had approached from behind with Landon, looked at the chunky CRT monitor installed on the desk as Seok-won spoke.
The screen showing the government bond trading data displayed green numbers frantically moving, reflecting the shocked state of the market.
After quickly scanning the numbers, Andrew straightened up and turned to look at him.
"The declines are notable, but I wouldn't call it a crash—yet."
Seok-won, with his arms crossed and a relaxed expression, spoke.
"It's only the first trigger being pulled. There's no need to rush."
"..."
"The screens flooding with sell orders are proof that the market is already shaking," he added.
It was clear that, in comparison to the Federal Reserve's interest rate hike, the market's reaction was much more intense, revealing just how vulnerable and anxious the market was.
Even at that moment, as numbers rapidly changed and orders piled up on the monitor screen, Seok-won curled one side of his lip upward.
"Not long from now, when the second shock hits, this fragile market will collapse entirely, like walking on thin ice."
Andrew didn't know whether the "second shockwave" Seokwon referred to would come from hedge funds unloading positions or a sharp yen appreciation.
However, one thing was certain: the bond market's atmosphere, once full of optimism, had completely changed.
'If both of these hit the market at once…'
Andrew, imagining the dreadful scenario in his mind, unconsciously swallowed his dry saliva.
Then, he couldn't help but think, with some admiration, that Seok-won, who had orchestrated all of this, was truly impressive.
Unlike a little while ago when he had been restless, Landon now appeared calm, rubbing his palms together as he spoke.
"For other hedge funds, this is hell, but for us, it's a jackpot."
Sensing the scent of money, Landon beamed with energy, giving a thumbs-up.
"Once again, you're hitting a great shot. Truly, you're the boss."
Seok-won smiled faintly and turned to Andrew.
"The more the market collapses, the more it benefits us. So, let's just sit back and watch the show. When the time comes, we'll walk away and lock in our profits."
Although there was still a need to monitor the situation a little longer, Andrew, whose trust in Seok-won had deepened after this event, responded without hesitation.
"Understood."
Seok-won, lifting his gaze to the large screen at the front, smiled faintly as he watched not only the bond market but also the stock market decline, signaling a bearish trend.
***
One week later, at the White House Brady Press Briefing Room in Washington.
The room was filled with journalists wearing press passes around their necks, and a television camera was set up in front of the podium for a live broadcast.
The press conference, held immediately after a high-profile summit between the U.S. and Japanese leaders, drew even more attention due to the ongoing trade dispute.
"The President will be arriving shortly," a staffer announced, prompting the reporters to rise from their seats.
At the White House staff's announcement, all the reporters stood up from their seats.
Soon, President Philip Davidson, blonde and accompanied by his staff, entered through the side door.
As the television cameras followed his steps, President Davidson, standing at the podium with the large White House logo behind him, began his remarks.
Noticing his stiff expression, a brown-haired female journalist, sitting in the second row, whispered to her colleague sitting next to her.
"By his expression, it looks like the results weren't good."
The colleague, wearing a striped tie, glanced at President Davidson before looking back at his notepad, pen in hand.
"Given that they're holding a separate press conference instead of a joint announcement, it's pretty obvious."
If the summit had gone well, as the colleague pointed out, the U.S. and Japanese leaders would have appeared together, smiling, for a joint press conference.
The female journalist, who was about to say something more, immediately fell silent as she saw the President begin to speak.
"As you all know, today I had a summit with Japanese Prime Minister Suzuki Gota during his visit to Washington."
The reporters, who were sitting attentively, began taking notes as President Davidson, looking directly at the television camera, continued speaking in a solemn voice.
"We had in-depth discussions on the issue of reducing Japan's trade surplus with the United States through market opening, but unfortunately, we were unable to reach an agreement."
As expected, when it was confirmed that the negotiations had broken down, there was a brief stir in the press room.
"Both countries made their best efforts to reach an agreement, but unfortunately, we were unable to come to an agreement on any of the four areas, including automobiles, that were outlined by the U.S. and Japan last July. While we could have issued a typical joint statement, I believe that having no agreement at all is better than a meaningless one."
Japan, being a traditional ally and with the summit just concluded, usually adjusted the tone of its statements, even when the desired result was not achieved.
However, when President Davidson showed a notably tough stance without such adjustments, the Japanese reporters in the room wore expressions of surprise.
"While the U.S. and Japan will continue to maintain a strong relationship, ultimately, the Japanese market must be more open to the U.S. than it is now."
Since the outcome of the negotiations had been unfavourable, President Davidson quickly wrapped up his remarks, and the session moved on to questions from the press.
"I will take questions now."
Several reporters simultaneously raised their hands, and the White House spokesperson, standing off to the side, pointed to the brown-haired female reporter who had been chatting with a colleague earlier.
"The lady over there."
The lucky reporter's eyes sparkled as she quickly asked her question.
"Before the summit, Secretary of Commerce Vincent stated that if the trade negotiations failed, the U.S. would consider all possible measures, including intervening in the foreign exchange market to increase the value of the yen. Do you agree with this statement?"
It was a sensitive issue, and while President Davidson could have avoided answering, he did not hesitate and responded directly.
"This is an issue we will need to consider moving forward, so there is nothing definitive at this time. However, one thing is clear: we will take all necessary measures to ensure the opening of Japan's market."
Normally, the session would have ended here, but the reporter quickly asked another question.
"Does this include the permanent reinstatement of Super 301, which has been discussed in the Senate among the possible measures?"
President Davidson hesitated for a moment before nodding.
"If necessary, we will not rule that out."
The room erupted with surprise at President Davidson's bombshell statement.
The press room quickly became chaotic as reporters scrambled to extract any further information from the President. Amid the commotion, the Japanese reporters wore expressions of shock, bordering on disbelief.
At the same time, in the penthouse of the Plaza Hotel in New York.
["Are you saying that invoking Super 301 against Japan is a possibility, Mr. President? Does your statement serve as a warning to the Japanese government?"]
Sitting comfortably on a luxurious leather sofa in the living room, Seok-won watched the press conference unfold, which had been turned upside down by President Davidson's bombshell remark. He muttered casually to himself.
"Super 301… Looks like the President made a deliberate choice to say that."
It was understandable, as Super 301 was a provision of the Trade Act of 1988 that allowed the U.S. administration to take retaliatory actions, including discriminatory measures, against trading partners. Super 301 was a particularly feared measure, enabling the President to impose retaliatory tariffs and import quotas—actions that could be sweeping and severe.
"Just mentioning Super 301 would be shocking enough, but now he's talking about a strong yen too. Japan is going to be completely shaken."
Given the significant impact his words could have on U.S.-Japan relations, it was clear that the President's statement was no accident.
It was undoubtedly a carefully calculated statement, intended to pressure Japanese Prime Minister Suzuki Gota and the Japanese government.
"But what they probably didn't anticipate is that this won't just stop at the yen—it will loop around and end up devastating hedge funds and the international bond market."
From a traditional perspective, a rising yen shouldn't have affected inflation or bond prices, so this was expected.
However, overlooking the fact that hedge funds had piled on leverage across assets worldwide in pursuit of profits was a huge mistake.
"The yen is one of the currencies where hedge funds have made their biggest bets, along with the pound."
As he smiled, thinking about the storm that was about to hit, his phone, placed on the table, rang loudly.
He picked up the phone, and Landon's excited voice came through the speaker.
[Boss! The dollar-yen exchange rate just broke 108 yen and is skyrocketing!]
Leaning back against the sofa, Seok-won responded, as if it were obvious.
"Well, with none other than the U.S. president openly encouraging a stronger yen, the market was bound to get a shock."
[I expected negotiations with Japan to be tough, but I never thought the White House would go this far.]
"The more they strike Japan, the better it will be for their election campaign. They'll keep up the tough stance until they get the desired result."
Landon agreed, his tone still excited.
[Even the opposition Republican Party, mindful of Rust Belt workers, isn't opposed to the bill permanently reinstating Super 301. They're actually cooperating with it. I expected that too.]
Landon continued, still full of excitement.
[Looks like the strong yen trend will last for a while.]
"That's right. To stop the yen from rising, the White House would need Japan to open up its market to the extent they're satisfied, but realistically, that's not going to be easy."
Seok-won gripped his phone tighter and continued speaking.
"Moreover, this will remind Japan of the nightmare of the 1985 Plaza Accord, which will only push the yen to rise even further."
The Plaza Accord, which artificially inflated the value of the yen and caused Japan's economy to collapse almost overnight, was an unforgettable and traumatic event for both the Japanese government and its citizens.
[Even if Super 301 is reinstated, it would be a burden to use it against our ally Japan, but exchange rates can serve as a direct pressure tool. It seems like the White House's strategy really hit Japan's weak spot.]
"From the Japanese government's perspective, this must be a really difficult situation. But, thanks to this, we're in line to make a huge profit, so it's a win for us."
[Ha ha ha! That's right.]
Landon let out a loud laugh before asking in a sly tone.
[How high do you think the yen will go?]
Seok-won thought for a moment before responding.
"At least 7%. So let's hold our positions until then."
[7%! Whew. Just thinking about it is already sweet.]
After giving a few more instructions, Seok-won ended the call. By then, the press conference had already concluded.
The studio anchor was summarizing President Davidson's remarks on the television screen, and as Seok-won picked up the under-rock glass from the table, the sound of ice clinking echoed. He took a sip of the cold whiskey and muttered softly.
"The yen is just the appetizer. The real game is in the bonds."
With a deep smile on his face, he leisurely settled back into the sofa.
TL/n -
Super 301 refers to a specific provision under Section 301 of the United States Trade Act of 1974. It allows the President to take appropriate action, including tariff-based and non-tariff-based retaliation, against foreign countries that violate international trade agreements or engage in unjustified, unreasonable, or discriminatory trade practices.
***
The James S. Brady Press Briefing Room is a small theatre in the West Wing of the White House. Here, the White House press secretary conducts briefings for the media, and the President of the United States occasionally addresses the press and the nation.
The room was named in honour of James S. Brady, a White House press secretary who was severely injured during an assassination attempt on President Ronald Reagan in 1981. It was originally constructed in 1970 during the Nixon administration and is located where President Franklin D. Roosevelt's swimming pool once was.
***