CNBC International Live Sep 18, 2026
With Gautam Chadda, Executive Director at RBC Wealth Management
Japan's prime minister and finance minister have been pressing GPIF, the country's government pension fund, to move money out of overseas bonds and back into Japanese government bonds. Gautam Chadda said that rotation on its own would buy yen.
The market has read the yen's swings and the selling in Japanese government bonds as a threat to the case for owning Japanese equities. Chadda's reading is that the case was never about the currency.
"Currency is certainly one aspect, but there are other aspects to why the Japanese equity market, the Japanese re-inflation within the economy is working."
Chadda is an executive director at RBC Wealth Management, and the forecasts he cited are his own firm's capital markets analysts, who expect the Bank of Japan to raise rates at a faster cadence than it has recently.
The full segment is covered here so you can skip it.
Here are the 6 takeaways that matter.
Key Takeaways
A stronger dollar raises the liabilities of countries that borrowed in dollars, which tightens global liquidity
The same move works the other way for net energy importers, whose dollar reserves buy more oil
RBC's capital markets analysts expect a faster cadence of Bank of Japan rate rises than the recent run
GPIF selling overseas bonds to buy yen bonds would push the yen up, and Tokyo has been asking for it publicly
Chadda says the Japanese equity story is manufacturing and engineering, not the exchange rate
RBC Wealth is neutral weight Japanese equities and, on a longer view, does not want to be underweight
1. A Stronger Dollar Bites
Chadda opened on what a stronger dollar does to the rest of Asia, and the first effect he named is on balance sheets rather than trade.
Dollar strength drains global liquidity
The strength of the dollar clearly has an impact on global liquidity conditions, particularly for countries that are borrowing in US dollars.
Gautam Chadda
Because the debt is worth more in local money
If the dollar strengthens against their local domestic currency, then their liabilities are net net higher.
Gautam Chadda
2. Cheaper Energy in Dollars
The second effect runs the other way, and he tied it to the conflict in the Middle East and to how energy reaches Asia.
The other issue is where the oil comes from
And then there's the other issue around, particularly now with the conflict in the Middle East, energy supplies and energy supplies coming to Asia.
Gautam Chadda
A country whose own currency has weakened against the dollar still holds dollar reserves, and those reserves buy more energy than the same money would at home.
Which leaves importers with room to move
So, that flexibility can actually offer an opportunity for some of the countries who are net energy importers.
Gautam Chadda
3. A Faster BOJ Hike Cadence
The host turned to the Bank of Japan, Governor Ueda and the pressure a weaker yen puts on him.
The host asked how much pressure the yen creates
And I'm wondering how much pressure is a weaker yen because we are seeing the dollar back in the driving seat.
A host
And what higher rates do to Japanese shares
And what is the digestion process going to look like in Japanese equities for higher rates?
A host
Chadda said the view is that the Bank of Japan is likely to raise rates on Friday, and that RBC's capital markets analysts are forecasting a higher cadence of increases than the recent run of them.
The pace of rate rises is a currency tool
So, an increased cadence and so, that's one tool to try and stabilize the currency.
Gautam Chadda
And it is not the only one
And countries have other tools as well.
Gautam Chadda
4. GPIF Could Buy Yen Bonds
The second tool is the country's own savings. Chadda said the prime minister and the minister of finance have both been talking about getting the government pension fund to bring money home, and the reason it is now possible is that Japanese government bonds pay something.
Tokyo has been asking GPIF to come home
We've seen a lot of rhetoric from the Prime Minister and the Minister of Finance around getting the huge government GPIF fund to think about rotating out of overseas bonds and back into domestic yen bonds because the yields in yen bonds of the last few years have been diametrically opposed to what they were before.
Gautam Chadda
Domestic yields now pay enough to matter
They're meaningful today.
Gautam Chadda
Selling foreign bonds to buy Japanese ones means selling foreign currency to buy yen, which is the mechanism.
RBC's analysts expect that to lift the yen
And so our analysts feel that that could also help with the yen appreciation.
Gautam Chadda
5. Japan's Case Is Domestic
The host put the bear case in one question: whether the selling in Japanese government bonds and the swings in the exchange rate undercut the story global investors have been buying.
The host asked if the narrative is breaking
Do you feel that the selling in the JGB market and the vagaries of the dollar yen exchange rate could they detract from the entire Japan is back narrative, which has been very popular amongst global allocators?
A host
Chadda said the currency is one input and not the main one.
The reasons it is working are internal
They're more about what's happening domestically.
Gautam Chadda
His specific case is industrial. Japanese factories are producing at a scale and quality that makes the country part of the AI supply chain, and he said the AI-related demand is spreading beyond the companies usually counted in it.
Japanese manufacturing is inside the AI chain
You're starting to see manufacturing of such high scale and caliber coming out of Japan as a key ecosystem, particularly within AI-related industries and the overall ecosystem which for AI is broadening across sectors.
Gautam Chadda
And he rates Japan's position in it
And Japan is very competitive in that.
Gautam Chadda
What produces that is people, not the yen
That's less to do with the currency, more to do with the actual acumen of the companies, the people, the educational system that's leading to these engineers coming through and making those breakthroughs.
Gautam Chadda
6. Neutral Now, Not Underweight
Chadda's instruction to holders was to leave the position alone. RBC Wealth is neutral weight Japanese equities.
He told holders to stay in
Invested in Japan? Stay invested
Gautam Chadda
The longer view rules out underweight
But longer term, I don't think we want to be underweight at the moment.
Gautam Chadda
Bonus Insights
A country's response is not only its exchange rate
There's also a response function from a lot of these countries in terms of what they can do with their monetary policy and other monetary tools that they have in their arsenal.
Gautam Chadda
Chadda's point in raising it is that a currency move is not the end of the story for the country on the other side of it, because the central bank and the finance ministry both have levers of their own to pull afterward.
Chadda's bottom line is that the yen and the bond market are the near-term noise around Japanese equities, and that the reason to own them is what Japanese companies and engineers are producing for the AI build-out.
Products, Companies & Tools Mentioned
RBC Wealth Management (Chadda's firm; he cited its capital markets analysts for the forecast of a faster Bank of Japan hiking cadence and for the yen call)
GPIF (Japan's government pension fund, which the prime minister and finance minister have been urging to rotate out of overseas bonds into domestic yen bonds)
The Bank of Japan (Expected to raise rates on the Friday after the segment, with the pace of rises treated as a tool for stabilizing the currency)
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