Continuation: Turkey Shock Summary. The Turkey issue isn’t just Turkey’s problem!!

Recently, I summarized the Turkey shock.

Turkish Lira Crash! 2018 August 10 Turkey Shock Summary

This time, I’ve compiled the follow-up and how the relationships with those around are gradually becoming clearer.

◎ Turkey shock follow-up

President Erdogan (Turkey)vsPresident Trump (USA)　Deteriorating relationship!

One week after the Turkish lira crash on the weekend of last week (August 10), the market has begun to stabilize.

The lira, which had fallen to the 15-yen level, has been bought back to around the 19-yen level.

TRY/JPY Hourly chart

Turkey has announced additional tariffs on imports from the United States as retaliation.

Passenger cars 120%, alcoholic beverages 140%, chewing tobacco 60%. Also doubled for cosmetics, rice, coal, and more.

The amount is expected to be about 533 million dollars.

In addition,boycott of US goodsis also underway.

Naturally, the US is expected to intensify sanctions against Turkey.

Therefore, I’ve considered the future cautions and impacts.

★ Release of 15 Americans including Pastor Brunson

→ The US is unlikely to withdraw its demands. However, if Erdogan is released, it would be admitting defeat, so release is unlikely.

→ Further deterioration of relations is a concern!

→ Additional sanctions and impact on related countries may follow.

※Would releasing the pastor on humanitarian grounds due to health be possible!?There is also a rumor that this could avoid embarrassing either side.

★ Turkey’s future cautions

・Repair of relations with the US

I think improving relations with the US is the top priority, but as things stand, that may be difficult.

・Erdogan’s position

Turkey is transitioning to a presidential system this year, and the authoritarian regime is almost complete.

If President Erdogan resigns, could another president improve the US relationship? It seems difficult.

President Erdogan will not relinquish the authoritarian system he has built.

Also,there is no viable opponent to Erdoganin reality.

・Albayrak’s tenure as finance minister

If you cannot change the president, you would want to manage within the current system.

However,the finance minister, who is the economic commanderisAlbayrak, Erdogan’s son-in-law.

The previous finance minister had strong leadership and market trust, but Albayrak’s abilities are still unknown.

As of the recent (August 10) economic plan announcement, it does not seem promising.

・Central Bank (TCMB) independence

Another factor that is driving the lira downis the central bank’s independence.

In the previous monetary policy meeting, they could not raise rates.

Markets believe it has fallen under the president’s control.

Even with this much depreciation of the lira, an urgent rate increase has not been possible.

If the next meeting or even before that, a rate increase could change market perception.

★ Support and cooperation from neighboring countries

There are countries that would be troubled if Turkey is cornered.

The relationship between Turkey and the US is deteriorating, but both are NATO members.

Countries that side with Turkey, those side with the US, and those watching from the sidelinescould cause a rift in NATO.

I don’t think it will become a global Turkey-centric cold war, but many countries have their own issues, so some impact is expected.

・Qatar

Qatar, having once been helped by Turkey, has now expressed direct investment of 15 billion dollars (about 1.6 trillion yen) in Turkey.

This 15 billion dollars has a positive response toward Turkey.

・Europe

Europe faces refugee and fiscal problems.

Both are significantly tied to Turkey.

First, on the refugee issue, refugees are flooding from Africa and the Middle East toward Europe.

The bottlenecks for accepting them are Turkey and Italy.

So if Turkey stops accepting refugees, a large number of refugees would push into Europe.

European countries may step in to help, as they do not want a flood of refugees.

On the fiscal side,many countries hold Turkish debt, includingSpain holds the largest at $82.3 billion.

Others include,France with $38.4 billion,the United Kingdom with $19.2 billion,Japan also holding $14.0 billion.

If Turkish debt defaults, it could trigger a cascade due to Turkish debt.

A second Greek financial crisiscould occur, so there could be rescue efforts as well.

As I write this (the 16th), the French presidency has headlined that Turkey aid is promised.

It became long, but the emotional clash between President Erdogan and President Trump holds potential to cause global turmoil.

Risk around Turkey may continue in the future as well.

Securities firms and FX firms are also starting risk management.

Changes to margin maintenance requirements, and some banks are suspending currency exchanges temporarily.

Due to decreased liquidity,spreads may widen significantly.

I will carefully manage risk.