Zick Zack TikTok

By Bas van Geffen of Rabobank

In the original song, Rammstein sings about the passing of time, ‘Tick tack’, and fighting ageing with plastic surgery, ‘Zick zack’. However, with some new lyrics the key theme of the song perfectly encapsulates recent news. TikTok, time’s ticking. Snip, snip, the US government forces ByteDance to cut the social network up and divest the US part. If they don’t, the company faces a nationwide ban.

The House of Representatives passed the bill earlier this week; when the Senate will take a vote is yet unknown. Nonetheless, several tech companies are already said to be lining up for the US part of TikTok, and former Treasury Secretary Mnuchin has now also expressed his interest.

This seems to make for a great business model. Here’s the general idea:

1. Take any (successful) foreign company that could remotely pose a national security risk.
2. Force the company to divest the part of the firm that operates in the US, or threaten to ban it.
3. Set up a SPAC that can acquire said divestment.
4. Repeat.

This may sound like a bad joke. But if you think about it, China has been doing something similar for decades. Foreign companies that want access to the vast Chinese market are often forced to set up joint ventures with local firms, transferring technological know-how in the process. So why wouldn’t the US, or indeed the West more broadly, do something similar?

So far, the West has focused more on incentives, such as the CHIPS act in the US and the Chips Act in the European Union, to bring more critical production processes back home. But, as the TikTok bill illustrates, the clearer the (perceived) security risk, the bigger the urgency to use other means. Algorithms and social media tick two important boxes. That, however, can easily become a sliding scale.

Time’s also ticking down for negative interest rates policy in Japan. And probably a bit faster after today. Rengo, a federation of labour market unions, announced that it’s members have secured annual pay increases of 5.28% so far. That’s a significant increase from 3.8% last year, and the highest rate in more than three decades.

Japan’s central bankers have tied the timing of a policy change to wage developments, with markets split between a move this month or in April. Today’s wage data will probably be the final push that policymakers needed to vote in favor of a rate hike at next week’s meeting already. Such move couldn’t be more symbolic – the world is now really leaving behind the “low rates forever” era.

That said, we expect the Bank of Japan to remain cautious when it starts removing some of its policy accommodation. Subsequent tightening will probably only come gradually. Jane Foley, our Head of FX Strategy, notes that such cautious rhetoric could still expose JPY to ‘sell the news’ risk, even if the bank announces a rate hike on Tuesday. Over the months ahead we expect downside in USD/JPY to be moderate. We have 140 as a our 12 month target.