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Speaker 1: Good morning, and welcome to the Bloomberg Daybreak Asia podcast.

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Speaker 1: I'm Doug Prisner. Here are the stories we're following today.

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Speaker 2: I'm Charlie Pellett. Doug Chrisner has the week off. Asian

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Speaker 2: markets are locked in on big tech this morning, following

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Speaker 2: earnings from Microsoft, Meta and Samsung. For more, we heard

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Speaker 2: from Daniel You, head of Global Asset Allocation, that you

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Speaker 2: want to securities and he spoke with Sherry On and

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Speaker 2: Heidi Stroud Watts.

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Speaker 3: You know, obviously the global AI expansion theme is still

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Speaker 3: a key one for you. It's getting quite clear who

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Speaker 3: the winners, losers, those that are perhaps struggling to assert

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Speaker 3: dominance are. How do you view the opportunities, particularly when

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Speaker 3: it comes to the Asian names.

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Speaker 4: If you look at the global structure of this AI cycle,

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Speaker 4: we can see that it is clearly the winners are

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Speaker 4: the US companies. As you know, the AI cycle, the

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Speaker 4: infrastructure's build up is mostly based on the data centers,

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Speaker 4: and if you look at the level of data center capacities,

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Speaker 4: I think that globally, probably more than eighty percent is

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Speaker 4: all built in the US. So I think we've got

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Speaker 4: to think about that terms. So if you look at

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Speaker 4: Someson Electronics obviously having an association with NBDIA and trying

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Speaker 4: to ship out the chips. It's not really happening yet.

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Speaker 4: As you know, the Skihiinex is probably having a market

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Speaker 4: share more than eighty percent of that business. Now, as

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Speaker 4: you mentioned earlier, we look at the Micron and Micron's

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Speaker 4: competitiveness seems to be rising, so all that in terms

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Speaker 4: of the infrastructure wise, it's all related to the data

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Speaker 4: center I think more importantly though, however, we got to

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Speaker 4: look at the soap to our segment. In the past,

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Speaker 4: when there was an Internet cycle, you had a significant

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Speaker 4: amount of the capacity increase in the infrastructure for the

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Speaker 4: five years, and then a software expansion was happening over

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Speaker 4: the period of fifteen years. But it seems right now

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Speaker 4: the AI cycle wise, the hardware as well as software

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Speaker 4: is are all start to kick in. If you look

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Speaker 4: at the overall increase in the investment on the software side,

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Speaker 4: US is increasing by more than eleven percent this year.

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Speaker 4: Clearly the two digit growth numbers are happening. So I

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Speaker 4: think the speed of the penetration regarding the AI is

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Speaker 4: going to be extremely high. But it seems that the

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Speaker 4: speed of that is all focused in US rather than

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Speaker 4: any other countries. So in terms of the Asia names,

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Speaker 4: the relationship with the US is the most important thing.

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Speaker 4: So that's why if you look at the TSMC, they're

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Speaker 4: doing great. SKHI next, they're doing great, but some of

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Speaker 4: electrons are struggling. Some of the companies are also struggling.

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Speaker 3: It's interesting you use words like essential, like paramount when

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Speaker 3: it comes to these holdings, the big AI related holdings

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Speaker 3: in the US, right for mag seven and adjacent stocks.

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Speaker 3: Does that mean that view is sort of fed policy

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Speaker 3: the agnostic is it? You are selection agnostic too, Yeah.

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Speaker 5: I think that.

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Speaker 4: First of all, let's look at the interest rate front.

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Speaker 4: If you think that the AI is going to accelerate

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Speaker 4: very quickly, that reduces the risk of inflation pressure because

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Speaker 4: the productivity goes up significantly. The inflation pressure comes from

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Speaker 4: the demand side, where the investment as well as the

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Speaker 4: demand on the consumer side accelerates due to the high

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Speaker 4: salary increase. That's I guess the inflation pressure. But if

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Speaker 4: the GDP is growing on the basis of productivity improvement,

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Speaker 4: the level of the inflation pressure goes down. That's what

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Speaker 4: we saw in the Internet cycle of early nineties to

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Speaker 4: the late nineties. I think that if ai cycle continues

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Speaker 4: to expand in the US, we think that the pressure

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Speaker 4: on the inflation will be reduced and therefore that will

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Speaker 4: be able to lower the interest rate as the plant.

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Speaker 4: So so far they are lowered by about fifty basis point.

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Speaker 4: They are expected to lower by another fifty based point

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Speaker 4: by end of the year. Next year, another fifty to

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Speaker 4: seventy five basis point. I think that that's a very

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Speaker 4: reasonable number to be expected. On top of that, I

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Speaker 4: think that, however, though, what we worry about is is

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Speaker 4: that who becomes the present changes the perspective of investment cycle.

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Speaker 4: If the Trump gets into power, then we do expect

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Speaker 4: he will raise the TARFT by one hundred percent and

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Speaker 4: also lower the corporate taxt rate by six percent point.

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Speaker 4: That changed the perspective of global market and it really

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Speaker 4: benefits the US companies. So I think that that will

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Speaker 4: probably accelerate the process of information pressure, and therefore the

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Speaker 4: lowering interest rate might be taking a bit slow pace

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Speaker 4: or may not even happen. So we need to look

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Speaker 4: at that and see what happens to Daniel.

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Speaker 6: What about the currency transmission, because if we do have

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Speaker 6: a stronger US dollar because of those calculations that you

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Speaker 6: talk about, that will also mean potentially a week or yen,

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Speaker 6: and we know the Japanese companies, for example, have really

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Speaker 6: benefited from.

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Speaker 4: That, right, I think that that's basically the Kibbon given

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Speaker 4: meaning that I think if you look at Korean one

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Speaker 4: as well as Japanese yen, we do think that currently

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Speaker 4: we have a lower interest or environment. So therefore we

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Speaker 4: do expect the currencies to probably gradually depreciate rather than appreciate.

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Speaker 4: So I think in terms of the price competitiveness, Japanese

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Speaker 4: companies as well as Crean companies would probably able to

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Speaker 4: increase that. However, though, if you look at the demand

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Speaker 4: regards to the AI cycle, it's not the price only,

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Speaker 4: it's the quality of things and how competitive are you

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Speaker 4: in terms of the technology basis. So if the someting

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Speaker 4: cannot be able to capture that market share because of

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Speaker 4: the heating problem, that is an issue.

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Speaker 5: Right.

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Speaker 4: So I think that we've got to look at how

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Speaker 4: things play out. But I think as interest rate will

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Speaker 4: remain fairly reasonably high in the US versus the Asian countries,

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Speaker 4: we do think that the currency would probably gradually depreciate

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Speaker 4: for the Korean one as well as Japanese end continuously

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Speaker 4: in the future.

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Speaker 6: What are the implications of that for central banks? We

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Speaker 6: do have the Bank of Japan decision today and what

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Speaker 6: will be the transmission when it comes to the stock market.

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Speaker 4: Well, I think that it would be tough for them

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Speaker 4: to lower interest rate in any case Japan or Korea,

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Speaker 4: but whereas maybe raising interest rate. Obviously Korea is at

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Speaker 4: two point seventy five percent, so they're not going to

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Speaker 4: raise it, but probably be tougher to lower interest rate,

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Speaker 4: whereas also if you look at Japan, interest rate still

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Speaker 4: remains to be below zero point five. So I think

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Speaker 4: that they will gradually raise interest rate, but I don't

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Speaker 4: think that they can raise it further to beyond one percent,

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Speaker 4: So that won't change too much in terms of the

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Speaker 4: currency perspective. So in terms of Japanese yend, it's already

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Speaker 4: depreciated from one hundred and forty to one hundred and

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Speaker 4: fifty three or so, I think that will probably remain

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Speaker 4: somewhere unbound, trading somewhere between one hundred and forty five

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Speaker 4: to one hundred and fifty five.

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Speaker 6: Now, watching Asian markets over the years, we have realized

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Speaker 6: that any North Korea provocation, whether it's ballistic missiles, they

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Speaker 6: don't necessarily tend to have a lasting impact. Not even

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Speaker 6: defense docs move these days. But in the broader geopolitical context,

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Speaker 6: for example, what should it be on the watch out

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Speaker 6: for in the coming months.

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Speaker 4: Well, clearly, if you remember, if the Trump comes into power,

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Speaker 4: obviously he will start to talk again with Kim Jamil

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Speaker 4: of North Korea because they had that kind of peace treaty,

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Speaker 4: kind of thing he met twice right during his terms.

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Speaker 4: I think things can happen in that front. Also, if

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Speaker 4: you look at Joe political issues in terms of Israel,

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Speaker 4: if you look at the Trump perspective is things is

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Speaker 4: that he will probably end the war. That's what he's saying.

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Speaker 4: But clearly we are seeing that in terms of the

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Speaker 4: oil price implication, we're not seeing the prices going up.

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Speaker 4: Rather it's actually settling down. So jee political risk, which

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Speaker 4: affects the oil prices and inflamation and pressure seems to

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Speaker 4: be kind of dueling down. So we think that the

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Speaker 4: right now the biggest tension is the Joe political issues,

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Speaker 4: but it's at level of about thirty three percent terror risk.

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Speaker 4: We think that that percentage is expected to go down

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Speaker 4: as the present election finishes and going into the future,

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Speaker 4: So I think that that's not going to be a

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Speaker 4: major issue per se, rather than rather than an issue,

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Speaker 4: but I think it will probably gradually come down to

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Speaker 4: affect positively on the equity market.

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Speaker 6: Daniel, you always get to have you with us, head

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Speaker 6: of Global Asset Allocation at you on the securities.

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Speaker 2: I'm Charlie Palotte filling in for Doug Christmer. This week

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Speaker 2: we move next to Japan, where we'll get a decision

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Speaker 2: later today from the Bank of Japan. For more, we

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Speaker 2: heard from say Yuri Sharai, former BOG board member and

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Speaker 2: professor of economics at Kyo University, and she spoke with Bloomberg,

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Speaker 2: Sharry On and Heidi Stroud Watts.

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Speaker 6: So if we're not expecting any change on the benchmark rate,

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Speaker 6: what will you be watching?

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Speaker 7: I like to hear debut from governors how he thinks

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Speaker 7: about this excessively cheap PN and we started to have

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Speaker 7: another cheap in again. So he said, you know there

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Speaker 7: is no you know, there's a time before they can

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Speaker 7: consider another hike, but still one fifty three is excessively CHEAPN.

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Speaker 7: So it's much cheaper than you know, in August we

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Speaker 7: had like three, So this is a really having advass

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Speaker 7: impact on the inforation, right, so.

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Speaker 6: Which will really push up inflation. We should push our podcasts.

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Speaker 5: Right, So there's a contradiction.

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Speaker 6: Here, especially since the July rate hike also happened because

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Speaker 6: partly of a week or yen.

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Speaker 5: I think mainly because of that.

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Speaker 7: Of course Viogo will not say that, but because they

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Speaker 7: admit it, the yen's deplication is creating kind of bad

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Speaker 7: cost pushing information and the.

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Speaker 6: Political picture right now with the Rule and Coalition losing

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Speaker 6: its majority, that's actually weekend the yend even more, will

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Speaker 6: that happens.

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Speaker 7: Implications looks like it because no political parties talked about this,

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Speaker 7: you know, excessively accessibly cheap pen and it's impacting on information. Also,

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Speaker 7: everybody talked about price hike and so they have to

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Speaker 7: give some sublicidy to the physical policy, but nobody really

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Speaker 7: touched on this excessively cheap pn, right, so meaning that

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Speaker 7: maybe VIOG to maintain this policy. So that's why that

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Speaker 7: leads to the deprication a en at this stage because

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Speaker 7: the BOG cannot take accountdamage at this moment.

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Speaker 3: When it comes to wage growth. Wages are growing, but

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Speaker 3: real wage growth is starting to weaken. Right, do you

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Speaker 3: think that we've gotten to a point where perhaps that

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Speaker 3: could really start nate and where we are with the

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Speaker 3: virtual cycle, is there a big risk there?

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Speaker 7: So wages are growing at two point eight percent and

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Speaker 7: it's not very bad, but because the inflation is higher

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Speaker 7: and again getting higher because of the another years depliciation,

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Speaker 7: so important prices are coming up. So in that sense,

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Speaker 7: nobody really feel the real wages are growing. So that

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Speaker 7: kind of you know, situation is likely to continue. So

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Speaker 7: people do not really see our wages are going up

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Speaker 7: so they can consume more.

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Speaker 5: That kind of a.

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Speaker 7: Budger cycle is not evident existence at this stage.

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Speaker 3: And you don't think increasing the minimum wage, which of

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Speaker 3: course is being discussed from many sides politically, that that's

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Speaker 3: going to help. Is that just going to potentially force

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Speaker 3: out a lot of the companies that are really struggling

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Speaker 3: with inflationary pressures.

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Speaker 7: So all the political party talk about increasing minimum minimum

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Speaker 7: wage as if it can be a solution for raising consumption,

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Speaker 7: but a minimum wage is a legal, legal wage cent payment,

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Speaker 7: and then you know a lot of companies are struggling

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Speaker 7: from a cost push information and the additional uh you know,

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Speaker 7: legally binding a wage grows mainly many companies may not survive.

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Speaker 7: So I just wander, you know, all this political party

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Speaker 7: was as a really sought, you know, the very sluggish

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Speaker 7: REVA productivity growth.

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Speaker 5: How can they increase minimum wage?

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Speaker 7: And I don't think that will be a solution to

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Speaker 7: increase consumption.

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Speaker 6: There's two arguments, it seems right now, with what's happening

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Speaker 6: in the political instability here in Japan. One, if you

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Speaker 6: have the en weekending more the bog, it might have

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Speaker 6: to fasten the faster time and policy. But at the

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Speaker 6: same time, on the other side, if you have too

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Speaker 6: many cooks in the kitchen, will be able to actually

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Speaker 6: allow the bog to do its job.

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Speaker 7: So the difficulty is Ishibasan already said, Japan is still

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Speaker 7: not out of deferation. This is a repetition since the

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Speaker 7: economics right, And actually.

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Speaker 6: He has sort of changed his tune after he was elected.

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Speaker 5: Yeah, he changed.

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Speaker 7: So he said, okay, consumption is so weak and so

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Speaker 7: and he said the stage, you know, maintaining the interstrate

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Speaker 7: should be But if he said that, he keeps saying

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Speaker 7: that they are consumption is so weak. I mean, how

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Speaker 7: can he justify about this relating interest rate? So that

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Speaker 7: makes Bidog's decision very difficult.

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Speaker 6: How much is it also about the US elections. There's

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Speaker 6: a lot of arguments right now that are Trump victory

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Speaker 6: would mean more yen weakness.

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Speaker 7: Yeah, I think a boj it's very much worried about

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Speaker 7: the case of the mister Trump is winning because it

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Speaker 7: made it to the data strends higher interest rate, so

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Speaker 7: it makes the Japanese and much cheaper. So that makes

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Speaker 7: that they have a policy decision very very difficult. So

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Speaker 7: Dynama is getting bigger.

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Speaker 6: Do you expect to see more wage growth next year?

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Speaker 6: The Labor Federation here has said they will ask for

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Speaker 6: five percent. What is sort of the level that we

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Speaker 6: need in order to get us a stayable growth.

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Speaker 7: So if we want to achieve two percent, the information

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Speaker 7: and the real wage wage growth should be positive, saying

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Speaker 7: nominal wage growth should be three percent. Right, but like

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Speaker 7: now April to August, average information is at two point

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Speaker 7: nine percent. Right, it's good, but everybody really worked hard

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Speaker 7: two days the two days wages, and then if you

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Speaker 7: talk to the a lot of small medium enterprises, a

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Speaker 7: lot of companies, it's very difficult to continue simply because

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Speaker 7: the economy.

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Speaker 5: Is stuck not right.

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Speaker 6: So after the shows, I'm actually headed to the BOG

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Speaker 6: and we have investors trying to go through the statement

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Speaker 6: what should I be watching?

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Speaker 7: So yeah, I really want to see as a maybe

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Speaker 7: especially press conference, what mister governor where that is going

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Speaker 7: to talk about just excessively cheap Japanese en resurgence of

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Speaker 7: Japanese cheap en? You know, you know, I'm sure everybody asks.

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Speaker 7: And then what that implication is a cost push information?

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Speaker 7: So is a boj is going to so deal with

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Speaker 7: start like they did in the past.

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Speaker 6: Say you rich and I good to have you with us,

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Speaker 6: professor of Economics at Kou University, with a preview of

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Speaker 6: that BOG decision to come later today.

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