WEBVTT - BOJ Expectations, Asia Markets 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.880 This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.080 Bloomberg Business App. 0:00:30.080 --> 0:00:32.680 Joining us now for some discussion of all this is 0:00:32.680 --> 0:00:37.159 Greg Reed, DOCO, who is ey chief economist, to take 0:00:37.200 --> 0:00:40.280 a closer look, so you can look at this two ways. 0:00:40.360 --> 0:00:43.400 I mean, it's no matter what, it's a dilemma for investors, 0:00:43.440 --> 0:00:47.160 Greg and economists. You've got about ten months of falling 0:00:47.200 --> 0:00:51.040 inflation versus about two months now of stickiness, if not 0:00:51.479 --> 0:00:56.279 outright games. So what's the more actionable takeaway for you? 0:00:57.720 --> 0:01:01.680 Well, I think generally speaking, we're still on this disinflationary trend. 0:01:02.080 --> 0:01:04.080 It is true that the last couple of months have 0:01:04.160 --> 0:01:07.200 been a little bit bumpy in terms of the momentum 0:01:07.200 --> 0:01:09.560 on a month to month basis, But whether you look 0:01:09.600 --> 0:01:13.000 at CPI data, the consumer price index or PPI data 0:01:13.200 --> 0:01:17.440 the producer price index, you're still seeing the underlying fundamentals 0:01:17.760 --> 0:01:21.480 of a disinflationary trajectory. It will be bumpy. There will 0:01:21.520 --> 0:01:24.640 be some upward movement in terms of energy prices like 0:01:24.680 --> 0:01:27.840 we just saw over the course of February. But overall, 0:01:27.880 --> 0:01:31.120 when you look at pricing sensitivity, when you look at 0:01:31.160 --> 0:01:34.920 pricing power, when you look at wage growth, those are 0:01:34.959 --> 0:01:38.440 all pointing towards further disinflation in the months to come. 0:01:38.760 --> 0:01:42.640 I think the market still has to recalibrate expectations where 0:01:42.640 --> 0:01:45.600 that it wouldn't be inflation, that is, wouldn't remain as 0:01:45.640 --> 0:01:48.320 sticky as it seems to be on either the retail 0:01:48.400 --> 0:01:50.040 or the wholesale level. And if you look at what 0:01:50.080 --> 0:01:54.080 the swaps market is indicating right now, Gregory, maybe a 0:01:54.160 --> 0:01:57.200 reduction in the degree of policy easing this year. Maybe 0:01:57.200 --> 0:02:00.480 we don't get seventy five basis points in total rate cuts, 0:02:00.480 --> 0:02:03.000 maybe it's close to the fifty and maybe the first 0:02:03.000 --> 0:02:06.280 cut is not until July. Does that square with your 0:02:06.280 --> 0:02:08.720 thinking that's a possibility. 0:02:08.840 --> 0:02:12.760 I think the market has repriced the expectations for a 0:02:12.760 --> 0:02:16.440 FED rate cut. You may recall that just six weeks 0:02:16.440 --> 0:02:21.440 ago before the January meeting FMC meeting, we had markets 0:02:21.440 --> 0:02:25.840 anticipating six rate cuts, almost seven with an onset in March, 0:02:26.280 --> 0:02:28.880 that got pushed back quite a bit, and now we're 0:02:28.919 --> 0:02:32.079 down to three rate cuts that are expected by investors 0:02:32.120 --> 0:02:35.800 starting in July. So that is a big shift in 0:02:35.880 --> 0:02:38.880 terms of market pricing. What I would caution is that 0:02:38.919 --> 0:02:41.720 the January data, and to some extent the February data, 0:02:41.919 --> 0:02:45.920 has been quite noisy. We've seen significant revisions in the 0:02:45.919 --> 0:02:48.920 employment numbers, for instance. We know that there was a 0:02:48.960 --> 0:02:52.920 lot of noisiness in the CPI data with January resets, 0:02:53.480 --> 0:02:57.880 with some seasonal factors, with some methodology issues in terms 0:02:57.880 --> 0:03:01.080 of the owner's equivalent rent component. I'm getting into the 0:03:01.080 --> 0:03:04.040 weeds here, but just to say that you have to 0:03:04.240 --> 0:03:06.880 really look for the signal in the data, and the 0:03:06.960 --> 0:03:10.360 signal is still pointing towards a disinflationary trend. So I 0:03:10.360 --> 0:03:13.800 think the Fed will likely consider easing monetary policy in 0:03:13.919 --> 0:03:16.639 June with about one hundred bases points of rate cuts, 0:03:17.000 --> 0:03:21.160 because both inflation and the employment mandate will be more 0:03:21.160 --> 0:03:22.400 in line with what they're expecting. 0:03:22.760 --> 0:03:25.120 Interesting, you won't like my next question, I don't think, 0:03:26.600 --> 0:03:29.600 But well, I mean, obviously a little bit higher inflation 0:03:30.000 --> 0:03:32.520 with a little bit stronger growth, I mean we can 0:03:32.560 --> 0:03:35.240 probably handle that. It just kind of pushes out the 0:03:35.320 --> 0:03:40.480 eventual coming down of inflation and probably growth coming down. However, 0:03:41.280 --> 0:03:43.880 there are some signs that growth is stalling at a 0:03:43.920 --> 0:03:46.640 time when you've got higher prices, and so that inevitably 0:03:46.680 --> 0:03:50.240 brings stagflation into the picture. I'm not sure whether or 0:03:50.280 --> 0:03:52.640 not you're in that camp, and it's probably too soon 0:03:52.720 --> 0:03:55.000 to talk about it, but is it at least a 0:03:55.040 --> 0:03:55.640 growing risk. 0:03:57.040 --> 0:03:59.320 It is definitely one of the key risks for the 0:03:59.400 --> 0:04:02.840 US economy. That risk of stagflation, where you have limited growth, 0:04:02.880 --> 0:04:06.320 if not contraction in economic activity and higher inflation, is 0:04:06.360 --> 0:04:08.520 definitely a risk. But I would point to the fact 0:04:08.520 --> 0:04:11.080 that while twenty twenty three was a lot or a 0:04:11.080 --> 0:04:13.160 lot of the story in twenty twenty three was about 0:04:13.480 --> 0:04:16.400 a strong economy where the supply side of the economy 0:04:16.520 --> 0:04:21.160 was rebounding strongly and allowing inflation to cool. We're probably 0:04:21.200 --> 0:04:23.320 going to be more in a normal environment in twenty 0:04:23.360 --> 0:04:26.520 twenty four, where slower final demand growth is going to 0:04:26.560 --> 0:04:29.960 put downward pressure on prices. I was talking earlier about 0:04:30.000 --> 0:04:33.400 pricing sensitivity. We're starting to see it. We saw retail 0:04:33.480 --> 0:04:37.920 sales were weaker than expected. Consumers are exercising more scrutiny 0:04:38.200 --> 0:04:41.279 in a higher price environment. That is a sign of 0:04:41.360 --> 0:04:44.880 disinflationary momentum to come, and I would anticipate that as 0:04:44.920 --> 0:04:48.880 the economy slows, as employment slows, income is also going 0:04:48.920 --> 0:04:52.080 to slow. That's going to force consumers to be more scrutinized, 0:04:52.600 --> 0:04:55.640 scrutinizing of how much they spend, and that will put 0:04:55.680 --> 0:04:58.440 further downward pressure on inflation. It's not going to be 0:04:58.480 --> 0:05:01.320 a retrenchment, but it will likely be a slowdown in 0:05:01.360 --> 0:05:04.360 employment and a slowdown in inflation that leads to fed 0:05:04.640 --> 0:05:06.360 the ease monetary policy gradually. 0:05:06.440 --> 0:05:09.400 I'd like to get your take on the American manufacturing 0:05:09.440 --> 0:05:12.000 economy tomorrow. We got a couple of key data points, 0:05:12.200 --> 0:05:17.640 US industrial production and the regional Empire manufacturing data. What 0:05:17.760 --> 0:05:21.800 is your feeling about American manufacturing overall? 0:05:21.880 --> 0:05:24.880 It's been quite interesting to see the resilience in US 0:05:24.960 --> 0:05:29.599 manufacturing despite global weakness. We know that in China, we 0:05:29.680 --> 0:05:33.400 know that in Germany, the industrial side of these economies 0:05:33.440 --> 0:05:37.200 has been a key drag on economic momentum. In the 0:05:37.360 --> 0:05:42.080 US force manufacturing is less significant, representing about thirteen to 0:05:42.120 --> 0:05:46.440 fourteen percent of the overall economy, but importantly we've seen 0:05:46.640 --> 0:05:51.600 this desire to rebuild manufacturing capacity be a strong driver 0:05:52.120 --> 0:05:56.040 of overall economic activity on the manufacturing side, or nowhere 0:05:56.080 --> 0:05:58.760 near any type of boom on the manufacturing front. If 0:05:58.800 --> 0:06:01.160 you look at the annual page of growth, it's very 0:06:01.160 --> 0:06:05.480 close to zero. But nonetheless that comes despite a global 0:06:05.520 --> 0:06:09.400 backdrop that is quite concerning. As we see this global 0:06:09.400 --> 0:06:13.240 backdrop on the manufacturing front starting to stabilize and probably 0:06:13.279 --> 0:06:17.240 finding a bottom that is going to be supportive of 0:06:18.040 --> 0:06:21.719 braddle upward momentum in the US, and we'll probably move 0:06:21.760 --> 0:06:24.120 back above that zero percent line. 0:06:24.680 --> 0:06:26.880 We talked a little bit about international, so let's talk 0:06:26.880 --> 0:06:29.360 to Japan. We've got the largest union group in Japan 0:06:29.480 --> 0:06:32.520 coming out with the wages requests and data today, so 0:06:32.560 --> 0:06:33.960 that's going to be a very big thing. It'll be 0:06:34.000 --> 0:06:37.640 this afternoon, and then we'll have the BOJ on Tuesday. 0:06:37.960 --> 0:06:40.880 Are we getting close enough do you think? Of course, 0:06:40.920 --> 0:06:42.880 depending on what we see in the wages, are we 0:06:42.920 --> 0:06:45.560 getting close enough to start thinking that the BOJ will 0:06:45.600 --> 0:06:46.640 act next Tuesday? 0:06:47.720 --> 0:06:50.120 Yeah, I think we're getting pretty close to the point 0:06:50.120 --> 0:06:53.520 at which the BOJ not only exits the negative interest 0:06:53.560 --> 0:06:57.120 rate world, but also let's go of its healed curve 0:06:57.160 --> 0:07:01.599 control policy. Both of the are or have been tied 0:07:01.720 --> 0:07:04.760 to an environment where Japan has been struggling with deflation. 0:07:04.880 --> 0:07:06.720 This is not a new story. This has been an 0:07:06.760 --> 0:07:10.120 ongoing story, but it had been exacerbated prior to the 0:07:10.200 --> 0:07:14.120 COVID crisis. Now we're seeing more of an inflationary environment 0:07:14.200 --> 0:07:17.360 in Japan. Inflation touch four percent. It has now come 0:07:17.400 --> 0:07:20.640 down a little bit, but wage growth have accelerated. They're 0:07:20.760 --> 0:07:24.240 likely in the wage negotiations going to be around five percent. 0:07:24.840 --> 0:07:28.680 That is forcing the BOJ to consider adopting a slightly 0:07:29.320 --> 0:07:32.760 more hawkish tone and more hawkish policy. And I think 0:07:32.960 --> 0:07:36.000 those types of developments on the wage front are likely 0:07:36.040 --> 0:07:39.280 to lead the BOJ to both exit its negative interest 0:07:39.320 --> 0:07:43.600 rate environment and let go of its yield control, either 0:07:43.640 --> 0:07:46.680 at this meeting in a week or in April. 0:07:46.920 --> 0:07:49.520 Gregory, last question, I can give you thirty seconds, but 0:07:49.560 --> 0:07:51.800 I'd like to get your view on the Chinese economy. 0:07:51.800 --> 0:07:55.120 We've been talking about slow growth and deflation. What's your 0:07:55.200 --> 0:07:56.400 view on China right now? 0:07:57.560 --> 0:08:01.320 In thirty seconds. I think we have a structural slowdown 0:08:01.440 --> 0:08:05.320 of the Chinese economy that will unlikely be the global 0:08:05.360 --> 0:08:08.560 engine of growth as it has been over the past decade. 0:08:08.880 --> 0:08:11.960 But from a cyclical perspective, perhaps we are finding a 0:08:12.000 --> 0:08:15.320 floor in terms of economic activity and there might be 0:08:15.360 --> 0:08:17.920 a little bit more momentum as we navigate through the 0:08:17.920 --> 0:08:18.520 rest of the year. 0:08:19.400 --> 0:08:21.480 All Right, Gregory, thanks very much for being with us. 0:08:21.920 --> 0:08:24.200 At least we did not ask you the dreaded question 0:08:24.240 --> 0:08:27.360 about the stock market, so you won one there from us. 0:08:27.520 --> 0:08:30.640 Thanks for joining us, Gregory dot o Ey, chief economist, 0:08:31.000 --> 0:08:54.200 looking more closely at economic performance really all around the world. Well, 0:08:54.280 --> 0:08:56.520 joining us now for some discussion of markets in our 0:08:56.559 --> 0:09:00.640 studios here in Hong Kong. Is Villain Sells gloio at 0:09:00.800 --> 0:09:05.560 HSBC Global Private Banking and Wealth. Villain, thanks very much 0:09:05.559 --> 0:09:07.440 for coming into our studios here. I know you're normally 0:09:07.480 --> 0:09:10.040 based in London. Let's talk a little bit about the 0:09:10.040 --> 0:09:13.199 investment climate in the United States after that hot PPI reading. 0:09:13.480 --> 0:09:16.480 We've had both hot CPI and PPI now for a 0:09:16.480 --> 0:09:20.520 couple of months, and it presents investors and economists, I 0:09:20.559 --> 0:09:22.960 suppose with a little bit of a dilemma. The long 0:09:23.000 --> 0:09:27.240 trend is disinflation, but the short trend is stickiness, which 0:09:27.320 --> 0:09:28.120 is more important. 0:09:28.559 --> 0:09:31.000 The long trend is more important, so we put our 0:09:31.040 --> 0:09:33.400 cash to work. We have zero percent cash in our 0:09:33.440 --> 0:09:36.520 model portfolios. Currently we have overweights in both bonds and 0:09:36.559 --> 0:09:39.320 in the equity market. In the bond market is basically 0:09:39.400 --> 0:09:42.480 to lock in those attractive bond y'lt. So we would 0:09:42.520 --> 0:09:46.080 use any sort of volatility from those short term ups 0:09:46.080 --> 0:09:48.520 and downs, you know, to step in into the bond 0:09:48.559 --> 0:09:51.040 market and to lock that in in the equity market. 0:09:51.120 --> 0:09:54.800 I think it's interesting to see that you see margin expansion, 0:09:54.840 --> 0:09:58.679 earnings expansion, and actually the equity markets are somewhat less 0:09:58.720 --> 0:10:01.640 concerned because of them than the bond market about those 0:10:01.640 --> 0:10:02.680 inflation figures. 0:10:02.960 --> 0:10:06.800 How do you look at liquidity right now globally? Are 0:10:06.800 --> 0:10:09.199 we looking at excessive levels of liquidity? 0:10:10.400 --> 0:10:12.760 There is a lot of liquidity. You had a headline 0:10:12.800 --> 0:10:16.080 this morning on the Terminal and talking about you know, 0:10:16.200 --> 0:10:19.640 record and money market holdings. You know, so there's certainly 0:10:19.760 --> 0:10:21.840 still a lot of money that can be put to work, 0:10:22.040 --> 0:10:24.160 and we do think it will go into both bonds 0:10:24.200 --> 0:10:27.800 and equities and actually also into alternatives where we see 0:10:27.840 --> 0:10:31.840 opportunities as well. That means to me that you know, 0:10:32.000 --> 0:10:37.960 concerns that or comments that is investor positioning is stretched 0:10:38.160 --> 0:10:42.040 or sentiment to stretched, I think those are probably you know, 0:10:42.080 --> 0:10:45.280 incorrect because indeed, you know that money can still be 0:10:45.320 --> 0:10:45.920 put to work. 0:10:46.880 --> 0:10:49.680 Villain. There are some people worried about the possibility of 0:10:49.679 --> 0:10:51.920 stagflation down the road, But then you can also look 0:10:51.960 --> 0:10:54.200 at the growth and commodities here. Of late, we've seen 0:10:54.440 --> 0:10:56.480 a little break in trend. It's been a long downward trend. 0:10:56.520 --> 0:10:59.720 Now is trending up a little, and I'm wondering whether 0:10:59.800 --> 0:11:02.760 or not we can draw any conclusions from that along 0:11:02.800 --> 0:11:05.960 with you know, the little bit stickier inflation suggests that 0:11:06.040 --> 0:11:08.640 growth is sticky too, and maybe we go into an 0:11:08.840 --> 0:11:11.240 upticking growth globally. Do you see it that way or no? 0:11:11.520 --> 0:11:13.720 Exactly. You can't be negative on both. I would I 0:11:13.720 --> 0:11:16.920 would actually be, you know, relatively encouraged by both. But 0:11:17.040 --> 0:11:19.360 I could accept the argument that in the shorter time 0:11:19.400 --> 0:11:22.640 we will see some inflation volatility on the growth side. 0:11:22.679 --> 0:11:25.760 Though I am an optimist, I do think that, you know, 0:11:25.800 --> 0:11:29.200 a US recession is very unlikely. Even Europe, I think, 0:11:29.240 --> 0:11:33.160 has seen the lowest, you know, quarter of growth, slowest 0:11:33.240 --> 0:11:35.400 quarter of growth, and we will see a very very 0:11:35.440 --> 0:11:38.080 mild acceleration from there. And then in China we have 0:11:38.200 --> 0:11:41.120 all of that stimulus which is probably putting a bottom 0:11:41.200 --> 0:11:45.680 under you know, economic growth, So you know, we are 0:11:45.960 --> 0:11:49.679 cyclically exposed in in the US and that's where where 0:11:49.679 --> 0:11:52.640 our overweight is as well. So on the stackflations, it's 0:11:52.679 --> 0:11:54.480 certainly not a stack part. 0:11:55.120 --> 0:11:59.240 What about the enthusiasm surrounding artificial intelligence, I know it's 0:11:59.240 --> 0:12:01.840 been a key I were of so many different threads 0:12:01.840 --> 0:12:04.160 of the equity market here in the US. I mean 0:12:04.440 --> 0:12:06.680 you can look at a company like in Nvidia as 0:12:06.840 --> 0:12:10.480 being emblematic of that euphoria. Is this something that you 0:12:10.600 --> 0:12:14.760 think is peaked or does that still have the potential 0:12:14.800 --> 0:12:16.240 to extend gains? 0:12:17.080 --> 0:12:20.920 So we have an we are basically looking mostly at 0:12:21.000 --> 0:12:24.120 how is that AI now going to translate into the 0:12:24.120 --> 0:12:26.800 rest of the economy and not just in a handful 0:12:26.840 --> 0:12:30.040 of stocks. And you know, the encouraging part there is 0:12:30.080 --> 0:12:34.040 that any any business owner that I talked to, and 0:12:34.080 --> 0:12:37.080 obviously we have a lot of business owners amongst our clients, 0:12:37.320 --> 0:12:40.040 they're all telling me they're using AI. For some of 0:12:40.040 --> 0:12:42.800 them it is still marginal, but for some of them 0:12:42.840 --> 0:12:45.720 it is really now quite substantial. So that is going 0:12:45.760 --> 0:12:49.959 to you know, percolate through the rest of the economy 0:12:50.120 --> 0:12:53.320 in terms of efficiency gains and so on. Robotics is 0:12:53.320 --> 0:12:57.000 a specific you know topic where obviously it is already 0:12:57.080 --> 0:13:00.960 leading to you know, lots of innovation. I would say 0:13:01.040 --> 0:13:07.360 healthcare innovation is also supported you know by AI. And 0:13:07.400 --> 0:13:11.480 then obviously a lot of you know, the in the 0:13:11.520 --> 0:13:14.320 electric vehicle or the vehicle industry more generally as well. 0:13:14.840 --> 0:13:17.200 You know, a lot of that is going into there, 0:13:17.240 --> 0:13:21.839 so you can have indirect place which are obviously quite 0:13:21.920 --> 0:13:24.400 quite a lot cheaper than the direct place. At this 0:13:24.480 --> 0:13:25.200 point in time. 0:13:25.600 --> 0:13:27.600 I want to go back to China for just a moment. 0:13:28.040 --> 0:13:30.960 HSBC obviously was so much business in Hong Kong and 0:13:31.000 --> 0:13:34.640 such a long presence out here Shanghai and Hong Kong, 0:13:34.840 --> 0:13:37.240 and you know, built into your name, so we're looking 0:13:37.320 --> 0:13:41.880 for expertise. Don't disappoint. The economic activity looks mixed at 0:13:41.880 --> 0:13:44.720 the start of the year. We've got this five percent target, 0:13:44.800 --> 0:13:47.439 We've still got a major drag from property. When we're 0:13:47.480 --> 0:13:50.240 weigh it all up, how are we moving through this 0:13:50.360 --> 0:13:51.320 year in China? 0:13:51.760 --> 0:13:54.880 So the consensus forecast ten hours as well are relatively 0:13:54.960 --> 0:13:57.559 flat in terms of economic growth over if you look 0:13:57.600 --> 0:14:01.520 at different quarters. This is a central momentum in a 0:14:01.559 --> 0:14:04.120 certain way that's already you know, I think that will 0:14:04.160 --> 0:14:08.080 already help in terms of market sentiment. You know that 0:14:08.120 --> 0:14:11.360 we're not decelerating from here, and I think that similus 0:14:11.440 --> 0:14:14.880 is really critical. You know, the only thing that we're 0:14:14.920 --> 0:14:17.040 not seeing at this point in time is a sharp 0:14:17.080 --> 0:14:19.880 acceleration of that activity, either on the economic side or 0:14:19.920 --> 0:14:22.600 on the earnings, and I think that is what you know, 0:14:23.760 --> 0:14:26.200 investors are looking for. That being said, we have a 0:14:26.240 --> 0:14:28.400 neutral and not an underweight at this point in time 0:14:28.440 --> 0:14:31.640 because we do believe that number one, valuations are very low. 0:14:31.960 --> 0:14:37.240 Number two foreign investors in particular are very underweight and 0:14:37.440 --> 0:14:40.320 in my view, would be very unlikely to be able 0:14:40.360 --> 0:14:45.080 to further sell, but are waiting for that acceleration to 0:14:45.240 --> 0:14:48.320 step in. There are also some sectors which are doing well, 0:14:48.400 --> 0:14:51.360 right so electric vehicles are doing well. There is obviously 0:14:51.400 --> 0:14:52.520 activity as well. 0:14:52.880 --> 0:14:55.000 View ideas straighting down now is so much. 0:14:54.880 --> 0:14:57.480 Competition, but they but they are gain they have a 0:14:57.520 --> 0:14:59.960 lot of market share gains, right so you know, hence 0:15:00.080 --> 0:15:05.400 the European auto manufacturers, you know, being quite worried about 0:15:05.400 --> 0:15:06.120 this to. 0:15:06.160 --> 0:15:06.760 Say the least. 0:15:06.880 --> 0:15:10.000 Yeah, well that's a great point. I mean, geopolitics, how 0:15:10.080 --> 0:15:13.040 is it influencing market behavior right now? Whether you're looking 0:15:13.120 --> 0:15:16.400 at something is you know, simple as let's say, US 0:15:16.440 --> 0:15:19.920 export controls on advanced technology to China. You mentioned the 0:15:20.000 --> 0:15:24.480 evs manufactured in China, trying to find a market in Europe. 0:15:24.880 --> 0:15:28.240 Is geopolitics kind of foremost in your mind when you 0:15:28.280 --> 0:15:29.520 evaluate opportunity? 0:15:30.160 --> 0:15:32.600 It is a It is a discussion point with clients. 0:15:32.640 --> 0:15:35.320 The difficulty always is number one to forecast it and 0:15:35.440 --> 0:15:38.720 number two to forecast the timing. You know, also what people, 0:15:39.360 --> 0:15:42.440 you know, the presidential candidates for example, we're not necessarily 0:15:42.480 --> 0:15:45.440 sure they would indeed implement what they are saying, so 0:15:45.960 --> 0:15:50.600 you know, very hard to invest on that basis, and 0:15:50.640 --> 0:15:53.000 I don't think it would be you know, very wise 0:15:53.080 --> 0:15:56.760 to second guess. But so the US itself has an 0:15:57.080 --> 0:16:00.000 you know, economic and earnings engine which is very strong, 0:16:00.520 --> 0:16:03.400 and therefore that's a big overweight for US. The other 0:16:03.480 --> 0:16:06.960 bit within Asia, the way that we deal with geopolitics 0:16:07.000 --> 0:16:11.520 there is we diversify our exposure. So whilst we are 0:16:11.600 --> 0:16:15.080 neutral on China, we have overweights in India, Indonesia, South 0:16:15.160 --> 0:16:19.240 Korea and Japan, so four countries where we see opportunities, 0:16:19.240 --> 0:16:22.600 and that allows you to be somewhat less exposed to this. 0:16:23.720 --> 0:16:27.000 So it sounds like you're fairly optimistic out of time now, 0:16:27.040 --> 0:16:30.800 but I suppose one interesting possibility might be you mentioned 0:16:30.800 --> 0:16:33.840 the foreign buyers back to a certain degree with Chinese equities. 0:16:34.040 --> 0:16:35.880 If you had foreign buyers at the same time as 0:16:35.920 --> 0:16:38.640 you had the national team buying, then maybe you would 0:16:38.640 --> 0:16:40.560 have something more to talk about. Villain. Thank you for 0:16:40.640 --> 0:17:00.840 joining us film selves from HSBC. We are joined by 0:17:00.880 --> 0:17:06.040 Taro Kimura Bloomberg Japan economists with us in our Tokyo studios. 0:17:06.600 --> 0:17:09.159 Tara Kumura, Thanks very much for joining us. You know, 0:17:09.240 --> 0:17:12.280 are we likely to see an adjudgment made by the 0:17:12.280 --> 0:17:15.720 bo J as a result of what these numbers will 0:17:15.800 --> 0:17:16.320 likely say? 0:17:17.560 --> 0:17:20.679 Hi, thanks for having me. I think it's likely to 0:17:21.119 --> 0:17:24.840 It's it's a high probability, I will say, although it's 0:17:24.880 --> 0:17:27.880 not my baseline, but the march is moved the next week. 0:17:27.920 --> 0:17:31.520 Moves by the BOJ is plausible in a sense that 0:17:31.840 --> 0:17:34.920 like the media reports are saying that the BOJ board 0:17:35.000 --> 0:17:39.080 is moulleling based on what we see on the trade 0:17:39.200 --> 0:17:44.600 unions agreed pay raises, and I think the race growth 0:17:44.760 --> 0:17:48.480 was what was long being missing piece for the BOJ 0:17:49.240 --> 0:17:52.879 that renders them to continue easy monetary policy. They stimulated 0:17:52.880 --> 0:17:56.560 the economy, but waste growth was very wobily, but finally 0:17:57.560 --> 0:18:02.119 pushed up by recent inflation. It's became a wake up 0:18:02.160 --> 0:18:07.360 call for the labor unions to restart requesting strong pay rises, 0:18:07.400 --> 0:18:10.760 which they hadn't done for many years. And that's making 0:18:10.800 --> 0:18:14.320 a kind of upbeat note in the spring waste negotiations. 0:18:14.359 --> 0:18:18.440 And that's if we see a positive number, the strong 0:18:18.520 --> 0:18:21.080 number in a grid rage rasis that pushes the WOH 0:18:21.240 --> 0:18:21.600 to move. 0:18:22.160 --> 0:18:25.240 So there I understand it. I'm maybe going to oversimplify 0:18:25.400 --> 0:18:28.159 three basic threads to the policy right now. There's the 0:18:28.200 --> 0:18:31.960 purchases of the ETFs, there's yield curve control, and there's 0:18:32.040 --> 0:18:35.040 the negative policy rate. If you had to kind of 0:18:35.520 --> 0:18:39.840 predict a sequencing of changes in each one of those, 0:18:40.200 --> 0:18:42.160 what would it look like. Do you begin to dial 0:18:42.240 --> 0:18:45.720 back on your ETF purchases initially? Do you change the 0:18:45.760 --> 0:18:49.840 policy from a negative ten basis points to let's say 0:18:49.960 --> 0:18:52.280 zero percent? Is that the next step and then the 0:18:52.359 --> 0:18:55.159 last step is yield curve control or I'm curious what 0:18:55.359 --> 0:18:56.760 would the sequencing look like? 0:18:58.600 --> 0:19:02.800 In my view? Whenever the bo J's move is gonna be, 0:19:03.760 --> 0:19:07.600 I think the BOJ will and all of this stuff 0:19:07.840 --> 0:19:12.600 at this u uh simultaneously, meaning and negative rates rates 0:19:12.640 --> 0:19:16.320 and also and youth curve control and stop purchasing ETFs 0:19:16.600 --> 0:19:21.760 because it's a package that was introduced by previous governor Krouda, 0:19:22.280 --> 0:19:25.280 and I think where the new governor Kazu Weda was 0:19:25.280 --> 0:19:28.560 seeking a timing to pivot from those policy packages. That 0:19:28.600 --> 0:19:31.360 doesn't mean that like the Bank of Japan suddenly become 0:19:31.400 --> 0:19:35.600 aggressive and stop purchasing JGB at all. UH. Probably they 0:19:35.640 --> 0:19:39.600 will end the youth curve control UH the package itself, 0:19:39.680 --> 0:19:43.880 but I think they will keep continue some measures UH 0:19:43.920 --> 0:19:48.240 to purchase Japanese government bonds so that the long term 0:19:48.240 --> 0:19:52.200 meals UH wasn't suddenly right Sharply. 0:19:53.240 --> 0:19:56.120 Do you think they we'll see capital abroad come back 0:19:56.160 --> 0:19:58.840 to Japan or do you think things will stay pretty 0:19:58.880 --> 0:19:59.560 much the same. 0:20:00.440 --> 0:20:04.080 I think it depends on how the BOH will communicate 0:20:04.560 --> 0:20:11.879 on the policy after ending negative interest rates. So in 0:20:11.920 --> 0:20:14.840 my view, if the Bank of Japan moves next week, 0:20:15.160 --> 0:20:18.040 that means from an economists point of view, still the 0:20:18.080 --> 0:20:21.359 prices are globally and information they get whether there is 0:20:21.520 --> 0:20:25.359 actually secured two percent inflation steadily, it's still kind of 0:20:25.400 --> 0:20:28.520 not enough. That means that speaks to me that the 0:20:28.680 --> 0:20:33.960 Bank of Japan Policy Board is tilting towards normalization instead 0:20:34.000 --> 0:20:38.840 of purely pursuing steady two percent inflation because recent readings 0:20:38.840 --> 0:20:42.280 by about consumption or CPI is actually weak. So that 0:20:42.359 --> 0:20:46.000 speaks to me, if they move next week, it means 0:20:46.040 --> 0:20:49.280 they move in haste, and that means their will to 0:20:49.359 --> 0:20:52.720 normalize policy is strong. So that will end up probably 0:20:52.960 --> 0:20:56.199 not just ending negative interest rate policy, and probably they 0:20:56.240 --> 0:21:00.600 will move to gradual rate hikes once or twice this year. 0:21:00.760 --> 0:21:03.600 That means the weight will raise in Japan, and probably 0:21:03.640 --> 0:21:07.800 we will see some unwind of Yan carry trade, and yes, 0:21:08.200 --> 0:21:10.560 the investment to Japan may come back. 0:21:10.840 --> 0:21:13.280 Maybe we can move away from the theoretical for the 0:21:13.280 --> 0:21:16.040 moment and get into the practical. And you can, as 0:21:16.119 --> 0:21:19.880 a as a resident of the Japanese capital, describe for 0:21:19.960 --> 0:21:25.000 us what the actual effect of inflation is right now, 0:21:25.000 --> 0:21:27.760 and the average consumer in Japan, how is it showing up? 0:21:27.840 --> 0:21:31.760 What is it like living there when inflation is now 0:21:31.840 --> 0:21:34.440 after three decades beginning to occur. 0:21:35.119 --> 0:21:40.000 Right So basically like me growing up in Japan, I 0:21:40.600 --> 0:21:45.320 learned the concept of inflation in college from macroeconomics textbook, 0:21:46.000 --> 0:21:48.840 and before that I was even aware. I wasn't even 0:21:48.920 --> 0:21:52.440 aware that the price of a certain thing could change 0:21:53.040 --> 0:21:58.359 without its intrinsic value moving. So I think it's like 0:21:58.440 --> 0:22:02.280 for one generation people didn't see inflation, and finally they 0:22:03.000 --> 0:22:07.000 tangibly recognized, oh, that's the inflation. And probably that's making 0:22:07.000 --> 0:22:10.320 a difference in the waste negotiation process and also in 0:22:10.400 --> 0:22:13.880 the deflation. It's optimal for Japanese people to put your 0:22:13.920 --> 0:22:18.879 cash in the bank's deposit, but faced with inflation, including me, 0:22:19.280 --> 0:22:23.840 they probably the individuals have to reconsider about their asset 0:22:23.920 --> 0:22:27.480 management strategies. So Japan is kind of known as people 0:22:27.480 --> 0:22:31.159 are reluctant to invest in stocks because it used to 0:22:31.200 --> 0:22:34.400 be something that just declines. But now things are changing 0:22:34.480 --> 0:22:39.080 and probably the household investments towards asset or other stocks 0:22:39.119 --> 0:22:44.800 or other assets may become some factors that strengthen picking 0:22:44.920 --> 0:22:46.440 up of the acid prices in Japan. 0:22:47.640 --> 0:22:50.480 Tara, thanks very much for joining us. Taro Kumura, Bloomberg 0:22:50.520 --> 0:22:53.159 Japan economists so refreshing. An economists too. Used to be 0:22:53.160 --> 0:22:57.120 at the Bank of Japan now with Bloomberg who had 0:22:57.119 --> 0:22:59.320 a great little anecdote there that he had to learn 0:22:59.320 --> 0:23:02.919 about inflation from the textbooks. Unbelievable and it's so cool. 0:23:11.600 --> 0:23:14.520 This has been the Bloomberg Daybreak Asia podcast, bringing you 0:23:14.600 --> 0:23:17.720 the stories making news and moving markets in the Asia Pacific. 0:23:18.200 --> 0:23:21.320 Visit the Bloomberg Podcast channel on YouTube to get more 0:23:21.359 --> 0:23:24.960