WEBVTT - Japan's LDP-Led Alliance Loses Majority

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<v Speaker 1>Good morning, and welcome to the Bloomberg Daybreak Asia podcast.

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<v Speaker 1>I'm Doug Prisoner. Here are the stories we're following today.

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<v Speaker 2>I'm Charlie Pelotin for Doug Crisner this week, and Japan

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<v Speaker 2>is facing a period of political instability after the ruling

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<v Speaker 2>coalition failed to win a majority in parliament for the

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<v Speaker 2>first time since two thousand and nine. It sets up

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<v Speaker 2>a race among the country's two main blocks to form

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<v Speaker 2>a government. For more, Bloomberg Shrryon spoke with Alistair Gail

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<v Speaker 2>Bloomberg japan Eco Gov reporter. Let's listen in.

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<v Speaker 3>Will the Prime Minister be able to hold.

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<v Speaker 2>Onto his job right?

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<v Speaker 4>As you say, it's been a long night for the

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<v Speaker 4>Prime Minister. It's going to feel particularly cold and wet

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<v Speaker 4>for him this morning. So everything is up into the

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<v Speaker 4>air at the moment. The LDP has fullen a long

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<v Speaker 4>way short of the goal that Prime Minister issue a

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<v Speaker 4>set of securing a majority with its coalition part of Cometo.

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<v Speaker 4>So now they have to try and form some kind

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<v Speaker 4>of government, either working with one of the smaller opposition

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<v Speaker 4>parties formerly bringing them into the coalition, or trying to

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<v Speaker 4>find a way to work with them on individual policy issues,

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<v Speaker 4>and the Prime Minister has said that he's willing to

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<v Speaker 4>do that. But we'll find out, hopefully today, you know,

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<v Speaker 4>how they're going to think about trying to form some

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<v Speaker 4>kind of government.

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<v Speaker 3>What are the policies that could be most impacted.

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<v Speaker 4>Well, anybody who has been invited into the coalition is

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<v Speaker 4>likely to have requests. There'll be policy things that some

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<v Speaker 4>of these smaller parties will want. Specifically, the parties that

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<v Speaker 4>are most likely to join the coalition want a cut

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<v Speaker 4>in the sales tax, perhaps an increase in the tax

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<v Speaker 4>free allowance on income. So those will be the things

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<v Speaker 4>that the LdB will have to think about whether they

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<v Speaker 4>can stomach those to bring these parties into the coalition.

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<v Speaker 3>At least, when it comes to the different parties, it

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<v Speaker 3>seems the biggest winner was a Constitutional Democratic Party. What

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<v Speaker 3>does that mean for the future of Japan.

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<v Speaker 4>Well, yes, as you say, the Constitution Democratic Party did

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<v Speaker 4>extremely well. They are now the second large well they

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<v Speaker 4>are still the second largest party, but they have many

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<v Speaker 4>more seats and their leader has said that he actually

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<v Speaker 4>wants to try and form a government with other opposition parties.

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<v Speaker 4>That seems like an outside possibility right now, but at

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<v Speaker 4>least what we do have is more of a two

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<v Speaker 4>party system here in Japan. The LDP has been so dominant,

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<v Speaker 4>but with the CDP now gaining more seats, they will

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<v Speaker 4>feel that they have momentum, feel that they'll be able

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<v Speaker 4>to impose their requests more on the government, and Japan

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<v Speaker 4>will be back to a sort of you know, perhaps

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<v Speaker 4>a stronger opposition and that will hold the LDP to account.

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<v Speaker 3>A weekend government, though, does mean that we might not

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<v Speaker 3>see a clear path when it comes to the Japanese economy.

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<v Speaker 3>We have the Bank of Japan policy decision on Thursday.

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<v Speaker 3>How consequential could this be?

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<v Speaker 4>That's right, I mean, it's you know, all of these

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<v Speaker 4>issues now become very murky because what Isshuba has to

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<v Speaker 4>do in the next thirty days is to try and form

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<v Speaker 4>a government, which means that, you know, when it's things

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<v Speaker 4>like policy issues, when his priority is doing things like

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<v Speaker 4>raising the tax rates to pay for defense, that becomes

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<v Speaker 4>a lot harder. And then maybe people inside the ruling

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<v Speaker 4>party who feel that they now have you know, the momentum,

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<v Speaker 4>they may be able to kind of raise their voices

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<v Speaker 4>on things like BOJ policies. So it does become harder

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<v Speaker 4>for the boj particularly if the markets are in turmoil,

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<v Speaker 4>to think about when it could next raise interest rates.

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<v Speaker 3>Oh Japan Economy and Government reporter Alisair Gil thank you

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<v Speaker 3>so much for coming out here in the Rain as

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<v Speaker 3>we dissect, of course, a parliamentary election right now and

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<v Speaker 3>the result.

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<v Speaker 2>Markets in the APAC region are coming online against the

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<v Speaker 2>backdrop of elections from Japan to the United States. For more,

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<v Speaker 2>we heard from Naomi Fink, chief Global strategistic Nico Asset Management.

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<v Speaker 2>She spoke earlier with Bloomberg Sherryon in Tokyo.

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<v Speaker 3>Already we're seeing the Japanese yen under pressure. What are

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<v Speaker 3>your expectations of how the session will go?

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<v Speaker 5>Yes, thanks very much. I think that this probably does

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<v Speaker 5>look like maybe a larger than expected laws for the

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<v Speaker 5>LDP when we look at the markets, but I think

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<v Speaker 5>that the short term moves in the markets may not last,

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<v Speaker 5>even if we do see some pressure on stocks. Of course,

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<v Speaker 5>at least short term traders are probably going to make

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<v Speaker 5>short term moves, but there are plenty of longer term

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<v Speaker 5>investors wanting to capitalize on those volatile moves and buy

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<v Speaker 5>on the dips. And the earnings are there, the valuation

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<v Speaker 5>doesn't look too stretched and the economy is turning toward

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<v Speaker 5>more domestic demand growth.

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<v Speaker 3>I do wonder what happens if Prime Minister issue Ba

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<v Speaker 3>actually resigns. We are getting his press conference at two pm.

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<v Speaker 3>Barclets was saying we could see a two percent spike

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<v Speaker 3>on the end on risk of moves.

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<v Speaker 5>Well, I mean, if we do see risk off, it

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<v Speaker 5>probably has to be a little bit more globalized than

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<v Speaker 5>just the end, because of course, with currencies, you have

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<v Speaker 5>at least two currencies at play, and the end doesn't

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<v Speaker 5>yield as much as the dollar, and that's kind of

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<v Speaker 5>a fact, and so it would I would find it

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<v Speaker 5>hard to see that move really last, even if it

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<v Speaker 5>does happen.

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<v Speaker 3>We continue to see a weakening of the Japanese yend,

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<v Speaker 3>which is already the worst G ten performer this year.

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<v Speaker 3>What does that mean for the markets, especially for equities

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<v Speaker 3>exporters that are reliant on selling products overseas well.

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<v Speaker 5>I mean, if we see weakening in the end, of

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<v Speaker 5>course for the exporters it's it's really positive. But I

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<v Speaker 5>think counterbalancing that, we do have a Bank of Japan

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<v Speaker 5>meeting coming up. I don't really expect them to do

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<v Speaker 5>anything right now, but we have had quite a lot

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<v Speaker 5>of price tikes in food and beverage for example, that's

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<v Speaker 5>hitting households. So the BOJ can't totally back off from

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<v Speaker 5>its tightening regime. It may avoid volatility, as we have

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<v Speaker 5>heard them say this, but I think that if we

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<v Speaker 5>do see any weakening in the end, JA gets more

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<v Speaker 5>vigilant and perhaps more all else equel bias to eventually hike.

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<v Speaker 3>Do you see a virtuous cycle finally setting in here

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<v Speaker 3>in Japan with inflationary pressures beans sustainable?

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<v Speaker 6>Now?

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<v Speaker 5>I do see some signals of a virtuous circle, but

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<v Speaker 5>it's not something that's created overnight. I mean we are

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<v Speaker 5>seeing things like wage rises and some months we've seen

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<v Speaker 5>real wage rises. We've seen some positive signals for next

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<v Speaker 5>year shunto, we have seen domestic demands start to pick up.

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<v Speaker 5>But it's not just one and done. It's a process

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<v Speaker 5>that has to continue. So I think we have a

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<v Speaker 5>lot of the pieces in place, and it will take time,

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<v Speaker 5>and so long as we don't have some sort of

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<v Speaker 5>market collapse, which I don't foresee, then I think the

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<v Speaker 5>process will continue.

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<v Speaker 3>What do you expect from the Bank of Japan this week?

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<v Speaker 5>Well, I think the Bank of Japan is going to

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<v Speaker 5>give us some messaging, and that messaging probably is that

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<v Speaker 5>it remains on its hiking path. The Bank of Japan

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<v Speaker 5>has over this whole regime pledged to remain behind the curve,

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<v Speaker 5>and that's consistent with allowing prices to pick up first

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<v Speaker 5>and then acting prices are picking up. So I would

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<v Speaker 5>imagine that they're not going to abandon their their hike regime.

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<v Speaker 3>There's a weekend government less than clear mandate for Prime

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<v Speaker 3>Minister Shiget to issueva affect that calculation for the BOJ.

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<v Speaker 5>Well, I think the BOJ will avoid short term volatility,

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<v Speaker 5>but that's probably it. I mean, one of the beauties

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<v Speaker 5>of having an autonomous central bank is that they respond

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<v Speaker 5>to inflation and growth. So if inflation expectations suddenly start

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<v Speaker 5>falling through, okay, they'll rethink. But I don't think that

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<v Speaker 5>the Bank of Japan is going to change everything just

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<v Speaker 5>because of the political developments. I think they will look

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<v Speaker 5>through this and take a look at what's going on

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<v Speaker 5>with inflation and growth.

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<v Speaker 3>When do you expect the next great hike to come

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<v Speaker 3>from the Bank of Japan and what could that mean

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<v Speaker 3>for the yen and stock markets?

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<v Speaker 5>Well, I mean, we have seen some price hikes this

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<v Speaker 5>month even and if we actually see those come through

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<v Speaker 5>a bit stronger in November, it's possible we might have

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<v Speaker 5>a hike before the end of the year. Of course,

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<v Speaker 5>we also have the US elections, and if we have

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<v Speaker 5>volatility around that, that can also affect the boj's calculation.

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<v Speaker 3>As you said, I mean, in order for the yen

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<v Speaker 3>to move, you have the US dollar on the other side,

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<v Speaker 3>and we continue to see strength there.

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<v Speaker 5>Well, I think that this is if we take a

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<v Speaker 5>look at the Japanese elections versus the US elections, probably

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<v Speaker 5>markets are kind of gearing more for volatility around the

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<v Speaker 5>US elections rather than the Japanese elections. Maybe that's why

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<v Speaker 5>it was more of a surprise that we had an

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<v Speaker 5>unexpected outcome. But we still have that ahead of us,

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<v Speaker 5>so I think that, you know, we can't really make

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<v Speaker 5>any foregone conclusions before some of these big events are over.

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<v Speaker 2>I'm Charlie Pellett. Doug Chrisner has the week off. We

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<v Speaker 2>heard earlier from Diana Mossini, deputy chief economist at AMP,

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<v Speaker 2>and she shared her outlook for global markets with Bloomberg's

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<v Speaker 2>Heidi Stroud Watts in Hong Kong.

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<v Speaker 7>Kind of a resounding theme that we've been dealing with

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<v Speaker 7>when it comes to the US economy has been so

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<v Speaker 7>much strength and momentum for the consumer. So to that end,

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<v Speaker 7>do you think that PC number is one that we

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<v Speaker 7>need to look more closely at this week?

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<v Speaker 6>Well, the PC number tends to move around a bit

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<v Speaker 6>slower than the headline inflation figures, and I doubt that

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<v Speaker 6>this week's figures will actually tell us anything new. Basically,

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<v Speaker 6>inflation's moving in the right direction. The FED can keep

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<v Speaker 6>cutting rates, but probably at a softer pace than where

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<v Speaker 6>we assumed a few months ago. We were always with

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<v Speaker 6>the view that market pricing for the FED went a

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<v Speaker 6>bit too hard. Into the end of this year, market

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<v Speaker 6>was pricing in about one hundred and twenty five basis

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<v Speaker 6>points at one point worth of cuts we had the fifty.

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<v Speaker 6>I think it's likely that we'll see two more twenty

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<v Speaker 6>five bases point rate cuts. But the economic data is

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<v Speaker 6>just holding up so strongly in the US that there

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<v Speaker 6>is real no need for the FED to go harder

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<v Speaker 6>right now, and especially at the time when bond yields arising,

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<v Speaker 6>which sort of threatens the outlook for equity markets. I

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<v Speaker 6>think that will play into the mind of the Federal

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<v Speaker 6>Reserve as well.

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<v Speaker 7>Is it difficult to sort of assign the significance when

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<v Speaker 7>it comes to the jobs numbers on Friday, given we

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<v Speaker 7>know there's a number of hurricane as well as labor

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<v Speaker 7>strike for lated factors that play there.

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<v Speaker 6>Absolutely. I think the volatility in the figures last month

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<v Speaker 6>with the unemployment rate falling and then with some of

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<v Speaker 6>those natural disasters for this month's figures, we'll really complicate

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<v Speaker 6>the analysis. So if we take into account what some

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<v Speaker 6>of the other labor market indicators are telling us, things

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<v Speaker 6>like initial jobless claims, continuing jobless claim some of the

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<v Speaker 6>jobs leading indicators like job advertisements, job vacancies. I mean,

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<v Speaker 6>they're still pointing to the labor market basically softening but

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<v Speaker 6>not falling off the cliff, and that I think is

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<v Speaker 6>really what's key. The unemployment rate doesn't look like it's

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<v Speaker 6>going to keep urging like you know it often does

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<v Speaker 6>in periods where the US economy is going to slow,

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<v Speaker 6>and that's likely for next year that US economic growth

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<v Speaker 6>is going to be softer. But it is hard to

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<v Speaker 6>see the unemployment rate rising significantly above five percent in

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<v Speaker 6>the US, or even really above four point six percent

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<v Speaker 6>or so. So I think that the outlook for the

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<v Speaker 6>labor market from the federal reserves point of view is

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<v Speaker 6>basically one where we see further weakening and employment growth,

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<v Speaker 6>but we don't see a big increase to the unemployment rate,

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<v Speaker 6>which is really good news for consumers and allows that

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<v Speaker 6>normalization of interest rates to go quite slowly rather than

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<v Speaker 6>to see fast rate cuts. And I think that that's

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<v Speaker 6>a good outcome for share markets as well, because if

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<v Speaker 6>we got a big increase to the unemployment rate, that

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<v Speaker 6>would really lead to concerns that the US is in

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<v Speaker 6>a recession or at least potentially headed into one.

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<v Speaker 7>Govn Aweta has said that, you know, there's obviously clear focus,

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<v Speaker 7>a careful focus on where the US economy heads as

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<v Speaker 7>to the decision making for the BOJ as well. I

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<v Speaker 7>do wonder with the kind of political uncertainty now, the

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<v Speaker 7>failure to win that coalition majority, do you think that

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<v Speaker 7>has an impact on monetary policy going forward, certainly on

0:12:09.559 --> 0:12:10.840
<v Speaker 7>fiscal policy settings.

0:12:12.360 --> 0:12:15.880
<v Speaker 6>Yeah, the short term, I think it will impact or

0:12:15.920 --> 0:12:19.760
<v Speaker 6>limit the Bank of Japan's ability to potentially raise interest rates.

0:12:20.040 --> 0:12:22.640
<v Speaker 6>I mean, it already looked like the Bank of Japan

0:12:23.040 --> 0:12:27.880
<v Speaker 6>was hoping that they didn't need to raise rates as

0:12:27.960 --> 0:12:31.440
<v Speaker 6>aggressively as potentially what we thought a few months ago.

0:12:32.040 --> 0:12:35.719
<v Speaker 6>So I still think that the outlook for Japan is

0:12:35.760 --> 0:12:39.320
<v Speaker 6>one where there is a normalization to interest rates, where

0:12:40.280 --> 0:12:43.640
<v Speaker 6>the Bank of Japan does have to raise rates, but

0:12:43.679 --> 0:12:46.560
<v Speaker 6>that process can probably occur a bit slower because we

0:12:46.600 --> 0:12:49.280
<v Speaker 6>know that a key concern for households in Japan has

0:12:49.320 --> 0:12:50.960
<v Speaker 6>also been the cost of living, like it has in

0:12:51.000 --> 0:12:53.319
<v Speaker 6>a lot of the Western world and a lot of

0:12:53.360 --> 0:12:57.920
<v Speaker 6>the advanced economies. But at the current difficult point in

0:12:59.800 --> 0:13:03.040
<v Speaker 6>their in their political cycle, it will be hard for

0:13:03.080 --> 0:13:05.160
<v Speaker 6>the Bank of Japan to raise rates because it will

0:13:05.200 --> 0:13:08.480
<v Speaker 6>again lead to concerns further concerns of cost of living issues.

0:13:08.480 --> 0:13:12.319
<v Speaker 6>And also, if you look at the core inflation data

0:13:12.360 --> 0:13:14.640
<v Speaker 6>for Japan, it doesn't really scream at you that the

0:13:14.679 --> 0:13:16.400
<v Speaker 6>Bank of Japan needs to hype rates.

0:13:16.480 --> 0:13:17.040
<v Speaker 7>Right now.

0:13:17.320 --> 0:13:20.280
<v Speaker 6>Core inflation is still sub two percent in Japan, so

0:13:20.720 --> 0:13:23.120
<v Speaker 6>it's not like the same situation that we dealt with

0:13:23.120 --> 0:13:25.400
<v Speaker 6>in some of the advanced economies where core inflation was

0:13:25.440 --> 0:13:28.200
<v Speaker 6>running at four percent and above in annual terms. It

0:13:28.280 --> 0:13:29.440
<v Speaker 6>is a lot slower in Japan.

0:13:30.520 --> 0:13:32.920
<v Speaker 7>And finally, Diana, of course, we're just under two weeks

0:13:32.920 --> 0:13:34.760
<v Speaker 7>now from the US election, And it was interesting we

0:13:34.760 --> 0:13:36.840
<v Speaker 7>heard from the Vice Finance Minister of China of the

0:13:36.840 --> 0:13:40.240
<v Speaker 7>weekend talking about how the dedication in terms of these

0:13:40.280 --> 0:13:42.920
<v Speaker 7>new policies for stimulus to try and lift demand and

0:13:42.960 --> 0:13:45.960
<v Speaker 7>lift the consumer. How much harder does that job get

0:13:46.320 --> 0:13:49.360
<v Speaker 7>if we do see further tariffs and the very hawkish

0:13:49.480 --> 0:13:52.240
<v Speaker 7>trade policy reenacted after that election.

0:13:53.320 --> 0:13:56.520
<v Speaker 6>Well, the difficulty is some of those trade policies that

0:13:56.559 --> 0:14:00.440
<v Speaker 6>we may get if we get a Republican president or

0:14:01.240 --> 0:14:03.840
<v Speaker 6>or a red sweep which to make it easier for

0:14:03.840 --> 0:14:06.840
<v Speaker 6>the tariffs to be passed, we will not get any

0:14:06.880 --> 0:14:10.520
<v Speaker 6>signs of what that looks like until next year when

0:14:11.160 --> 0:14:14.720
<v Speaker 6>if Trump is actually re elected. So in the short

0:14:14.800 --> 0:14:17.920
<v Speaker 6>term markets will worry about what that means. But I

0:14:17.960 --> 0:14:20.080
<v Speaker 6>think that Marcus will probably focus more on the potential

0:14:20.120 --> 0:14:22.800
<v Speaker 6>tax cut that are likely to come under a red

0:14:22.800 --> 0:14:27.400
<v Speaker 6>sweep or a Republican victory, and then that problem of

0:14:27.440 --> 0:14:30.680
<v Speaker 6>tariff's will probably be something that markets focus on next year.

0:14:30.960 --> 0:14:33.560
<v Speaker 6>And the same goes for the implications for China. It's

0:14:33.600 --> 0:14:36.880
<v Speaker 6>hard to know what actually happens until we get concrete

0:14:36.880 --> 0:14:40.000
<v Speaker 6>policies out of the Republicans. We don't know what percentage tariffs,

0:14:40.000 --> 0:14:44.080
<v Speaker 6>they'll actually impose whether there'll be some deals that go

0:14:44.160 --> 0:14:48.320
<v Speaker 6>with that. This training issue will extend over multiple years.

0:14:48.520 --> 0:14:51.160
<v Speaker 7>Yeah, Jan I always go to chat with you. Jennerousen,

0:14:51.200 --> 0:14:53.000
<v Speaker 7>a deputy Chief Economists at AMP.

0:14:56.200 --> 0:14:58.680
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