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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: It's the Bank of Japan day day two of the meeting,

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Speaker 2: and we will get some policy pronouncement coming up a

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Speaker 2: little bit later this morning. Joining us in our studios

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Speaker 2: in Singapore to talk about this is Pai Chian Leo,

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Speaker 2: who's Asia economist at Fidelity International. So we might get

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Speaker 2: a little bit of a change in terms of the

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Speaker 2: inflation expectations from the BOJ, but at least most BOJ

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Speaker 2: watchers are saying it won't be any policy change. Are

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Speaker 2: you in that camp or do you see perhaps a

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Speaker 2: change in policy?

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Speaker 3: First, thank you for having me today. I actually expect

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Speaker 3: the BOG to keep monetary policy rates and policy setting

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Speaker 3: unchanged in this meeting. Other reason being there has been

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Speaker 3: a sew of actions been taken last month where the

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Speaker 3: BOG officially exited its negative interest regime For this month,

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Speaker 3: I think the focus would largely be, as you mentioned earlier,

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Speaker 3: on the revision of inflation for the boj's quarterly outlook

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Speaker 3: report that's going to be published. We also get a

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Speaker 3: new phixical year twenty six inflation and we expect all

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Speaker 3: of the inflation forecasts to be anchored around or above

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Speaker 3: two percent for the next three years.

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Speaker 1: What's going on with the currency right now? And should

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Speaker 1: this be of great concern for the Bank of Japan

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Speaker 1: or are they Do you think they're comfortable with allowing

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Speaker 1: market forces to dictate where the enis trading and perhaps

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Speaker 1: import a lot more inflation into the economy.

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Speaker 3: Well, I think, just broadly put into perspective, the weakening

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Speaker 3: Japanese yen is a result of the strong dollar rally

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Speaker 3: over the past few sessions. So broadly, not only the

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Speaker 3: Japanese y and Chinese yuan and other Issian effects are

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Speaker 3: also facing pressure of depreciation over the repressing of fat

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Speaker 3: rate paths and also the dollar strength. So on that note,

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Speaker 3: I think it as long as Japanese n is not

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Speaker 3: singled out in a depreciation path, the bog or mof

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Speaker 3: might be observing the pace of depreciation rather than a

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Speaker 3: specific level of it. Speaking of a weekend's impact on

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Speaker 3: the economy, I think definitely we're seeing more rising important

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Speaker 3: inflation that's contributing to the CPI numbers. But given that

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Speaker 3: the BOG is still firmly pushing for its reflation of

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Speaker 3: the economy and trying to get inflation back to above

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Speaker 3: two percent in a more sustainable manner, so I wouldn't

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Speaker 3: really think that having a little bit of important inflation

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Speaker 3: is bad for the economy after all.

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Speaker 2: Yeah, exactly, it sort of helps them with their objective.

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Speaker 2: But it seems like here of late, you've seen a

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Speaker 2: lot more discomfort coming in the stock market hasn't responded

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Speaker 2: as it often responds to a weekend by going higher.

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Speaker 2: It's been a little bit troubled, and you're hearing more

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Speaker 2: and more of these threats from policymakers that they could intervene. Now,

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Speaker 2: I didn't think that it would be very likely that

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Speaker 2: they would intervene in these two days where the Bank

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Speaker 2: of Japan was meeting, But then Bloomberg did a story

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Speaker 2: saying history suggests that they are willing to do it.

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Speaker 2: It doesn't happen all that often, but they are willing

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Speaker 2: to do it, but I guess we're about ready to

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Speaker 2: get this decision, so at least so far, no intervention

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Speaker 2: going forward. Who knows.

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Speaker 3: Yeah again, I think from a coordination or policy regime perspective, definitely,

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Speaker 3: the BOJ meeting today is worth watching out for, especially

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Speaker 3: what Governor oed is messaging about the week Japanese and

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Speaker 3: whether or not that affects the boj's forecast for inflation trajectory.

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Speaker 3: I think that will be also affecting the Japanese yen

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Speaker 3: performance after the meeting and will probably influencing the mof's

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Speaker 3: decision whether or not they should or would be intervening

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Speaker 3: in the market.

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Speaker 1: You also mentioned a week Chinese currency, and the export

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Speaker 1: side of the China story has been one area of

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Speaker 1: the economy that's been holding up pretty well. Do you

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Speaker 1: expect that to continue well?

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Speaker 3: I think the export some of whatever outperformances in the

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Speaker 3: past few months is mainly driven by a resumption or

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Speaker 3: resilience of the developmrket's demand. So that was in line

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Speaker 3: with a kind of a hot data showing that the

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Speaker 3: demand and export cycle is turning in an upswing. So

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Speaker 3: from that perspective, I think yes, we probably will see

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Speaker 3: a continuation of this, especially with the pickup of semiconductor

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Speaker 3: supply chain as well as the goods expots. But having

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Speaker 3: said that, I think ultimately China's growth still should likely

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Speaker 3: to be domestically driven, which which is still somewhat in

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Speaker 3: a gradual recovery path. So that's why in our base case,

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Speaker 3: we think that China's growth this year most likely will

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Speaker 3: following the range of controlled stabilization rather than any strong

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Speaker 3: reflation driven by added domestic or excellent demand at this moment.

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Speaker 2: So in the US, and now you look at the

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Speaker 2: US as well, GDP rising and analyze one point six

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Speaker 2: percent trailing every forecast in a Bloomberg survey and inflation

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Speaker 2: a lot harder than expected three point seven percent. Is

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Speaker 2: this still sort of in the noise category or is

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Speaker 2: this a trend now that we really have to be

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Speaker 2: cognizant of.

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Speaker 3: Well, I think for the US, our base case is

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Speaker 3: that it's gradually becoming the case that soft lending becomes

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Speaker 3: more likely. There are some resilience in the US economy

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Speaker 3: being exhibited, for example, of a somewhat resilient labor market,

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Speaker 3: inflation print still hovering at somewhat elevated levels, so that

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Speaker 3: all gives us a signal that with this resilience, it's

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Speaker 3: really the case that the US the fat might be

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Speaker 3: holding a rate for a bit longer.

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Speaker 2: Yeah, all right, mister do you thank you very much

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Speaker 2: for joining us. Leophen they're Asia economist at Fidelity International.

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Speaker 2: We've talked a lot about tech earnings this morning. We

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Speaker 2: want to get a closer look at some of the

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Speaker 2: ins and outs with Robert Lee, Bloomberg Intelligence Senior Analyst.

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Speaker 2: So I know that some of these companies, Robert, are

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Speaker 2: not companies that you cover specifically, so we want to

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Speaker 2: talk I guess more in generalities about the impact on

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Speaker 2: companies here, perhaps that you do follow a company like

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Speaker 2: ten Cent in the tech sphere. So we had very

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Speaker 2: strong earnings from Alphabet and Microsoft, the stocks rewarded Meta.

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Speaker 2: Parts of Meta's earnings were pretty solid, particularly the profit

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Speaker 2: revenue in the prior quarter, but it's the forecast that

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Speaker 2: got them in trouble. So what are some of the

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Speaker 2: what are you gleaning from some of these earnings? And

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Speaker 2: let's throw in as well heinex yesterday and you know

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Speaker 2: what we heard from TSMC and others like TI.

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Speaker 4: Okay, not much to go through then, but let's say

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Speaker 4: I'll do my best.

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Speaker 2: Yeah, yeah, give you thirty seconds.

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Speaker 4: It's all AI, It's all going up. But I'm joking.

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Speaker 4: I think taking a step back and looking at common

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Speaker 4: themes that impact both the US that have relevance to

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Speaker 4: the mag seven and also the stocks here in Asia,

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Speaker 4: I think maybe, as I've said before, you know, most

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Speaker 4: people would agree as we do, that the secular trend

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Speaker 4: in AI is something that's gonna It's a multi year trend,

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Speaker 4: arguably a multi decade decade trend. The benefits to consumer

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Speaker 4: and enterprise clients are potentially significant over the long run.

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Speaker 4: Who's making money from it in the moment, No, clearly

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Speaker 4: in video and the infrastructure players are and you know

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Speaker 4: in videos really in the sweet spot winner ticks or

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Speaker 4: because of the supply constraints. However, you look at the

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Speaker 4: software companies in the middle and they are shelling out

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Speaker 4: tens of billions in capex at a time when their

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Speaker 4: monetization strategies are an early stage or even immature. And

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Speaker 4: I think that was that chickens came home to roost,

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Speaker 4: if that's the right expression for meta on that front,

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Speaker 4: because it's kapex burden is rising, impacting its free cust

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Speaker 4: flower generation a time when its monetization is relatively low.

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Speaker 4: Obviously investors took that quite negatively.

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Speaker 1: So the Campex, so I would argue, is tied not

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Speaker 1: only to AI, but VR as well. And we know

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Speaker 1: that the Zuckerberg is very much committed to kind of

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Speaker 1: the metaverse and the virtual reality space. But let's for

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Speaker 1: the sake of this discussion remain focused on AI. One

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Speaker 1: of the things that you highlighted there was the accelerators

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Speaker 1: made by Nvidia, and that's not the only part of

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Speaker 1: the AI story. When you're building out these data centers,

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Speaker 1: the memory chip makers, the high bandwidth memory chip makers

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Speaker 1: in particular, are a fitting in a big way. Next

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Speaker 1: week we're going to get Samsung. Can you give me

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Speaker 1: a sense of what to expect, what we might look

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Speaker 1: for in Samsung numbers?

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Speaker 3: No?

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Speaker 4: No, No, definitely. So the major supplies, the three main

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Speaker 4: memory supplies globally, Samson being the largest, ESK Heinex in

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Speaker 4: Korea and then Micron in the States. So the whilst

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Speaker 4: Samson is the leading volume player with a large exposure

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Speaker 4: and dependence on the PC market, the leader in high

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Speaker 4: bandwidth memory, which goes into these AI servers is Heinex.

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Speaker 4: So Samson is playing catch up, and I think the

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Speaker 4: thing to watch for in next week's results is, you

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Speaker 4: know what progress that they're making that front, and they're

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Speaker 4: managing to narrow the gap with the leader, Heinex. But

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Speaker 4: DRAM or the memory chips is in aoriously volatile market.

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Speaker 4: Things seem to be going the right way for the

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Speaker 4: moment as PC demand picks up and the dynamics of

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Speaker 4: supply and demand move more in their favor. But having

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Speaker 4: said that, look at Intel last night. Intel clearly disappointed.

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Speaker 4: One of the reasons for that is ongoing soft demand

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Speaker 4: within mainstream PCs, so we shouldn't forget about that. At

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Speaker 4: the moment.

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Speaker 2: I thought that this earning season we might see a

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Speaker 2: switch from the providers of the AI chips to focus

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Speaker 2: on them more into use case the software and the

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Speaker 2: consumer facing companies like Google and perhaps even Microsoft. I'm

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Speaker 2: not sure that we're quite there yet, but might we

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Speaker 2: get teased some of that from Samsung.

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Speaker 4: Again, you look at Samson's business, the major profit and

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Speaker 4: earning strivers for on the memory chips, so again DRAM

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Speaker 4: and nan Flash, which are very very cyclical and very

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Speaker 4: very volatile industries. But with demand currently beginning to outstrip supply,

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Speaker 4: that's you know, that's pushing pricing up and driving margins

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Speaker 4: within those core businesses. Samson is also a major supplier

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Speaker 4: of smartphones globally. That's a sort of lower growth business

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Speaker 4: these days. So the thing to watch force is Samson's

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Speaker 4: results next week of really the memory side. That's what

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Speaker 4: underpins their profit growth. And as I said, we need

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Speaker 4: to see evidence that they are narrowing the technology gap

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Speaker 4: with the leader Heinez at the moment. So I think

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Speaker 4: it's all in potentially in Samson's favor on that front.

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Speaker 4: The other thing, very quickly is great to focus on

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Speaker 4: shareholder returns, enhanced shareholder returns. Obviously, Samson is sitting on

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Speaker 4: a substantial cash balance, is inherently very cash generitive. Could

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Speaker 4: we see enhancements on the shareholder return side as we

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Speaker 4: saw from Google last night with its inaugural dividend.

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Speaker 1: Before we let you go, Robert, I'm sorry to cut

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Speaker 1: you off there, because I want to be able to

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Speaker 1: get your perspective on the Chinese chip manufacturers. The Huawei,

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Speaker 1: I think is coming to sharp focus given you just

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Speaker 1: mentioned the smartphone market. Huawei is I think doing very

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Speaker 1: well on that front, what do we know about chip

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Speaker 1: manufacturing going on in China right now and whether or

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Speaker 1: not companies like Samsung need to look over their shoulder.

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Speaker 4: It's probably a little bit early days for Samson and

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Speaker 4: others to worry about the threat from the Chinese. But

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Speaker 4: at the end of the day, the way of the

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Speaker 4: state is backing Huawei and SMIC and SMIC being the

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Speaker 4: Chinese equivalent of TIERSMC, So you've got you know, you've

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Speaker 4: got a lot of national pride, a lot of strategic

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Speaker 4: national long term objectives, and a lot of money flowing

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Speaker 4: into lact sector. However, they have two major barriers to overcome.

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Speaker 4: One is the export restrictions on the ASML Advanced lethography

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Speaker 4: equipment that is going to be a multi year challenge

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Speaker 4: for them to overcome. And the yields they're generating on

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Speaker 4: these five andanimeter chips, which is the one that caught

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Speaker 4: the headline at the end of last year, they look

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Speaker 4: to be quite low. So they are making progress, but

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Speaker 4: there's multiple, well three four generations behind where the US

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Speaker 4: and TSMC is at the moment.

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Speaker 2: Do you see the heat getting turned up in the

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Speaker 2: relationship between US and China When it comes to things

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Speaker 2: like semiconductors or do you see that heat perhaps being

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Speaker 2: lowered in the next few months.

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Speaker 4: Again, another great question. I think china strategy at the

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Speaker 4: moment is these rests friction on the lithography equipment and

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Speaker 4: not impacting the mainstream And obviously China is the workshop

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Speaker 4: to the world, isn't it to make everything from vacuum

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Speaker 4: cleaners to air conditioning units. These use mainstream chips and

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Speaker 4: China's strategy at the moment seems to be increasing its

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Speaker 4: market share within the mass market, which does not suffer

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Speaker 4: these restrictions. That's the strategy. At the same time putting

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Speaker 4: a huge amount of effort onto the R and D side,

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Speaker 4: But that's a multi yeah challenge.

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Speaker 2: I know you have to run off to television much

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Speaker 2: in demand, Robert, thank you, Robert Lee Bloomberg Intelligence Senior Analyst.

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Speaker 2: Secretary of State Anthony Blinkett raising concerns over what the

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Speaker 2: US perceives as unfair trade practices in China and the

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Speaker 2: Global Times, a Communist Party paper responded by saying, why

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Speaker 2: does the US side turn a normal visit into what

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Speaker 2: seems like an ultimatum? Joining US now? Is Jill deesis

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Speaker 2: in our studios right here in Hong Kong, Bloomberg News

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Speaker 2: Desk editor to take a closer look. There wasn't all

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Speaker 2: that much that came out of these meetings yesterday except

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Speaker 2: kind of restating positions. I would say, what do.

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Speaker 5: You say, yeah, Brian, I agree with you. I think

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Speaker 5: that makes sense though here, because really what Blinkin is

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Speaker 5: doing here is just driving home this drumbeat of criticisms

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Speaker 5: that the US has been building, particularly over the last

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Speaker 5: several months against China. So one is this criticism of

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Speaker 5: industrial overcapacity that the US has levied against China, the

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Speaker 5: idea that China is exporting incredibly cheap goods around the

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Speaker 5: world and creating a lot of economic imbalances. We saw

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Speaker 5: this come up during US Treasury Secretary Jenet Yellen's trip

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Speaker 5: to Beijing just a couple of weeks ago, blink and

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Speaker 5: hitting on that again during this trip to Shanghai and Beijing.

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Speaker 5: The other thing too, though, is that he's you know,

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Speaker 5: when it comes to some of those unfair trade practices.

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Speaker 5: A major points of contention is China's relationship with Russia

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Speaker 5: and how much China may be you know, sort of

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Speaker 5: funding different industries with in Russia that are contributing to

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Speaker 5: the war efforts in Ukraine. This is also, i will say, Brian,

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Speaker 5: just something that came up with Janet Yellen. So you

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Speaker 5: sort of raise the prospect that there could be French

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Speaker 5: fresh sanctions on Chinese banks helping Russia in that respect.

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Speaker 5: So lot's going on here.

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Speaker 1: It's not just Russia. The sanctions on the Chinese banks

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Speaker 1: also tied to this flow of Iranian crude oil that

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Speaker 1: has been going to the refineries in China. That seems

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Speaker 1: to be pretty real because it was baked into this

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Speaker 1: Foreign aid bill. I'm sure that that was talked about

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Speaker 1: in this meeting, and I'm wondering that it probably supposing

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Speaker 1: that it's not going down very well in Beijing.

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Speaker 5: No, Doug, I don't think it is. I think you're

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Speaker 5: right that, you know, I mean, it's difficult to think

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Speaker 5: that that wouldn't be discussed during all these meetings with

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Speaker 5: Lincoln this week. I think it really just underscores this

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Speaker 5: idea that there's still a lot of points of contention

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Speaker 5: and a lot of room for volatility within the US

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Speaker 5: China relationship because you've got, yes, all of these you know,

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Speaker 5: dignitaries from the US visiting China recently. That's certainly an

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Speaker 5: improvement from where we were just you know, a year

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Speaker 5: eighteen months ago when you saw much bigger icing out

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Speaker 5: of communications. So there's at least that presumption of high

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Speaker 5: level talks between US and Chinese officials. But as we've

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Speaker 5: seen with a lot of you know, the responses, particularly

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Speaker 5: from the US recently on potential sanctions on different aspects

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Speaker 5: of China, again, it's just there's still a lot of

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Speaker 5: points of contention here.

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Speaker 2: Yeah, I was looking for a way to finish off

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Speaker 2: our story that we wrote for the Radio earlier, and

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Speaker 2: it seemed that, you know, you could say that although

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Speaker 2: to a certain degree the relations have stabilized, but the

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Speaker 2: two countries are still battling over technology, human rights, trade, Ukraine,

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Speaker 2: North Korea, and the Middle East. So I was curious

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Speaker 2: what Jilldicis thinks is what's the sorest of the point.

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Speaker 5: I mean, I think at this point, really a lot

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Speaker 5: of those issues over tech national security in particular, are

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Speaker 5: very very difficult. I'm looking over the last year where

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Speaker 5: that I think the Biden administration has been the most

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Speaker 5: effective and really crimping a lot of China's ambitions. Is

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Speaker 5: on some of those technological issues. I mean, you know,

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Speaker 5: we've seen some fairly effective sanctions on chip makers and

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Speaker 5: you know, on chip supply chains directed at China that

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Speaker 5: I think have really created some pain points. Obviously, China

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Speaker 5: has found some ways to sort of work around those things.

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Speaker 5: We saw that you know, big Huawei phone launch last

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Speaker 5: fall that was you know, very successful. But it's very clear,

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Speaker 5: especially when you're seeing this brought up in hijin Ping,

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Speaker 5: you know, addresses and things by other Chinese leaders, that

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Speaker 5: this idea that you know, China is very concerned about

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Speaker 5: ways in which it sees the US as you know,

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Speaker 5: really really crimping a lot of its technological ambitions. And

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Speaker 5: I think that's pretty a particular sore.

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Speaker 1: Point, crimpling technological innovations perhaps, but certainly standing in the

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Speaker 1: way of a lot of what Beijing would like to

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Speaker 1: do in the South China. See, I think we can

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Speaker 1: agree on that as well, don't you think definitely?

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Speaker 5: I mean, look, I think that you know, military defense

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Speaker 5: issues are certainly a major sticking point here. I mean,

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Speaker 5: it's really you have to go back to Nancy Pelosi's

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Speaker 5: visit to Taiwan when she was a US House speaker,

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Speaker 5: really kicked off, you know, quite a bit of anger

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Speaker 5: from Beijing. I mean, you know, just a few months

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Speaker 5: later we had the ledged Chinese spy balloon flying over

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Speaker 5: the US that actually iced up earlier trip b Lincoln

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Speaker 5: was supposed to take to China last year. I mean, yes,

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Speaker 5: it's very clear that I think, you know, anything involving

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Speaker 5: the US's support of Taiwan in particular is going to

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Speaker 5: be a major sticking point with Beijing and create some

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Speaker 5: additional volatility there.

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Speaker 2: In our b N story on this, we didn't mention

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Speaker 2: about a possible meeting with President Chi Jinping. Is that

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Speaker 2: seemingly now off the table or might it happen today?

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Speaker 5: I think, Brian, we're really not going to know until

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Speaker 5: really the last minute here. I mean, it's certainly possible,

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Speaker 5: and remember Blincoln did meet with she last year when

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Speaker 5: he was in town, so you know, there's certainly precedent there.

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Speaker 5: I'd say it's still it's still a float. It is

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Speaker 5: a possibility, but it may not be until quite late

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Speaker 5: this afternoon that we actually get some kind of confirmation

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Speaker 5: on whether that meeting is actually taking place.

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Speaker 1: Okay, Jill, thirty seconds did they talk about TikTok?

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Speaker 5: I mean its certainly like it's got to come up right, Like,

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Speaker 5: I mean, when you've got this massive US legislation that's

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Speaker 5: just passed two hundred and seventy days to divest or

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Speaker 5: to leave the US, I mean again, another religious underscoring

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Speaker 5: a lot of that major points of contention there.

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Speaker 2: Yeah, they went to a basketball game the night before,

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Speaker 2: I mean, yesterday was the first full day of meetings,

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Speaker 2: and that's kind of interesting. So Anthony blinkoln getting a

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Speaker 2: little culture there in China. Jill, thanks so much for

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Speaker 2: joining us here in our studios. Jill desis Bloomberg News

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Speaker 2: Desk Editor.

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