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Speaker 2: It's the Bank of Japan day day two of the meeting,
Speaker 2: and we will get some policy pronouncement coming up a
Speaker 2: little bit later this morning. Joining us in our studios
Speaker 2: in Singapore to talk about this is Pai Chian Leo,
Speaker 2: who's Asia economist at Fidelity International. So we might get
Speaker 2: a little bit of a change in terms of the
Speaker 2: inflation expectations from the BOJ, but at least most BOJ
Speaker 2: watchers are saying it won't be any policy change. Are
Speaker 2: you in that camp or do you see perhaps a
Speaker 2: change in policy?
Speaker 3: First, thank you for having me today. I actually expect
Speaker 3: the BOG to keep monetary policy rates and policy setting
Speaker 3: unchanged in this meeting. Other reason being there has been
Speaker 3: a sew of actions been taken last month where the
Speaker 3: BOG officially exited its negative interest regime For this month,
Speaker 3: I think the focus would largely be, as you mentioned earlier,
Speaker 3: on the revision of inflation for the boj's quarterly outlook
Speaker 3: report that's going to be published. We also get a
Speaker 3: new phixical year twenty six inflation and we expect all
Speaker 3: of the inflation forecasts to be anchored around or above
Speaker 3: two percent for the next three years.
Speaker 1: What's going on with the currency right now? And should
Speaker 1: this be of great concern for the Bank of Japan
Speaker 1: or are they Do you think they're comfortable with allowing
Speaker 1: market forces to dictate where the enis trading and perhaps
Speaker 1: import a lot more inflation into the economy.
Speaker 3: Well, I think, just broadly put into perspective, the weakening
Speaker 3: Japanese yen is a result of the strong dollar rally
Speaker 3: over the past few sessions. So broadly, not only the
Speaker 3: Japanese y and Chinese yuan and other Issian effects are
Speaker 3: also facing pressure of depreciation over the repressing of fat
Speaker 3: rate paths and also the dollar strength. So on that note,
Speaker 3: I think it as long as Japanese n is not
Speaker 3: singled out in a depreciation path, the bog or mof
Speaker 3: might be observing the pace of depreciation rather than a
Speaker 3: specific level of it. Speaking of a weekend's impact on
Speaker 3: the economy, I think definitely we're seeing more rising important
Speaker 3: inflation that's contributing to the CPI numbers. But given that
Speaker 3: the BOG is still firmly pushing for its reflation of
Speaker 3: the economy and trying to get inflation back to above
Speaker 3: two percent in a more sustainable manner, so I wouldn't
Speaker 3: really think that having a little bit of important inflation
Speaker 3: is bad for the economy after all.
Speaker 2: Yeah, exactly, it sort of helps them with their objective.
Speaker 2: But it seems like here of late, you've seen a
Speaker 2: lot more discomfort coming in the stock market hasn't responded
Speaker 2: as it often responds to a weekend by going higher.
Speaker 2: It's been a little bit troubled, and you're hearing more
Speaker 2: and more of these threats from policymakers that they could intervene. Now,
Speaker 2: I didn't think that it would be very likely that
Speaker 2: they would intervene in these two days where the Bank
Speaker 2: of Japan was meeting, But then Bloomberg did a story
Speaker 2: saying history suggests that they are willing to do it.
Speaker 2: It doesn't happen all that often, but they are willing
Speaker 2: to do it, but I guess we're about ready to
Speaker 2: get this decision, so at least so far, no intervention
Speaker 2: going forward. Who knows.
Speaker 3: Yeah again, I think from a coordination or policy regime perspective, definitely,
Speaker 3: the BOJ meeting today is worth watching out for, especially
Speaker 3: what Governor oed is messaging about the week Japanese and
Speaker 3: whether or not that affects the boj's forecast for inflation trajectory.
Speaker 3: I think that will be also affecting the Japanese yen
Speaker 3: performance after the meeting and will probably influencing the mof's
Speaker 3: decision whether or not they should or would be intervening
Speaker 3: in the market.
Speaker 1: You also mentioned a week Chinese currency, and the export
Speaker 1: side of the China story has been one area of
Speaker 1: the economy that's been holding up pretty well. Do you
Speaker 1: expect that to continue well?
Speaker 3: I think the export some of whatever outperformances in the
Speaker 3: past few months is mainly driven by a resumption or
Speaker 3: resilience of the developmrket's demand. So that was in line
Speaker 3: with a kind of a hot data showing that the
Speaker 3: demand and export cycle is turning in an upswing. So
Speaker 3: from that perspective, I think yes, we probably will see
Speaker 3: a continuation of this, especially with the pickup of semiconductor
Speaker 3: supply chain as well as the goods expots. But having
Speaker 3: said that, I think ultimately China's growth still should likely
Speaker 3: to be domestically driven, which which is still somewhat in
Speaker 3: a gradual recovery path. So that's why in our base case,
Speaker 3: we think that China's growth this year most likely will
Speaker 3: following the range of controlled stabilization rather than any strong
Speaker 3: reflation driven by added domestic or excellent demand at this moment.
Speaker 2: So in the US, and now you look at the
Speaker 2: US as well, GDP rising and analyze one point six
Speaker 2: percent trailing every forecast in a Bloomberg survey and inflation
Speaker 2: a lot harder than expected three point seven percent. Is
Speaker 2: this still sort of in the noise category or is
Speaker 2: this a trend now that we really have to be
Speaker 2: cognizant of.
Speaker 3: Well, I think for the US, our base case is
Speaker 3: that it's gradually becoming the case that soft lending becomes
Speaker 3: more likely. There are some resilience in the US economy
Speaker 3: being exhibited, for example, of a somewhat resilient labor market,
Speaker 3: inflation print still hovering at somewhat elevated levels, so that
Speaker 3: all gives us a signal that with this resilience, it's
Speaker 3: really the case that the US the fat might be
Speaker 3: holding a rate for a bit longer.
Speaker 2: Yeah, all right, mister do you thank you very much
Speaker 2: for joining us. Leophen they're Asia economist at Fidelity International.
Speaker 2: We've talked a lot about tech earnings this morning. We
Speaker 2: want to get a closer look at some of the
Speaker 2: ins and outs with Robert Lee, Bloomberg Intelligence Senior Analyst.
Speaker 2: So I know that some of these companies, Robert, are
Speaker 2: not companies that you cover specifically, so we want to
Speaker 2: talk I guess more in generalities about the impact on
Speaker 2: companies here, perhaps that you do follow a company like
Speaker 2: ten Cent in the tech sphere. So we had very
Speaker 2: strong earnings from Alphabet and Microsoft, the stocks rewarded Meta.
Speaker 2: Parts of Meta's earnings were pretty solid, particularly the profit
Speaker 2: revenue in the prior quarter, but it's the forecast that
Speaker 2: got them in trouble. So what are some of the
Speaker 2: what are you gleaning from some of these earnings? And
Speaker 2: let's throw in as well heinex yesterday and you know
Speaker 2: what we heard from TSMC and others like TI.
Speaker 4: Okay, not much to go through then, but let's say
Speaker 4: I'll do my best.
Speaker 2: Yeah, yeah, give you thirty seconds.
Speaker 4: It's all AI, It's all going up. But I'm joking.
Speaker 4: I think taking a step back and looking at common
Speaker 4: themes that impact both the US that have relevance to
Speaker 4: the mag seven and also the stocks here in Asia,
Speaker 4: I think maybe, as I've said before, you know, most
Speaker 4: people would agree as we do, that the secular trend
Speaker 4: in AI is something that's gonna It's a multi year trend,
Speaker 4: arguably a multi decade decade trend. The benefits to consumer
Speaker 4: and enterprise clients are potentially significant over the long run.
Speaker 4: Who's making money from it in the moment, No, clearly
Speaker 4: in video and the infrastructure players are and you know
Speaker 4: in videos really in the sweet spot winner ticks or
Speaker 4: because of the supply constraints. However, you look at the
Speaker 4: software companies in the middle and they are shelling out
Speaker 4: tens of billions in capex at a time when their
Speaker 4: monetization strategies are an early stage or even immature. And
Speaker 4: I think that was that chickens came home to roost,
Speaker 4: if that's the right expression for meta on that front,
Speaker 4: because it's kapex burden is rising, impacting its free cust
Speaker 4: flower generation a time when its monetization is relatively low.
Speaker 4: Obviously investors took that quite negatively.
Speaker 1: So the Campex, so I would argue, is tied not
Speaker 1: only to AI, but VR as well. And we know
Speaker 1: that the Zuckerberg is very much committed to kind of
Speaker 1: the metaverse and the virtual reality space. But let's for
Speaker 1: the sake of this discussion remain focused on AI. One
Speaker 1: of the things that you highlighted there was the accelerators
Speaker 1: made by Nvidia, and that's not the only part of
Speaker 1: the AI story. When you're building out these data centers,
Speaker 1: the memory chip makers, the high bandwidth memory chip makers
Speaker 1: in particular, are a fitting in a big way. Next
Speaker 1: week we're going to get Samsung. Can you give me
Speaker 1: a sense of what to expect, what we might look
Speaker 1: for in Samsung numbers?
Speaker 3: No?
Speaker 4: No, No, definitely. So the major supplies, the three main
Speaker 4: memory supplies globally, Samson being the largest, ESK Heinex in
Speaker 4: Korea and then Micron in the States. So the whilst
Speaker 4: Samson is the leading volume player with a large exposure
Speaker 4: and dependence on the PC market, the leader in high
Speaker 4: bandwidth memory, which goes into these AI servers is Heinex.
Speaker 4: So Samson is playing catch up, and I think the
Speaker 4: thing to watch for in next week's results is, you
Speaker 4: know what progress that they're making that front, and they're
Speaker 4: managing to narrow the gap with the leader, Heinex. But
Speaker 4: DRAM or the memory chips is in aoriously volatile market.
Speaker 4: Things seem to be going the right way for the
Speaker 4: moment as PC demand picks up and the dynamics of
Speaker 4: supply and demand move more in their favor. But having
Speaker 4: said that, look at Intel last night. Intel clearly disappointed.
Speaker 4: One of the reasons for that is ongoing soft demand
Speaker 4: within mainstream PCs, so we shouldn't forget about that. At
Speaker 4: the moment.
Speaker 2: I thought that this earning season we might see a
Speaker 2: switch from the providers of the AI chips to focus
Speaker 2: on them more into use case the software and the
Speaker 2: consumer facing companies like Google and perhaps even Microsoft. I'm
Speaker 2: not sure that we're quite there yet, but might we
Speaker 2: get teased some of that from Samsung.
Speaker 4: Again, you look at Samson's business, the major profit and
Speaker 4: earning strivers for on the memory chips, so again DRAM
Speaker 4: and nan Flash, which are very very cyclical and very
Speaker 4: very volatile industries. But with demand currently beginning to outstrip supply,
Speaker 4: that's you know, that's pushing pricing up and driving margins
Speaker 4: within those core businesses. Samson is also a major supplier
Speaker 4: of smartphones globally. That's a sort of lower growth business
Speaker 4: these days. So the thing to watch force is Samson's
Speaker 4: results next week of really the memory side. That's what
Speaker 4: underpins their profit growth. And as I said, we need
Speaker 4: to see evidence that they are narrowing the technology gap
Speaker 4: with the leader Heinez at the moment. So I think
Speaker 4: it's all in potentially in Samson's favor on that front.
Speaker 4: The other thing, very quickly is great to focus on
Speaker 4: shareholder returns, enhanced shareholder returns. Obviously, Samson is sitting on
Speaker 4: a substantial cash balance, is inherently very cash generitive. Could
Speaker 4: we see enhancements on the shareholder return side as we
Speaker 4: saw from Google last night with its inaugural dividend.
Speaker 1: Before we let you go, Robert, I'm sorry to cut
Speaker 1: you off there, because I want to be able to
Speaker 1: get your perspective on the Chinese chip manufacturers. The Huawei,
Speaker 1: I think is coming to sharp focus given you just
Speaker 1: mentioned the smartphone market. Huawei is I think doing very
Speaker 1: well on that front, what do we know about chip
Speaker 1: manufacturing going on in China right now and whether or
Speaker 1: not companies like Samsung need to look over their shoulder.
Speaker 4: It's probably a little bit early days for Samson and
Speaker 4: others to worry about the threat from the Chinese. But
Speaker 4: at the end of the day, the way of the
Speaker 4: state is backing Huawei and SMIC and SMIC being the
Speaker 4: Chinese equivalent of TIERSMC, So you've got you know, you've
Speaker 4: got a lot of national pride, a lot of strategic
Speaker 4: national long term objectives, and a lot of money flowing
Speaker 4: into lact sector. However, they have two major barriers to overcome.
Speaker 4: One is the export restrictions on the ASML Advanced lethography
Speaker 4: equipment that is going to be a multi year challenge
Speaker 4: for them to overcome. And the yields they're generating on
Speaker 4: these five andanimeter chips, which is the one that caught
Speaker 4: the headline at the end of last year, they look
Speaker 4: to be quite low. So they are making progress, but
Speaker 4: there's multiple, well three four generations behind where the US
Speaker 4: and TSMC is at the moment.
Speaker 2: Do you see the heat getting turned up in the
Speaker 2: relationship between US and China When it comes to things
Speaker 2: like semiconductors or do you see that heat perhaps being
Speaker 2: lowered in the next few months.
Speaker 4: Again, another great question. I think china strategy at the
Speaker 4: moment is these rests friction on the lithography equipment and
Speaker 4: not impacting the mainstream And obviously China is the workshop
Speaker 4: to the world, isn't it to make everything from vacuum
Speaker 4: cleaners to air conditioning units. These use mainstream chips and
Speaker 4: China's strategy at the moment seems to be increasing its
Speaker 4: market share within the mass market, which does not suffer
Speaker 4: these restrictions. That's the strategy. At the same time putting
Speaker 4: a huge amount of effort onto the R and D side,
Speaker 4: But that's a multi yeah challenge.
Speaker 2: I know you have to run off to television much
Speaker 2: in demand, Robert, thank you, Robert Lee Bloomberg Intelligence Senior Analyst.
Speaker 2: Secretary of State Anthony Blinkett raising concerns over what the
Speaker 2: US perceives as unfair trade practices in China and the
Speaker 2: Global Times, a Communist Party paper responded by saying, why
Speaker 2: does the US side turn a normal visit into what
Speaker 2: seems like an ultimatum? Joining US now? Is Jill deesis
Speaker 2: in our studios right here in Hong Kong, Bloomberg News
Speaker 2: Desk editor to take a closer look. There wasn't all
Speaker 2: that much that came out of these meetings yesterday except
Speaker 2: kind of restating positions. I would say, what do.
Speaker 5: You say, yeah, Brian, I agree with you. I think
Speaker 5: that makes sense though here, because really what Blinkin is
Speaker 5: doing here is just driving home this drumbeat of criticisms
Speaker 5: that the US has been building, particularly over the last
Speaker 5: several months against China. So one is this criticism of
Speaker 5: industrial overcapacity that the US has levied against China, the
Speaker 5: idea that China is exporting incredibly cheap goods around the
Speaker 5: world and creating a lot of economic imbalances. We saw
Speaker 5: this come up during US Treasury Secretary Jenet Yellen's trip
Speaker 5: to Beijing just a couple of weeks ago, blink and
Speaker 5: hitting on that again during this trip to Shanghai and Beijing.
Speaker 5: The other thing too, though, is that he's you know,
Speaker 5: when it comes to some of those unfair trade practices.
Speaker 5: A major points of contention is China's relationship with Russia
Speaker 5: and how much China may be you know, sort of
Speaker 5: funding different industries with in Russia that are contributing to
Speaker 5: the war efforts in Ukraine. This is also, i will say, Brian,
Speaker 5: just something that came up with Janet Yellen. So you
Speaker 5: sort of raise the prospect that there could be French
Speaker 5: fresh sanctions on Chinese banks helping Russia in that respect.
Speaker 5: So lot's going on here.
Speaker 1: It's not just Russia. The sanctions on the Chinese banks
Speaker 1: also tied to this flow of Iranian crude oil that
Speaker 1: has been going to the refineries in China. That seems
Speaker 1: to be pretty real because it was baked into this
Speaker 1: Foreign aid bill. I'm sure that that was talked about
Speaker 1: in this meeting, and I'm wondering that it probably supposing
Speaker 1: that it's not going down very well in Beijing.
Speaker 5: No, Doug, I don't think it is. I think you're
Speaker 5: right that, you know, I mean, it's difficult to think
Speaker 5: that that wouldn't be discussed during all these meetings with
Speaker 5: Lincoln this week. I think it really just underscores this
Speaker 5: idea that there's still a lot of points of contention
Speaker 5: and a lot of room for volatility within the US
Speaker 5: China relationship because you've got, yes, all of these you know,
Speaker 5: dignitaries from the US visiting China recently. That's certainly an
Speaker 5: improvement from where we were just you know, a year
Speaker 5: eighteen months ago when you saw much bigger icing out
Speaker 5: of communications. So there's at least that presumption of high
Speaker 5: level talks between US and Chinese officials. But as we've
Speaker 5: seen with a lot of you know, the responses, particularly
Speaker 5: from the US recently on potential sanctions on different aspects
Speaker 5: of China, again, it's just there's still a lot of
Speaker 5: points of contention here.
Speaker 2: Yeah, I was looking for a way to finish off
Speaker 2: our story that we wrote for the Radio earlier, and
Speaker 2: it seemed that, you know, you could say that although
Speaker 2: to a certain degree the relations have stabilized, but the
Speaker 2: two countries are still battling over technology, human rights, trade, Ukraine,
Speaker 2: North Korea, and the Middle East. So I was curious
Speaker 2: what Jilldicis thinks is what's the sorest of the point.
Speaker 5: I mean, I think at this point, really a lot
Speaker 5: of those issues over tech national security in particular, are
Speaker 5: very very difficult. I'm looking over the last year where
Speaker 5: that I think the Biden administration has been the most
Speaker 5: effective and really crimping a lot of China's ambitions. Is
Speaker 5: on some of those technological issues. I mean, you know,
Speaker 5: we've seen some fairly effective sanctions on chip makers and
Speaker 5: you know, on chip supply chains directed at China that
Speaker 5: I think have really created some pain points. Obviously, China
Speaker 5: has found some ways to sort of work around those things.
Speaker 5: We saw that you know, big Huawei phone launch last
Speaker 5: fall that was you know, very successful. But it's very clear,
Speaker 5: especially when you're seeing this brought up in hijin Ping,
Speaker 5: you know, addresses and things by other Chinese leaders, that
Speaker 5: this idea that you know, China is very concerned about
Speaker 5: ways in which it sees the US as you know,
Speaker 5: really really crimping a lot of its technological ambitions. And
Speaker 5: I think that's pretty a particular sore.
Speaker 1: Point, crimpling technological innovations perhaps, but certainly standing in the
Speaker 1: way of a lot of what Beijing would like to
Speaker 1: do in the South China. See, I think we can
Speaker 1: agree on that as well, don't you think definitely?
Speaker 5: I mean, look, I think that you know, military defense
Speaker 5: issues are certainly a major sticking point here. I mean,
Speaker 5: it's really you have to go back to Nancy Pelosi's
Speaker 5: visit to Taiwan when she was a US House speaker,
Speaker 5: really kicked off, you know, quite a bit of anger
Speaker 5: from Beijing. I mean, you know, just a few months
Speaker 5: later we had the ledged Chinese spy balloon flying over
Speaker 5: the US that actually iced up earlier trip b Lincoln
Speaker 5: was supposed to take to China last year. I mean, yes,
Speaker 5: it's very clear that I think, you know, anything involving
Speaker 5: the US's support of Taiwan in particular is going to
Speaker 5: be a major sticking point with Beijing and create some
Speaker 5: additional volatility there.
Speaker 2: In our b N story on this, we didn't mention
Speaker 2: about a possible meeting with President Chi Jinping. Is that
Speaker 2: seemingly now off the table or might it happen today?
Speaker 5: I think, Brian, we're really not going to know until
Speaker 5: really the last minute here. I mean, it's certainly possible,
Speaker 5: and remember Blincoln did meet with she last year when
Speaker 5: he was in town, so you know, there's certainly precedent there.
Speaker 5: I'd say it's still it's still a float. It is
Speaker 5: a possibility, but it may not be until quite late
Speaker 5: this afternoon that we actually get some kind of confirmation
Speaker 5: on whether that meeting is actually taking place.
Speaker 1: Okay, Jill, thirty seconds did they talk about TikTok?
Speaker 5: I mean its certainly like it's got to come up right, Like,
Speaker 5: I mean, when you've got this massive US legislation that's
Speaker 5: just passed two hundred and seventy days to divest or
Speaker 5: to leave the US, I mean again, another religious underscoring
Speaker 5: a lot of that major points of contention there.
Speaker 2: Yeah, they went to a basketball game the night before,
Speaker 2: I mean, yesterday was the first full day of meetings,
Speaker 2: and that's kind of interesting. So Anthony blinkoln getting a
Speaker 2: little culture there in China. Jill, thanks so much for
Speaker 2: joining us here in our studios. Jill desis Bloomberg News
Speaker 2: Desk Editor.
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