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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia Podcast. I'm Doug Krisner. In the US session,

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Speaker 1: there was a bit more optimism over those FED rate cuts,

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Speaker 1: enough to send the Nasdaq composite to a record high.

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Speaker 1: The equity market is hoping FED easing may prevent a

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Speaker 1: recession and in turn support corporate profits. Meantime, we saw

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Speaker 1: a little bit of weakness in the end during New

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Speaker 1: York trading given the political uncertainty in Japan. In a moment,

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Speaker 1: we'll get some reaction to the resignation of Prime Minister

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Speaker 1: Shiguru Ishiba. I'll be joined by Bloomberg opinion columnist Gerode Redi,

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Speaker 1: but we begin with market action and the views of

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Speaker 1: Carol Schleife. She is chief market strategist at BEMO Private Wealth.

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Speaker 1: Carol is on the line from Minneapolis. Thank you so

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Speaker 1: much for making time to chat with me. Can we

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Speaker 1: begin with the August price data. We'll get CPI PPI

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Speaker 1: this week, and from what I'm reading, there is a

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Speaker 1: risk that these numbers kind of indicate that the progress

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Speaker 1: on fighting inflation has stalled. Is that your view? Is

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Speaker 1: there a risk that we get sticky inflation readings.

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Speaker 2: Yeah, we wouldn't expect to see a continued softening because

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Speaker 2: you're going to have the death by a thousand cuts

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Speaker 2: of tariff fleed into particularly into CPI, but definitely you'll

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Speaker 2: see pints here and there in PPI, so it's tough

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Speaker 2: to imagine it going down. On the other hand, we

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Speaker 2: don't think the FED is going to be looking at

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Speaker 2: as hard at that side of the dual mandate as

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Speaker 2: they will at the employment side, and so I think

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Speaker 2: unless it's wildly out of whack, I would expect that

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Speaker 2: markets are going to look beyond the CPI and PPI

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Speaker 2: and focus more on the employment numbers. And we get

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Speaker 2: additional revisions in the non farm barrels tomorrow morning.

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Speaker 1: Yeah, yeah, So what's the risk then that we get

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Speaker 1: maybe a fifty basis point rate cut.

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Speaker 2: Well, hopefully if we do, it's not our base case,

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Speaker 2: but if you did see some really substantial revisions in

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Speaker 2: the FED aired to do what they did basically a

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Speaker 2: year ago, I'm surprised with the fifty basis point. Hopefully

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Speaker 2: the communication around it is such that this is a

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Speaker 2: preemptive stabilization move, because it's important to remember that all

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Speaker 2: these revisions and all these numbers are backward looking, and

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Speaker 2: it doesn't change at all the fact that the economy

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Speaker 2: still held in really tight. Inflation isn't as low as

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Speaker 2: they want, but it's substantially lower than it was a

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Speaker 2: couple of years ago. So basically the economy is in

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Speaker 2: good shape. There's a lot of reason to be optimistic

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Speaker 2: going forward. If the fifty basis point cut came and

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Speaker 2: it wasn't surrounded by that, it was surrounded by commentary

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Speaker 2: about a weakening economy that would fret the bond market

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Speaker 2: and probably fret the stock market too.

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Speaker 1: So you mentioned the dual mandate a moment ago. Would

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Speaker 1: you kind of assess the economy right now to be

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Speaker 1: pretty balanced in terms of trying to find the equilibrium here? Yeah.

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Speaker 2: I think Chair Paul's choice of language at the Jackson

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Speaker 2: Hole summit was was spot on with saying he called

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Speaker 2: it a curious balance, and I think he was as

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Speaker 2: you dove through some of that commentary and listen, he

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Speaker 2: was really trying to purpose for the fact that you

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Speaker 2: know that not only the supply of laborers come down,

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Speaker 2: but demand for laborers come down too, So that's kept

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Speaker 2: it in that in that really delicate balance, and there

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Speaker 2: is a lot of argument to be made that as

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Speaker 2: we try to reorient this economy, particularly bring manufacturing back here,

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Speaker 2: and don't have the right kind of domestic workers to

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Speaker 2: do it, so we need to we need to rethink

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Speaker 2: some of the immigration things that as we're trying to

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Speaker 2: retrofit the economy, and there are some pretty pretty business

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Speaker 2: pro growth, business friendly aspects to the one big beautiful

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Speaker 2: bill that you could actually see some firming demand for

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Speaker 2: labor in the back half of the year. The key

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Speaker 2: for us to watch will be you don't want that

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Speaker 2: demand to soften further. You want it to be stable

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Speaker 2: to up to.

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Speaker 1: What extent can We point to tariff policy as being

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Speaker 1: kind of one of the culprits here in creating a

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Speaker 1: bit of the weakness that you just described.

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Speaker 2: I think it's it was responsible for creating some of

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Speaker 2: the weakness early in the year. But I do feel

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Speaker 2: like businesses, particularly because we're still when we had the

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Speaker 2: numbers last week, they were August numbers we were looking at,

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Speaker 2: which August is notoriously weak in any year. But I

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Speaker 2: think we're starting to get some clarity. You've got some

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Speaker 2: of the sectoral tariffs are in and those aren't going away.

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Speaker 2: You've had some amelioration on some of them, the fifteen

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Speaker 2: percent with Japanese. We're still in negotiation with Canada and Mexico,

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Speaker 2: and so businesses have enough framework to be able to

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Speaker 2: make some decisions and step forward. And more importantly, we

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Speaker 2: hear anecdotally a lot of really positive comments around the

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Speaker 2: immediate expensing of R and D and manufacturing, and even

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Speaker 2: in the small and medium sized businesses, we're hearing hints

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Speaker 2: in seeing hints from some of the commercial banking partners

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Speaker 2: that we have that are saying stuff that was sidelined

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Speaker 2: in the spring is starting to move forward.

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Speaker 1: So you know well that Septembers can be a very

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Speaker 1: tricky month for the equity market. I was looking at

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Speaker 1: some Bloomberg data going back as far as nineteen seventy one,

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Speaker 1: the S and P five hundred has dropped about one

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Speaker 1: percent on average. Is there a risk that we could

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Speaker 1: get maybe a modest pullback, perhaps something greater than one percent.

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Speaker 2: We wrote a piece just last week called Spooky Season,

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Speaker 2: or we dove into some of that, and particularly for

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Speaker 2: our clients where there would be taxes involved, wanting to

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Speaker 2: sidestep if there's pullbacks or volatility in here, we would

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Speaker 2: expect any cash on the sidelines to want to figure

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Speaker 2: out a way in, And it seems like traders overall

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Speaker 2: have decided they pretty much like the smell of pumpkins

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Speaker 2: spice this fall, because after the up we had less Monday,

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Speaker 2: we've had some pretty reasonably good markets with as you

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Speaker 2: pointed out, the nasty hitting a new eye today.

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Speaker 1: Let's talk about opportunities offshore, particularly in Asia. Are you

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Speaker 1: finding any these days?

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Speaker 2: Yeah, We've We've had a China play on for quite

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Speaker 2: some time, if you will, more as a secular thematic play,

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Speaker 2: just because they are trying hard to rearrange that economy.

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Speaker 2: We're watching closely what's going on in the other developed markets.

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Speaker 2: We actually had pulled back. We had had a secular

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Speaker 2: play for as well for a couple of years on

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Speaker 2: Japan and had pulled back from that, just going into

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Speaker 2: a lot of what's been going on, especially with the

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Speaker 2: longer bond yields there and the inflation, the sticky inflation

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Speaker 2: they're having, and you've got a lot of folks in

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Speaker 2: that country who haven't you know, from a generational standpoint,

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Speaker 2: that they haven't lived through inflation like the rest of

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Speaker 2: us to have for a very long period of time.

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Speaker 2: And then we are watching European markets closely because there's

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Speaker 2: interesting things in terms of the hard pivot they're making

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Speaker 2: for increasing defense spending, increasing infrastructure spending. But the key

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Speaker 2: will be can you get twenty seven or twenty eight

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Speaker 2: countries all in the same lane doing the same thing

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Speaker 2: to enhance their markets and things like that, So our

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Speaker 2: modest overweight to equity still remains concentrated in the United States.

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Speaker 1: Carol, before I let you go last question when it

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Speaker 1: comes to a lot of the policy changes that we

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Speaker 1: have seen in Washington, and on top of that, problems

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Speaker 1: with the notion of FED independence, maybe changes at the

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Speaker 1: Federal Trade Commission that are likely or not we don't

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Speaker 1: know yet. How are you feeling about the way in

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Speaker 1: which the administration is guiding some of the policies that

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Speaker 1: can impact the economy markets as well.

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Speaker 2: You know, the interesting thing is is we've been writing

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Speaker 2: about this all year, parsing it out for clients that

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Speaker 2: the equity markets really like policies that boost growth or

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Speaker 2: pay attention to growth. And there's a lot to like

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Speaker 2: in some of the bills and stuff that are favorable

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Speaker 2: for removing regulation, not removing it, but loosening it. Secretary

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Speaker 2: Besson has talked repeatedly about loosening the course at on

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Speaker 2: the financial services industry and test firsthand all the compliance

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Speaker 2: overload that goes on in our industry and as for

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Speaker 2: the last decade or two. But that said, the fixed

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Speaker 2: income markets and the economy broadly do not like threats

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Speaker 2: to FED independence. And there's numerous examples of countries through

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Speaker 2: time where when fiscal policy bleeds into monetary policy and

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Speaker 2: there's too close, there's too much oversight from the politicians,

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Speaker 2: you end up with higher in inflation over the long run.

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Speaker 2: So it's critical that the FED maintained independence. And we

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Speaker 2: are pretty confident that the bond vigilantes will express air

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Speaker 2: if you will, and angst over. They've hinted at it

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Speaker 2: a few times, particularly with some of the options for

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Speaker 2: longer term, but they've been very orderly and very patient

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Speaker 2: and very watchful. But if things really went quickly down

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Speaker 2: a path to really look like the Fed's independence was

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Speaker 2: severely crimped, we suspect that the vigilantes would be very vocal.

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Speaker 1: Okay, Carol, thank you so much. We'll leave you there.

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Speaker 1: Carol Schleife is a chief market strategist at BEMO Private Wealth.

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Speaker 1: Joining us from Minneapolis here on the Daybreak Asia Podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.

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Speaker 1: We turn next to the political instability in Japan. It

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Speaker 1: was over the weekend that Prime Minister Shaghiro Ishiba announced

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Speaker 1: his intention to resign.

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Speaker 3: While I feel there are still things I wish to

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Speaker 3: do as premiere, I have made the difficult decision to

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Speaker 3: step down, but I felt that if I continued amid

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Speaker 3: a vote on an early leadership race, it could have

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Speaker 3: created an irreversible division within the party, which is certainly

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Speaker 3: not my intention.

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Speaker 1: Japanese Prime Minister Shigiro Ishiba speaking there through a translator. Now,

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Speaker 1: his exit follows back to back election losses that cost

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Speaker 1: the LDP its parliamentary majority. Now, make no mistake, Ishiba's

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Speaker 1: successor will have to navigate a number of challenges, from

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Speaker 1: global trade to simmering resentment at home over higher inflation.

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Speaker 1: In his latest column, Bloomberg Opinion columnist Garod Redi writes

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Speaker 1: that Japan deserves far better leadership than this, and I

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Speaker 1: am pleased to say that Garod joins US now from

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Speaker 1: the Japanese capital. Thank you so much for making time,

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Speaker 1: sir to chat with me. Think it's fair to say

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Speaker 1: this was an unsurprising move, so Garod helped me understand

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Speaker 1: why Ishia was almost destined not to succeed in this.

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Speaker 4: Yeah, I mean, I think the only thing that was

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Speaker 4: surprising about it was how long it took. Its seven

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Speaker 4: or eight weeks since the Upper House election defeat that,

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Speaker 4: as you say, is the second majors we indeed the

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Speaker 4: third major defeat that Ishiba had as LDP leader, in

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Speaker 4: addition to the lower House defeat last year and the

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Speaker 4: Tokyo Assemble the election earlier this year. As you know,

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Speaker 4: as you say, Ishiba was Ishiba was brought in to

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Speaker 4: fix a problem, and the problem was the LDP's declining

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Speaker 4: popularity that was under the previous Prime Minister of Fumio Kishida.

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Speaker 4: Ishiba was brought in as a new face, a new

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Speaker 4: lick of paint on the party. He wasn't painted by

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Speaker 4: any of the scandals, nor should I say, actually it

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Speaker 4: was Kishita Bakishita was the one who was sort of

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Speaker 4: like handling them, so he kind of became associated with them.

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Speaker 4: Issuba was quite scandal free, clean politician believed to be popular,

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Speaker 4: but when he came in, he did not see the

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Speaker 4: actual bounce in approval ratings that we would associate with

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Speaker 4: a new leader coming in. And ultimately, you know, the

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Speaker 4: LDP is a large organization and what they are there

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Speaker 4: to do is to is to win elections, and what

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Speaker 4: the leader is there to do is to win elections.

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Speaker 4: Ishiba proved that he couldn't do that. And as I say,

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Speaker 4: the only surprising thing is that he didn't go earlier.

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Speaker 4: He dragged it out a little bit longer than frankly

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Speaker 4: I think it needed to.

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Speaker 1: So did Ishubay alienate any part of the LDP in particular?

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Speaker 4: Absolutely the LDP. You know, I think a listener should

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Speaker 4: understand the LP is a very broad party that include

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Speaker 4: you know, it is a center right for the most part, party,

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Speaker 4: but it also includes you know, people way over to

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Speaker 4: the right wing and even you know, politicians that I

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Speaker 4: think in the West might be considered rather left wing.

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Speaker 4: It is really the only viable party at the moment

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Speaker 4: that can really take power over the last couple of

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Speaker 4: years in Japan, and so that tends to bring in

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Speaker 4: a lot of people from many different political leanings. What,

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Speaker 4: for example, the Laitians Alabe did very well was to

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Speaker 4: unite those different wings within the party to make sure

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Speaker 4: everybody got a little bit of everything, everybody was kept happy.

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Speaker 4: But when Issuba came in, one of the things that

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Speaker 4: he immediately did was to alienate the you know, the

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Speaker 4: right wing of the party and in particular the former

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Speaker 4: Abbe faction. The lawmakers who were part of a lot

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Speaker 4: of the factions were dissolved over the last couple of

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Speaker 4: years because of one of the funding scandals that I mentioned,

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Speaker 4: but obviously those lawmakers are still there. He really alienated

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Speaker 4: a lot of those lawmakers, and he also alienated the

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Speaker 4: former prime minister and former financemen. Tarol Asso gave him

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Speaker 4: a very sort of invented post within the party that

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Speaker 4: carried no power, and his base was not solid enough

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Speaker 4: to be able to do that and to be able

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Speaker 4: to take on such vested interests within the party. What

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Speaker 4: he really needed to do was was to unite the

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Speaker 4: party and make sure that everybody was getting a little

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Speaker 4: bit of, you know, a little bit of what they've

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Speaker 4: wanted and a little bit of you know, various cabinet

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Speaker 4: posts and canbdet ministries and stuff like that not to

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Speaker 4: alienate people, and then, of course what happens is when

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Speaker 4: he alienated those politicians, he also alienated the voters, particularly

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Speaker 4: right leaning voters saw him as very liberal, very left leaning,

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Speaker 4: and certainly not an inheritor of the party that it

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Speaker 4: was as it was under for example, Shinzo Abbit.

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Speaker 1: So maybe you can help me understand some of the

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Speaker 1: economic issues that Japan is dealing with right now. I

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Speaker 1: think of very high inflation, the strongest that we have

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Speaker 1: seen in maybe three decades, and at the same time,

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Speaker 1: a little bit of concern over immigration policy unpacked at

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Speaker 1: a little bit for me.

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Speaker 4: Yeah, those are certainly two of the topics that I

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Speaker 4: think will continue to dominate the elections over the you know,

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Speaker 4: have dominated the elections over the last year, and will

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Speaker 4: continue to be an issue, particularly this year with inflation.

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Speaker 4: There was a huge surgeon in the price of rice,

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Speaker 4: which obviously is the staple here in Japan, matters a

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Speaker 4: lot for people just trying to put food on tables.

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Speaker 4: Inflation is it is sort of like a story high

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Speaker 4: in Japan. I should say that it's not as high

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Speaker 4: as it's never been, anywhere near as high as it

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Speaker 4: was in for example, the US and many places in

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Speaker 4: the in the West. But you're coming from a country

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Speaker 4: where deflation has been the problem over the last to

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Speaker 4: three decades. There's an entire generation who've grown up who

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Speaker 4: aren't familiar to the first time that they've seen prices rise,

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Speaker 4: and now it has been entrenched over the last couple

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Speaker 4: of years. It's become quite sticky within the economy, and

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Speaker 4: that's creating issues where in a in a situation where

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Speaker 4: wages are rising, but they're not rising enough yet to

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Speaker 4: overcome inflation. So that's that's one issue. And then also

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Speaker 4: there is the issue of immigration. Again, I don't want

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Speaker 4: to overstate it. I think it is a little bit

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Speaker 4: overstated in some analyzes. What you saw in the Upper

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Speaker 4: House election was a lot of voters deserting the LDP

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Speaker 4: for this upstart right wing party called San Sato. I

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Speaker 4: think that has a lot more to do with the

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Speaker 4: unpopularity of the l DP rather than San Sato's policies

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Speaker 4: towards immigration, and they are they are they could be

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Speaker 4: described as a it would be fair to describe them

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Speaker 4: as as an anti immigration party. They have some rather

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Speaker 4: unpleasant language around foreigners. I think that that is a

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Speaker 4: little bit overstated. Having said that, you know, Japanese society

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Speaker 4: is changing rather quickly. There has been a large increase

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Speaker 4: in the number of particularly foreign workers over the last decade,

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Speaker 4: and there hasn't really been an honest conversation about what,

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Speaker 4: you know, what people want the country to look like.

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Speaker 1: Maybe you can help me understand the possible successors to Ishiba?

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Speaker 1: Are there any obvious candidates.

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Speaker 4: The two leading candidates at the moment, I should say,

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Speaker 4: it's it's very early in the day. We had it

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Speaker 4: memory serves nine candidates last year in the race that

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Speaker 4: eventually was won by Ishiba. The two leading candidates would

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Speaker 4: be the people who came second and third in that

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Speaker 4: election last year. That's sanai A Takaiji and Shinjiro Koizumi

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Speaker 4: Takeichi first. If she became the leader and then was

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Speaker 4: elected prime minister, you know, quite likely, but no longer

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Speaker 4: guarantee because the LDP is no longer the largest party

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Speaker 4: in the lower house. She would become the first female

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Speaker 4: prime minister in Japan. She is a self declared heir

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Speaker 4: of Shinzo Abbe and his politics and his you know,

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Speaker 4: Abinomics policies.

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Speaker 1: She is.

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Speaker 4: We should say, yeah, she's definitely very popular with the

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Speaker 4: right wing and especially with people who did not like Ishiba.

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Speaker 4: They really represent two polls on either side of the party,

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Speaker 4: so she's definitely a leading candidate. I would say she

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Speaker 4: finished second in the runoff election against Ishiba last year,

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Speaker 4: and what you saw was basically concerned that she might

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Speaker 4: have rather similar flaws to what Ishuba turned out to

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Speaker 4: have in that she only appeals maybe to one section

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Speaker 4: of the party, and that in her case is the

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Speaker 4: when The other candidate, as I mentioned, is Shinjiro Koizumi.

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Speaker 4: He's the son of the former Prime Minister Janichiro Koizumi,

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Speaker 4: who listeners might remember was Prime minister in the early

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Speaker 4: to mid two thousands while George W. Bush was the

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Speaker 4: president in the US. He's very young, he's a little inexperienced,

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Speaker 4: but he has had quite an impressive year. He came

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Speaker 4: in as Agriculture minister early on this year to deal

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Speaker 4: with the rice prices that I mentioned earlier, and very

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Speaker 4: immediately and effectively was able to generate a downturn in

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Speaker 4: rice prices by changing how the country was releasing its

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Speaker 4: reserves of rice. That will have certainly one of some plaudits.

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Speaker 4: He's believed to be quite popular with the public. He's young,

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Speaker 4: he's good looking, he's charismatic. He has a celebrity wife

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Speaker 4: and a young family, so he has a lot of

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Speaker 4: things going for him. Those would be the two leading

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Speaker 4: candidates I think at the moment.

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Speaker 1: All right, Garod, we'll leave it there. Thank you so

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Speaker 1: much for filling us in offering some perspective on the

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Speaker 1: way forward now that Japanese Prime Minister Shigiro Ishiba has resigned.

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Speaker 1: That is Bloomberg Opinion columnist Gerode Redi joining us here

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Speaker 1: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 1: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 1: and this is Bloomberg