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

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Speaker 1: Asia Podcast. I'm Doug Krisner. We begin in Japan, where

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Speaker 1: the yen has been under a great deal of pressure lately,

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Speaker 1: despite last week's rate hike from the Bank of Japan. Now,

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Speaker 1: as expected, the BOJ did raise its policy rate twenty

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Speaker 1: five basis points to seventy five basis points. Now that's

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Speaker 1: a thirty year high. Even so, the yen weakened by

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Speaker 1: more than one percent against the dollar, with much of

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Speaker 1: that decline coming after BOJ governor who wait his news

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Speaker 1: conference where he kind of refrained from a particularly hawkish message,

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Speaker 1: and within the last twenty four hours, Japanese finance ministers

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Speaker 1: Satsuki Katayama expressed deep concern about the yen's decline. Speaking

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Speaker 1: to Bloomberg, Katayama said that Japan has a free hand

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Speaker 1: to take bold action against currency moves that are not

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Speaker 1: in line with fundamentals. That's where we start our conversation

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Speaker 1: with Soyuri Sharai, professor of economics at Kyo University in Tokyo.

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Speaker 1: She spoke with Bloomberg TV host Annabel Jewelers and April Holm.

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Speaker 2: The question is though any sort of jaw burning we

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Speaker 2: get from government officials has had the tendency to be

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Speaker 2: quite short lived.

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Speaker 3: Yeah, so in Tavina for exchange market, you know that's possible.

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Speaker 3: But at this moment, the main reason why Yang has

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Speaker 3: been so weak over since twenty twenty two is because

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Speaker 3: of the big interest differential, especially in deal Town. So

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Speaker 3: Japan's policy date in deal town is a minus two percent,

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Speaker 3: So it's very difficult to increase this interesting because the

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Speaker 3: Japan's information is around three percent cost push inforation and

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Speaker 3: you know policit it it's just zero point seventy five percent,

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Speaker 3: so very dearly real interesting, So it's very difficult to

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Speaker 3: change the strength at this stage.

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Speaker 2: Yeah, exactly, especially when you've got the bo j that's

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Speaker 2: really not moving in lockstep with other global central banks.

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Speaker 2: I mean, it's it's it's very difficult to arrest those moves.

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Speaker 2: What then, do you think is the outlook for the

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Speaker 2: currency and as well, what is the priority that the

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Speaker 2: government officials are likely to place on that weakness?

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Speaker 3: So you know, government is changing their strategy. You know,

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Speaker 3: over the past years, premister Mitakaichi was always criticized in

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Speaker 3: bank or Japan's leading Interesting increased forty CY. But I

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Speaker 3: guess since you know October he started to deplicate even more, so, say, know,

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Speaker 3: this is really creating cost pushing creations. So maybe the

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Speaker 3: compromise is to some extent. But the Japanese economy is

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Speaker 3: so weak. So that's why Governor Way that cannot be

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Speaker 3: so confident about ladying interesting, So this is a dynama.

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Speaker 3: So next year, it also depends on what would happen

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Speaker 3: to US forty c h. The US shows very determined

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Speaker 3: past toward you know, lowering interesting, that might change this

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Speaker 3: exchangery towards somewhat more applicial level, but still I think

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Speaker 3: he would remain at the very depreicit level next year.

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Speaker 4: So Eurysan on the issue of US policy when it

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Speaker 4: comes to I guess the signals of intervention, how on

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Speaker 4: board would you say the US Treasury is with it?

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Speaker 4: Is there a tacit understanding between the US and Japan

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Speaker 4: on this so.

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Speaker 3: Inves tragury, you know, I think they would accept it

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Speaker 3: because the Japan is to try to appreciate exchangery, not

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Speaker 3: depreciate in creating competitiveness, So you know, it's a different story.

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Speaker 3: And I think also, you know, US Traasury is always

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Speaker 3: say Japan is behind the CUB. A Bank of Japan

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Speaker 3: is behind the CUB, so maybe it may suggest to

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Speaker 3: more PROLICI late increase by Bank of Japan.

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Speaker 4: What would you say is a sort of yacht stake.

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Speaker 4: I mean the boj has been highlighting reiterating that there's

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Speaker 4: no specific level or finance authorities in Japan, I should say,

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Speaker 4: are highlighting there's no specific level. But what is your

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Speaker 4: sense of how we can tell the levels in which

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Speaker 4: they might step in.

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Speaker 3: Yeah, so one sixty is very very dangerous level, and

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Speaker 3: that is a time that you know, Treasury in tadin,

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Speaker 3: so you know we have to check. But still even

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Speaker 3: now it's very deplicit level, so we have you know,

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Speaker 3: this is really creating a very bad cost push information.

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Speaker 3: This is the biggest program. So I think people are

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Speaker 3: worry that you stay at very you know, high deprecating

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Speaker 3: level or maybe even depre sated FAA if the Takaichi

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Speaker 3: is going to do more physical expression and policy in

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Speaker 3: twenty twenty six, so one sixties I think quite a

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Speaker 3: dangerous bong.

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Speaker 4: On fiscal policy. How regressive are you expecting the extra

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Speaker 4: budget the forthcoming budget to be from the Takeuchi administration.

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Speaker 3: I want to say to think is to try to

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Speaker 3: show that she is very bored expansionary, uh, you know,

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Speaker 3: doing physical policy and so this century. You know, she

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Speaker 3: showed some tax cut by expanding you know, income tax deduction,

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Speaker 3: but to be honest, in Japan, people are paying more

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Speaker 3: and more social security you know premium and you know payments,

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Speaker 3: so that is really a lot and also a lot

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Speaker 3: of people still paying sort of fact inflation tax, right

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Speaker 3: because we have an braket creep. So considering all these

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Speaker 3: de fact infreation and social sexifity security spending, I think

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Speaker 3: the net net tax the tax cut is very small,

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Speaker 3: so I think people do not feel that their lives

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Speaker 3: are getting better. Also, you know, her policy is really

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Speaker 3: to try not to directly influence the fuel prices. Who

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Speaker 3: the prices have increased over twenty eight percent in these

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Speaker 3: four years. Energy it's just thirteen percent. But she never

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Speaker 3: really tried to deal with you know, reducing sake you know,

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Speaker 3: food consumption tax you know, for a while, and she

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Speaker 3: tried to avoid it. So you know, even she tried

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Speaker 3: to do a lot of thing, but she's tried to

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Speaker 3: you know, arrogate a lot of money to local government

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Speaker 3: discription is spending, so she doesn't really touch on the

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Speaker 3: extremely high hood prices.

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Speaker 2: Yeah, and of course that's such a big component of

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Speaker 2: inflation or the inflationary basket. What do you think then

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Speaker 2: about the outlook for next year, because when you've got

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Speaker 2: the bio the government officials rather than Takichi's government, that's

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Speaker 2: that's very focused on more of an expansionary policy, and

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Speaker 2: that goes up against the BOJ that is looking to hike.

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Speaker 2: And you've seen that agitation in bond markets as well,

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Speaker 2: really with yields rising across the curve and that limited

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Speaker 2: spillover so far, but spillover into US, UK German bond yields.

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Speaker 2: What sort of risks are you monitoring then in global

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Speaker 2: bond markets?

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Speaker 3: Yes, so tenure here there is now reaching two percent,

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Speaker 3: still real to be low, say compares to thirty years

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Speaker 3: ago when the policy date was at a similar level.

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Speaker 3: You know, thirty years ago ten years was you know,

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Speaker 3: around four percent or thirty percent, so much higher. Like so,

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Speaker 3: you know, I think in long term, long term it

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Speaker 3: is still low, maybe because the BOG is still hold

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Speaker 3: on nearly fifty percent of low government bond So of

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Speaker 3: course there is at tension here. I'm pretty sure Prime Minister,

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Speaker 3: you try to show another expressional physical policy, but probably

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Speaker 3: limited impact for the increasing disposable income in next year.

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Speaker 3: But there is a tension here, so you know, I

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Speaker 3: think it's very difficult, uh, especially for the bo j

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Speaker 3: or monetary policy.

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Speaker 1: That is, so you're sure. I professor of economics at

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Speaker 1: Ko University in Tokyo, speaking with Bloomberg TV host Averril

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Speaker 1: Hong and anbl droolers here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: It's a holiday shortened week for markets. Earlier in the

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Speaker 1: day in the States, there were broad gains for equities,

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Speaker 1: with the S and P five hundred rising by six

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Speaker 1: tens to one percent. Now on Tuesday, we'll get the

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Speaker 1: initial reading on third quarter economic growth. Bloomberg Economics is

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Speaker 1: estimating the American economy likely grew more than three percent,

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Speaker 1: supported by robust consumer spending and modest gains in investments. Earlier,

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Speaker 1: we had the chance to visit with Bank of America

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Speaker 1: CEO Brian moynihan. He said artificial intelligence is starting to

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Speaker 1: have a bigger impact on growth.

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Speaker 5: I think that's part why the reason we feel constructive

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Speaker 5: for next year. We think AI spending continues. We think

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Speaker 5: there's benefits they can taxpayer from tax rebates, lower taxes

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Speaker 5: due to the tax bill going through and being effective

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Speaker 5: for next year. And we think the expense expensing and

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Speaker 5: other bonuses for businesses are good. So all that leads

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Speaker 5: to our confidence that we go from basic at two

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Speaker 5: percent type of growth letter level this year plus or

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Speaker 5: minus up to two point four percent.

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Speaker 1: Brian moynihan, they're the CEO of Bank of America now.

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Speaker 1: Moynihan also said that bfac's relatively limited risk to the

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Speaker 1: economy if the AI industry became too overheated and had

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Speaker 1: to pull back. For a closer look now at the

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Speaker 1: AI trade, I'm joined by Peter Gardette. He is the

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Speaker 1: CEO of Narreva AI. Thank you for making time to

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Speaker 1: chat with me.

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Speaker 6: It's great to be here.

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Speaker 1: Do you expect this trend in AI to continue what

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Speaker 1: we have seen right now in terms of the buildout

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Speaker 1: of these data centers from hyperscalers. Is that a trend

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Speaker 1: that you expect to continue well into twenty twenty six.

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Speaker 6: I think the interesting thing about the timing right now

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Speaker 6: is that we've seen enormal number of headlines. Right there's

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Speaker 6: a lot of press release money, as I call it,

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Speaker 6: out there for around AI. People have announced enormous capex plans,

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Speaker 6: But if you look at the actual financial results, the

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Speaker 6: financial reporting of these firms, we have yet to see

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Speaker 6: a lot of capex actual steel go in the ground.

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Speaker 6: You don't just when you have AI, you're not just

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Speaker 6: talking about the software and the chips. You're actually talking

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Speaker 6: about the power that's needed behind it. And for all

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Speaker 6: that we're announcing a lot of new power plans, a

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Speaker 6: lot of new power capacity in the United States, the

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Speaker 6: actual energy itself has not come online yet.

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Speaker 1: So Alphabet has recently agreed to buy the clean energy developer,

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Speaker 1: Intersect Power. This is a pretty much an all cash bid.

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Speaker 1: I think they're taking on some existing debt as well

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Speaker 1: for just under five billion. Are we going to see

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Speaker 1: more deals like this where the hyperscaler actually becomes acquisitive

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Speaker 1: in buying some type of power infrastructure.

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Speaker 6: I think this is the most interesting deal because in

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Speaker 6: many ways what they're buying is actually knowledge Intersect itself

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Speaker 6: as a developer. They're leaving most of the existing actual

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Speaker 6: power production assets out of that deal. So what they're

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Speaker 6: actually buying with they're just under five billion dollars is

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Speaker 6: the ability the knowledge of how to bring power online.

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Speaker 6: And that's been the big question. How do you go

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Speaker 6: from announcing power to actually bringing power online. The coordination

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Speaker 6: behind that, the permitting, the financing piece, the actually getting

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Speaker 6: the supply chain right. All of these components are actually

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Speaker 6: very difficult to pull off, and we've seen that over

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Speaker 6: and over.

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Speaker 1: So to what extent is green energy going to be

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Speaker 1: a driver here? Because we had information today that is

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Speaker 1: Monday in the States that the federal government is suspending

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Speaker 1: the leases on all five wind farms that were under

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Speaker 1: construction off the east coast of the US. We're going

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Speaker 1: to see more situations like this where green energy is

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Speaker 1: really under a cloud of suspicion or maybe doubt, and

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Speaker 1: a lot of what comes online in terms of new

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Speaker 1: power is going to be focused on carbon fuels or

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Speaker 1: you clear you.

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Speaker 6: Need to delineate between different technologies. Yeah, offshore wind has

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Speaker 6: always been problematic. It requires a huge amount of capex,

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Speaker 6: It has operational issues. You know, if I was building

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Speaker 6: a data center in the Dominion Service area in Virginia

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Speaker 6: and I was concerned about getting great power. I would

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Speaker 6: be concerned about the cancelation of a big offshore wind project.

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Speaker 6: On the other hand, if I'm building a data center

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Speaker 6: in the southwestern United States where I'm using solar panels,

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Speaker 6: I'm not as concerned. You know, it's all about the

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Speaker 6: exact technology mix, the connection to the individual sighting.

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Speaker 1: Already, we are seeing that residential electric rates have started

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Speaker 1: to move up. Some people who look at the inflation

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Speaker 1: component here are beginning to get a little worried, if

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Speaker 1: they haven't already been worried over this trend. Is that

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Speaker 1: something that will continue, that we're going to see higher prices,

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Speaker 1: much higher prices for electricity in the new year.

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Speaker 6: In a word, yes, I think there's no doubt. If

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Speaker 6: you look at the what I called the capacity as

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Speaker 6: where people are auctioning off future power, we've reached record prices,

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Speaker 6: and until we find a way to build out more

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Speaker 6: power at scale, we're simply not going to see prices

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Speaker 6: go down. There's not enough supply to meet demand. It's

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Speaker 6: a very simple equation.

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Speaker 1: So if you have to push electric power across a

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Speaker 1: grid over long distances, physics tells you that that power

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Speaker 1: is actually going to be reduced over distance correct, So

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Speaker 1: it would be much more beneficial to have LESE power

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Speaker 1: sources kind of localized where they're needed, and.

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Speaker 6: That's increasingly something you see is what's called behind the

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Speaker 6: meter or on site generation for large power for large

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Speaker 6: data center projects in particular, bringing colocated on site generation

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Speaker 6: is a big part of the strategy. And that's I

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Speaker 6: presume what Google is expecting Intersect to do.

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Speaker 1: What about the use of solar as we look to

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Speaker 1: the needs of electricity in the new year, is this

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Speaker 1: something that will grow? Are we going to see much

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Speaker 1: more in the way of solar farms developed.

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Speaker 6: Amazingly enough, you know, in the past year. It's still

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Speaker 6: the fastest growing a piece of the energy generation puzzle.

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Speaker 6: You know. We just it's very, very cheap. There's a

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Speaker 6: lot of solar. It's something that's easy to install, it's distributed.

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Speaker 6: To your point, solar remains a big industry. The issue

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Speaker 6: with it is that intermitten CP so it's only operational

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Speaker 6: of course when the sun shines, and so you need

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Speaker 6: a battery associated with it or you need to back

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Speaker 6: it up our national gas.

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Speaker 1: Well, that's an interesting point about battery technology. Where is

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Speaker 1: the US right now on that front? I think recently,

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Speaker 1: when Ford Motor announced that it was scaling back production

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Speaker 1: of vvs, it was committed to retooling a plant in

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Speaker 1: Kentucky to develop battery of batteries that could be used

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Speaker 1: for the grid.

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Speaker 6: Right, Yeah, batteries are a massive growth area. Everyone needs

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Speaker 6: dispatchable power. All of these data centers need to essentially

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Speaker 6: be wrapped in batteries in order to control for what

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Speaker 6: are called frequency issues. Batteries is just a buy the

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Speaker 6: across the board.

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Speaker 1: Does that take us into the conversation about rare earth

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Speaker 1: minerals and relations between the US and China?

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Speaker 6: It absolutely does. I mean, the supply chain for batteries

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Speaker 6: is you know, just rooted in China. There are other

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Speaker 6: battery sources, you know, you're talking about the South Korean companies,

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Speaker 6: but China has deliberately, you know, cornered that market, and

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Speaker 6: so building up an alternative supply chain is a huge

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Speaker 6: strategic imperative this administration.

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Speaker 1: So in certain jurisdictions, state regulators get to kind of

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Speaker 1: get involved when prices are set. Is that something that's

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Speaker 1: going to become more evident as we go out into

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Speaker 1: twenty twenty six where state utility commissions or other regulators

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Speaker 1: are going to be kind of trying to cap the

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Speaker 1: rate of electric power.

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Speaker 6: You've already seen it. I think intervention is definitely going

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Speaker 6: to happen. I mean, if you get higher prices people

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Speaker 6: really feel that it flows directly through to the voter.

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Speaker 6: You're going to see higher price. You're going to see

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Speaker 6: intervention trying to control for prices. The problem, then, however,

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Speaker 6: is that you know investors are going to hold back,

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Speaker 6: which means that the supply situation only gets worse. Prices

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Speaker 6: are a solution to high prices. You need to let

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Speaker 6: prices go up.

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Speaker 1: So if we look away from green technology, whether it's

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Speaker 1: solar or wind farms, and we focus for a moment

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Speaker 1: on kind of carbon based fuels, and I'm thinking of

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Speaker 1: the turbines that are actually involved in that production, and

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Speaker 1: I'm thinking of a company like Semens for example, or

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Speaker 1: maybe to a lesser extent, even General Electric, and I

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Speaker 1: don't know the extent to which GE is still a

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Speaker 1: player in this space. Are these companies going to be

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Speaker 1: able to meet demand here?

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Speaker 6: So this is Vernova, which is part of what used

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Speaker 6: to be the great conglomerate called GE and Semens. They

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Speaker 6: are building very quickly, but the fact that they are

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Speaker 6: not adding as much capacity as they need to in

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Speaker 6: order to meet the market. You've actually seen people redeploy

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Speaker 6: airline turbines in order to do very quick power because

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Speaker 6: it's fundamentally very similar sort of engineering.

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Speaker 1: What about the power that's used to drive those turbines.

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Speaker 1: I'm thinking of natural gas fuel oil. Is there going

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Speaker 1: to be much more in the way of mining those resources?

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Speaker 6: I mean, I think drilling for gas will almost inevitably

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Speaker 6: go up. There's a big export demand, there's a lot

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Speaker 6: of domestic demand, as we've talked about, like that's one

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Speaker 6: of the things that could back up renewables on the

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Speaker 6: grid or be used a data centers. So natural gas

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Speaker 6: is a growth area for sure.

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Speaker 1: So are you optimistic about the power industry in the

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Speaker 1: new year.

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Speaker 6: Absolutely, There's only way one way for it to go

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Speaker 6: if demand keeps hope the way it is okay?

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Speaker 1: And what type of return can we expect? Is it

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Speaker 1: going to be outsized versus let's say the overall equity market.

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Speaker 6: I will say that there was just some analysis just

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Speaker 6: today that the private equity purchase of a natural gas

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Speaker 6: generator called Calpine was I believe the largest in dollar

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Speaker 6: terms for a return. Ever, so we're talking about some

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Speaker 6: very big potential numbers.

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Speaker 1: So if a lot of this is kind of linked

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Speaker 1: to where the US happens to be in the AI

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Speaker 1: story right now, is there the risk that competition from

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Speaker 1: China maybe takes a little bit of supremacy here and

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Speaker 1: in some way reduces the demand for power from the US.

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Speaker 6: Look, the worst possible outcome for the United States economy

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Speaker 6: would be if China takes the lead in AI because

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Speaker 6: they have so much power and thereby relieves the inflation

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Speaker 6: for power in the United States. What needs to happen

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Speaker 6: is better coordination, more construction, more building. That's the solution here.

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Speaker 1: So when you say that, you're talking about across the

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Speaker 1: fifty states, right for sure. So is there anyone that's

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Speaker 1: kind of getting this in terms of the people who

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Speaker 1: are making policy within the Trump administration? Do you think

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Speaker 1: that they've got it right?

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Speaker 6: It's more about looking at individuals states. So I think

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Speaker 6: if you look at Texas massive energy build out over

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Speaker 6: the years, and I think that we're seeing a lot

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Speaker 6: of energy intensive industries relocate to that region in part

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Speaker 6: because they've managed to build out a lot of power.

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Speaker 6: And so I think if you see some of that

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Speaker 6: same market structure be applied to other regions, you know,

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Speaker 6: the Northeastern United States, California, you could be to see

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Speaker 6: a much faster.

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Speaker 1: Build out in terms of the build out that we've

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Speaker 1: been experiencing here in the US private companies versus some

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Speaker 1: of the public players in the energy space. We're speaking

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Speaker 1: here in New York. I'm thinking of con Edison, right,

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Speaker 1: who is a major supplier here in New York City.

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Speaker 1: Private equity is becoming increasingly involved in this space. Is

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Speaker 1: that do you think going to be well funded next year?

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Speaker 1: Is there a lot more money that's going to be

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Speaker 1: flowing into private equity as it relates to energy production.

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Speaker 6: We've seen a continued ongoing boom in fundraising for anything

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Speaker 6: to do with energy on the private market side, I

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Speaker 6: think and after today you know TPG private equity from

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Speaker 6: backed intersect, We're talking about another private equity from the

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Speaker 6: back Calpine. These are big, chunky returns that will bring

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Speaker 6: in more capital.

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Speaker 1: What is the one thing that you're worried about though,

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Speaker 1: is a regard in regards to this industry as we

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Speaker 1: look out to the future lawsuits.

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Speaker 6: I think, you know, when it comes to permitting everybody's

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Speaker 6: allowed to sue every everybody. Anything that delays power buildout

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Speaker 6: is a bad outcome.

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Speaker 1: Here, Peter will leave it there. Thank you so much.

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Speaker 1: You're dropping by. Peter Gardette is the CEO of Narreva Ai.

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Speaker 1: Joining us here on the Daybreak Asia Podcast. Thanks for

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Speaker 1: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner, and this is Bloomberg