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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. Let's begin in Tokyo today,

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Speaker 1: where BOJ Governor Kazuo Owedo was making some hawkish comments

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Speaker 1: earlier during an address to parliament. He seemed to use

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Speaker 1: unusually clear language in defending the recent rise that we

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Speaker 1: have seen lately in Japanese government bond yields. Joining me

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Speaker 1: now for a closer look is Paul Jackson. He is

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Speaker 1: Bloomberg News Economy editor, joining us from Tokyo. Paul, it's

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Speaker 1: always a pleasure to benefit from your perspective. Talk to

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Speaker 1: me a little bit about any concern that may be

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Speaker 1: there in the market right now in Japan, given this

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Speaker 1: move up that we have seen in JGB yields.

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Speaker 2: Well, I think the market concerns largely reflect the reality

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Speaker 2: that the BOJ has now pulled away a year ago

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Speaker 2: from protecting these yields, keeping up lid on them so

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Speaker 2: they can kind of go up and up and up.

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Speaker 2: Now there has been an uptick to the highest levels

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Speaker 2: in the benchmark yield, to the levels that we last

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Speaker 2: saw during the global financial crisis. Before then, Even so,

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Speaker 2: these our levels that are are much higher than they

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Speaker 2: have been for a long time. That's causing some concern

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Speaker 2: amongst market players and also for policymakers. Don't forget that

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Speaker 2: Japan has the biggest debt load amongst advanced economies in

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Speaker 2: the world, so rising yields on benchmark bonds is a

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Speaker 2: problem for long term financing of the debt. And I

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Speaker 2: think what we're seeing here from policymakers, not only from

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Speaker 2: the Central Bank governor Uda, but also from the fireman

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Speaker 2: Finance Minister Kato the day before, is that policymakers are

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Speaker 2: trying to just reassure, just say, hey, look, this is

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Speaker 2: kind of natural. We're back towards a kind of more

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Speaker 2: market focused determination of yield pricing, and there's no need

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Speaker 2: to get too overly concerned here. These market movements are normal, and.

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Speaker 1: It seems logical that it would also would reflect expectations

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Speaker 1: that the boj is going to begin raising interest rates soon.

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Speaker 2: Right, Yeah, I think we're going to continue seeing interest

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Speaker 2: rate rises in Japan. We've still got inflation. Inflation is

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Speaker 2: going to be above or in line with the boj's target.

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Speaker 2: We're getting close to three years now, so those interest

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Speaker 2: rates are going to keep going up. Now, they're not

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Speaker 2: going to go nuts. It's not like every meeting. It's

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Speaker 2: not back to back at rate hikes. We're not expecting

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Speaker 2: anything at the March meeting. But I think we are seeing,

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Speaker 2: you know, pretty hard baked team expectations that the Bank

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Speaker 2: of Japan is going to be raising rates every six months.

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Speaker 1: Also, so earlier today we had the February reading on

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Speaker 1: producer prices. You and I were talking a moment ago.

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Speaker 1: This is pretty much in line with what the market

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Speaker 1: was expecting, right, that four percent year on year increase

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Speaker 1: in PPI.

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Speaker 2: Yeah, I think so. I think that the main takeaway

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Speaker 2: from this is we've got high input prices coming in

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Speaker 2: that means it's going to feed into inflation going forward.

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Speaker 2: So inflation isn't going to disappear anytime soon, and so

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Speaker 2: that feeds into the idea that the Bank of Japan

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Speaker 2: will keep raising interest rates. Now, is inflation like six

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Speaker 2: or seven percent requiring urgent attention? No, So I think

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Speaker 2: we're going to see a continuation of gradual rate hikes.

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Speaker 1: So, how are consumers in Japan feeling these days about inflation?

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Speaker 1: And maybe you can help me understand how that's showing

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Speaker 1: up in politics.

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Speaker 2: Well, I think the average consumer on the street is

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Speaker 2: thoroughly unhappy with all these rising prices. It's kind of

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Speaker 2: an alien concept in Japan, the idea of prices are

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Speaker 2: going up. It's only something that a generation has seen

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Speaker 2: in the last you know, two or three years, so

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Speaker 2: you know, they're seeing this cost of living crunch as

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Speaker 2: even though wages are going up much faster than they

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Speaker 2: have been, it's still those gains are lagging increases in prices.

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Speaker 2: So in terms of people's real living standards, they are

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Speaker 2: going down.

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Speaker 3: Now.

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Speaker 2: Is anyone in the world going to be happy with that?

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Speaker 3: Well?

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Speaker 2: No, And we do have an election coming up in

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Speaker 2: the summer, so Prime Minister Ishiba kind of needs to

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Speaker 2: do something to show that they are on top of

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Speaker 2: the inflation story if he's going to perform well in

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Speaker 2: that election. And the signs aren't great.

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Speaker 1: So much of the conversation here Stateside has been around

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Speaker 1: and tariffs that are going to be imposed in a

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Speaker 1: few hours from now on imported steel and aluminum. Now,

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Speaker 1: Japan at one point was a big steel producer. How

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Speaker 1: are Japanese people feeling about this talk of increased tariffs?

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Speaker 2: Well, I think it is it is a concern for

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Speaker 2: the economy going forward. Obviously, Japan relies a lot on

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Speaker 2: its trade. The we have a whole raft of tariffs

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Speaker 2: in the Trump universe, so we're starting off with steel

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Speaker 2: and aluminum, but there's also these reciprocal tariffs that is

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Speaker 2: also talking about, and potentially tariffs on cars. Now, I

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Speaker 2: think that the tariffs on cars is probably Japan's number

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Speaker 2: one concern because seventeen percent of this exports our cars,

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Speaker 2: so and a third of those go to the US.

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Speaker 2: So if those tariffs are slapped on cars, that's going

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Speaker 2: to really hits the economy. Now, looking at the economy,

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Speaker 2: we saw recent growth figures showing that the economy expanded

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Speaker 2: two point two percent in the fourth quarter. That's a

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Speaker 2: pretty good clip. You know, they could keep that going

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Speaker 2: every quarter. I'm sure Japan will be very happy. But

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Speaker 2: looking at the figures, most of that growth is based

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Speaker 2: on trade and a business investment. Now, if you've got

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Speaker 2: a whole load of tariffs being unfiled across the world, well,

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Speaker 2: is that going to be good for trade? No? And

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Speaker 2: our business is going to feel like this is a

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Speaker 2: great time to invest. Well, I don't think so. So

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Speaker 2: what does that leave you to drive the economy consumption well,

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Speaker 2: as I told you, consumers are not happy with inflation.

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Speaker 2: So all of these are dark clouds for the economy

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Speaker 2: moving forward.

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Speaker 1: So our leaders in Japan attempting to get some exemptions,

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Speaker 1: do you think, Oh?

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Speaker 2: Yes, like many of US trading partners, especially those with

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Speaker 2: surpluses on trade, We've seen a delegation go over to DC.

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Speaker 2: We had our trade minister there just in recent days

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Speaker 2: talking with COMMA Sectary Secretary Howard Lutnik, trying to find

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Speaker 2: a way for some kind of win win result. As

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Speaker 2: you can imagine in Trump's world, those are difficult to

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Speaker 2: come by.

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Speaker 1: Mentioned a moment ago that we have the BOJ meeting

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Speaker 1: in the week ahead, do you think that we're likely

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Speaker 1: to get a hawkish hold? Is that the logical way

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Speaker 1: of framing this.

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Speaker 2: I think that's a logical way of thinking how the

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Speaker 2: outcome would would be. I think it will be a

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Speaker 2: bit more neutral, it will be a hold. I think

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Speaker 2: there's so many uncertainties about what's going to happen with

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Speaker 2: these tariffs. Don't forget we've seen you know, garis imposed,

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Speaker 2: than delayed and postponed, then resort. Who knows what's going

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Speaker 2: to happen. Is there's so many tariffs being talked about

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Speaker 2: in the coming weeks. Is that a scenario, a situation

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Speaker 2: when you want to be very hawkish with your messaging

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Speaker 2: after holding I think it's more likely that they'll stick

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Speaker 2: to a neutral take no change. That's what all fifty

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Speaker 2: two of our economists surveyed recently expect at this meeting,

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Speaker 2: and I think they'll keep the language fairly neutral going ahead,

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Speaker 2: just staying with this idea that if their forecasts are realized,

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Speaker 2: they will continue with gradual increases in interest rates.

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Speaker 1: You and I have talked in the past about the

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Speaker 1: proposed acquisition of US Steel on the part of Nipon steal.

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Speaker 1: It was certainly a hot button issue going into the

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Speaker 1: presidential election. I haven't heard much and there really hasn't

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Speaker 1: been a resolution yet. What are we hearing about this?

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Speaker 2: Well, if you remember when Prime Minister Ishiba met with

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Speaker 2: President Trump recently in DC, you know they discussed this.

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Speaker 2: This came out at their press conference and they tried

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Speaker 2: to re imagine the takeover as instead a direct investment

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Speaker 2: of of course less than half so now trying to

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Speaker 2: realize that reimagining the deal as instead a direct investment.

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Speaker 2: That's quite a leap of the characterization of what's going on.

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Speaker 2: So I think both sides are still trying to work

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Speaker 2: through that. My understanding is Nipon Steele's the case, insisting

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Speaker 2: that it should go ahead and fighting against the block

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Speaker 2: that former President Biden put on the deal that is

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Speaker 2: still in process, still going ahead, So a lot of

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Speaker 2: questions still to be answered on that deal.

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Speaker 1: Paul will leave it there. It's always a pleasure. Thank

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Speaker 1: you for joining us. Paul Jackson there, Bloomberg News Economy

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Speaker 1: editor joining us from Tokyo. 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 certainly was another volatile day in the equity market,

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Speaker 1: and the cross currents were many. We had the trade

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Speaker 1: tension between the US and Canada. We also had Ukraine

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Speaker 1: saying it's ready to accept a US proposal for a

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Speaker 1: thirty day truce with Russia, and here in the States,

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Speaker 1: heightened concern over economic growth. Let's get to it now

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Speaker 1: with Michelle Martin. She's our guest. Michelle is president of Prosperity,

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Speaker 1: the wealth management arm of Eisner Amper and Michelle joining

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Speaker 1: us from just outside Minneapolis. Good of you to make

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Speaker 1: time to chat with us. Can we begin with the

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Speaker 1: tariff story, because tonight at twelve oh one am, the

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Speaker 1: US tariffs of twenty five percent on imported steel and

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Speaker 1: aluminum will take effect. Obviously, in terms of equity market action,

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Speaker 1: we've seen some heavy selling recently on concern over the

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Speaker 1: impact of these tariffs. To what extent do you think

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Speaker 1: the market is now fully embraced the risk or is

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Speaker 1: there still potentially some more downside as it relates to

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Speaker 1: these tariffs biting.

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Speaker 3: Well, that's an interesting question, Doug, and I think that

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Speaker 3: that question is going to remain out there until we

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Speaker 3: actually start to see this communication in the back and

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Speaker 3: forth settle down a little bit. I think that tariffs

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Speaker 3: are absolutely having an impact on the markets right now,

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Speaker 3: and I think that the fact that the markets were

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Speaker 3: so the valuations were so high, this is kind of

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Speaker 3: the pen that's bursting the air out of the bubble

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Speaker 3: here a bit. We're seeing Nasdaq in correction territory, and

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Speaker 3: you know, it's really difficult at this point to even

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Speaker 3: keep track of on a day to day basis what

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Speaker 3: is happening with the tariffs. I'm as you said, I'm

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Speaker 3: here in Minneapolis, and the premiere of Ontario just removed

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Speaker 3: the threat to our electric grid here in northern Minnesota,

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Speaker 3: in Michigan and New York. So there's a lot of

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Speaker 3: bargaining going on, and I think it's important that we

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Speaker 3: follow that. But I think it's creating a lot of

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Speaker 3: uncertainty and fear, which is affecting the markets, absolutely.

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Speaker 1: No doubt. It's kind of curious. Today President Trump seemed

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Speaker 1: to downplay the recent sell off that we have seen

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Speaker 1: in the equity market. At one point when he was

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Speaker 1: talking with reporters, he said, and I'm quoting him, it

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Speaker 1: doesn't concern me. So if you look at the concerns,

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Speaker 1: I'm sure there are many, and I'm sure that you're

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Speaker 1: hearing a lot of concerns coming from your clients. What

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Speaker 1: are they asking you when the phone rings.

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Speaker 3: Clients are definitely concerned, and I think that just the

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Speaker 3: lack of certainty is really on settling to them. I

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Speaker 3: think that people are feeling like perhaps it was time

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Speaker 3: for a pullback. And one of the things that we

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Speaker 3: talk about a lot with our clients is just having

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Speaker 3: a diversified strategy and being diversified in your portfolio. You know,

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Speaker 3: they're calling and asking where their equity exposures are and

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Speaker 3: if if their portfolio is rebalanced appropriately. Those are all

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Speaker 3: things that are top of mind for people. And I

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Speaker 3: think the other thing is they're just concerned about, you know,

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Speaker 3: if they have some short term investment needs, you know,

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Speaker 3: need for cash, need for income. They're they're more apt

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Speaker 3: to be putting more in cash and fixed income at

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Speaker 3: this point, just thinking that there's gonna be a short

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Speaker 3: term correction.

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Speaker 1: Trump said today he does not foresee the US going

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Speaker 1: into recession. I don't know how you get your economic reporting,

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Speaker 1: whether or not you outsource that, or whether it's something

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Speaker 1: that happens internally at Eisner Amper that you have access to.

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Speaker 1: Is the house view right now that we are at

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Speaker 1: risk of a recession?

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Speaker 3: I think I think our view, and and you know

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Speaker 3: this is from from several several investment houses, is really

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Speaker 3: where we draw our information. I think we think it's

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Speaker 3: a little bit early to say that a recession is

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Speaker 3: absolutely on the horizon. I think that it is going

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Speaker 3: to really depend largely on what we're seeing with consumer

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Speaker 3: spending and jobs. Those are the key drivers here. And

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Speaker 3: we've got some some reports, you know, coming out shortly,

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Speaker 3: but I think monitoring that and really understanding consumer confidence

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Speaker 3: is going to play largely into that.

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Speaker 1: Do you think this is going to move the needle

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Speaker 1: where the FED is concerned? I mean, there were many

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Speaker 1: folks who watch market action saying that the FED is

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Speaker 1: probably going to be on hold for the foreseeable future,

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Speaker 1: and I'm one wondering whether what we've been seeing in

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Speaker 1: terms of volatility and uncertainty changes that outlook slightly.

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Speaker 3: I'm a former banker, Doug, and I think that we're

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Speaker 3: in this. I think the FED, you know, it did

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Speaker 3: some easying and last fall. I think that, you know,

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Speaker 3: there was talk that perhaps they got ahead of themselves

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Speaker 3: in September, but it actually has has has worked quite well,

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Speaker 3: and we were, you know, heading for what appeared to

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Speaker 3: be a soft landing. I think that the FED is

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Speaker 3: going to hold steady for a while. I think they've

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Speaker 3: signaled that, and I think one of the things that's

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Speaker 3: important is that we listened to the messaging of the FED.

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Speaker 3: The market tends to lean towards what the market thinks,

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Speaker 3: not necessarily always what the FED is seeing, and so

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Speaker 3: I think the FED would absolutely adjust if there's true

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Speaker 3: signs of recession coming into play, but I think it's

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Speaker 3: a little early for that.

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Speaker 1: Where are you in terms of the opportunities that may

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Speaker 1: exist in the bond market right now? Is that the

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Speaker 1: place to be?

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Speaker 2: Do you think?

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Speaker 3: Yeah, it is. We've increased our allocations in fixed income.

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Speaker 3: I think bonds are actually for the first time in

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Speaker 3: in you know, a decade, really putting that ballast, that

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Speaker 3: foundation into a portfolio when you're picking up a yield

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Speaker 3: of four and a half to five percent. We extended

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Speaker 3: duration last winter on our portfolio, and so you know,

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Speaker 3: I think by locking in and holding individual bonds, clipping

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Speaker 3: coupen's at five percent sounds pretty boring, but it actually

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Speaker 3: works really well in a volatile market like this.

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Speaker 1: So what type of credit risk are you taking? Where

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Speaker 1: are you going in terms of credit quality?

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Speaker 3: So we're we're taking We're not taking a lot of

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Speaker 3: credit risk on our core bond portfolio. We're in high

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Speaker 3: quality bonds, but we are taking some credit risk dug

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Speaker 3: in private credit and high yield. That has served us

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Speaker 3: very well over the last twelve to eighteen months. And

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Speaker 3: as you've talked about with you know, a change here

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Speaker 3: and a shift, I think we were watching that very carefully.

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Speaker 3: That's an area where obviously it can be affected if

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Speaker 3: we see a real downturn in the economy, but for now,

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Speaker 3: those yields are working quite well.

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Speaker 1: Are there opportunities offshore something outside the United States that

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Speaker 1: maybe has peaked your interest a little?

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Speaker 3: Oh well, it's so interesting right now because there's clearly

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Speaker 3: a rotation going on. And you mentioned this earlier with

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Speaker 3: the talks with Russia and Ukraine. But you know, just

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Speaker 3: in general, the equity markets in Europe are the valuations

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Speaker 3: are much lower than they are here in the United States,

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Speaker 3: and we're actually seeing that rotate where you know, the

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Speaker 3: IFA is actually up almost eight percent year to date

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Speaker 3: and when we've seen a pullback in the US markets.

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Speaker 3: So that is an opportunity we have an allocation to

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Speaker 3: international We're watching and not necessarily jumping in on emerging

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Speaker 3: markets or China at this point, I think that that

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Speaker 3: economy still has some issues, but just really when you

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Speaker 3: look at Western Europe, it's just riding along pretty steadily

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Speaker 3: right now.

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Speaker 1: Michelle will leave it there. It's always a pleasure. Thank

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Speaker 1: you so much for joining us. Michelle Martin there. She

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Speaker 1: is president of Prosperity, that is the wealth management arm

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Speaker 1: of Eisner Amper, joining us from Minneapolis here on the

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Speaker 1: Daybreak Asia Podcast. Thanks for listening to today's episode of

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Speaker 1: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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

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

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

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

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Speaker 1: Hong Kong to Singapore and Australia. I'm Doug Prisoner and

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Speaker 1: this is Bloomberg