Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. Let's begin in Tokyo today,
Speaker 1: where BOJ Governor Kazuo Owedo was making some hawkish comments
Speaker 1: earlier during an address to parliament. He seemed to use
Speaker 1: unusually clear language in defending the recent rise that we
Speaker 1: have seen lately in Japanese government bond yields. Joining me
Speaker 1: now for a closer look is Paul Jackson. He is
Speaker 1: Bloomberg News Economy editor, joining us from Tokyo. Paul, it's
Speaker 1: always a pleasure to benefit from your perspective. Talk to
Speaker 1: me a little bit about any concern that may be
Speaker 1: there in the market right now in Japan, given this
Speaker 1: move up that we have seen in JGB yields.
Speaker 2: Well, I think the market concerns largely reflect the reality
Speaker 2: that the BOJ has now pulled away a year ago
Speaker 2: from protecting these yields, keeping up lid on them so
Speaker 2: they can kind of go up and up and up.
Speaker 2: Now there has been an uptick to the highest levels
Speaker 2: in the benchmark yield, to the levels that we last
Speaker 2: saw during the global financial crisis. Before then, Even so,
Speaker 2: these our levels that are are much higher than they
Speaker 2: have been for a long time. That's causing some concern
Speaker 2: amongst market players and also for policymakers. Don't forget that
Speaker 2: Japan has the biggest debt load amongst advanced economies in
Speaker 2: the world, so rising yields on benchmark bonds is a
Speaker 2: problem for long term financing of the debt. And I
Speaker 2: think what we're seeing here from policymakers, not only from
Speaker 2: the Central Bank governor Uda, but also from the fireman
Speaker 2: Finance Minister Kato the day before, is that policymakers are
Speaker 2: trying to just reassure, just say, hey, look, this is
Speaker 2: kind of natural. We're back towards a kind of more
Speaker 2: market focused determination of yield pricing, and there's no need
Speaker 2: to get too overly concerned here. These market movements are normal, and.
Speaker 1: It seems logical that it would also would reflect expectations
Speaker 1: that the boj is going to begin raising interest rates soon.
Speaker 2: Right, Yeah, I think we're going to continue seeing interest
Speaker 2: rate rises in Japan. We've still got inflation. Inflation is
Speaker 2: going to be above or in line with the boj's target.
Speaker 2: We're getting close to three years now, so those interest
Speaker 2: rates are going to keep going up. Now, they're not
Speaker 2: going to go nuts. It's not like every meeting. It's
Speaker 2: not back to back at rate hikes. We're not expecting
Speaker 2: anything at the March meeting. But I think we are seeing,
Speaker 2: you know, pretty hard baked team expectations that the Bank
Speaker 2: of Japan is going to be raising rates every six months.
Speaker 1: Also, so earlier today we had the February reading on
Speaker 1: producer prices. You and I were talking a moment ago.
Speaker 1: This is pretty much in line with what the market
Speaker 1: was expecting, right, that four percent year on year increase
Speaker 1: in PPI.
Speaker 2: Yeah, I think so. I think that the main takeaway
Speaker 2: from this is we've got high input prices coming in
Speaker 2: that means it's going to feed into inflation going forward.
Speaker 2: So inflation isn't going to disappear anytime soon, and so
Speaker 2: that feeds into the idea that the Bank of Japan
Speaker 2: will keep raising interest rates. Now, is inflation like six
Speaker 2: or seven percent requiring urgent attention? No, So I think
Speaker 2: we're going to see a continuation of gradual rate hikes.
Speaker 1: So, how are consumers in Japan feeling these days about inflation?
Speaker 1: And maybe you can help me understand how that's showing
Speaker 1: up in politics.
Speaker 2: Well, I think the average consumer on the street is
Speaker 2: thoroughly unhappy with all these rising prices. It's kind of
Speaker 2: an alien concept in Japan, the idea of prices are
Speaker 2: going up. It's only something that a generation has seen
Speaker 2: in the last you know, two or three years, so
Speaker 2: you know, they're seeing this cost of living crunch as
Speaker 2: even though wages are going up much faster than they
Speaker 2: have been, it's still those gains are lagging increases in prices.
Speaker 2: So in terms of people's real living standards, they are
Speaker 2: going down.
Speaker 3: Now.
Speaker 2: Is anyone in the world going to be happy with that?
Speaker 3: Well?
Speaker 2: No, And we do have an election coming up in
Speaker 2: the summer, so Prime Minister Ishiba kind of needs to
Speaker 2: do something to show that they are on top of
Speaker 2: the inflation story if he's going to perform well in
Speaker 2: that election. And the signs aren't great.
Speaker 1: So much of the conversation here Stateside has been around
Speaker 1: and tariffs that are going to be imposed in a
Speaker 1: few hours from now on imported steel and aluminum. Now,
Speaker 1: Japan at one point was a big steel producer. How
Speaker 1: are Japanese people feeling about this talk of increased tariffs?
Speaker 2: Well, I think it is it is a concern for
Speaker 2: the economy going forward. Obviously, Japan relies a lot on
Speaker 2: its trade. The we have a whole raft of tariffs
Speaker 2: in the Trump universe, so we're starting off with steel
Speaker 2: and aluminum, but there's also these reciprocal tariffs that is
Speaker 2: also talking about, and potentially tariffs on cars. Now, I
Speaker 2: think that the tariffs on cars is probably Japan's number
Speaker 2: one concern because seventeen percent of this exports our cars,
Speaker 2: so and a third of those go to the US.
Speaker 2: So if those tariffs are slapped on cars, that's going
Speaker 2: to really hits the economy. Now, looking at the economy,
Speaker 2: we saw recent growth figures showing that the economy expanded
Speaker 2: two point two percent in the fourth quarter. That's a
Speaker 2: pretty good clip. You know, they could keep that going
Speaker 2: every quarter. I'm sure Japan will be very happy. But
Speaker 2: looking at the figures, most of that growth is based
Speaker 2: on trade and a business investment. Now, if you've got
Speaker 2: a whole load of tariffs being unfiled across the world, well,
Speaker 2: is that going to be good for trade? No? And
Speaker 2: our business is going to feel like this is a
Speaker 2: great time to invest. Well, I don't think so. So
Speaker 2: what does that leave you to drive the economy consumption well,
Speaker 2: as I told you, consumers are not happy with inflation.
Speaker 2: So all of these are dark clouds for the economy
Speaker 2: moving forward.
Speaker 1: So our leaders in Japan attempting to get some exemptions,
Speaker 1: do you think, Oh?
Speaker 2: Yes, like many of US trading partners, especially those with
Speaker 2: surpluses on trade, We've seen a delegation go over to DC.
Speaker 2: We had our trade minister there just in recent days
Speaker 2: talking with COMMA Sectary Secretary Howard Lutnik, trying to find
Speaker 2: a way for some kind of win win result. As
Speaker 2: you can imagine in Trump's world, those are difficult to
Speaker 2: come by.
Speaker 1: Mentioned a moment ago that we have the BOJ meeting
Speaker 1: in the week ahead, do you think that we're likely
Speaker 1: to get a hawkish hold? Is that the logical way
Speaker 1: of framing this.
Speaker 2: I think that's a logical way of thinking how the
Speaker 2: outcome would would be. I think it will be a
Speaker 2: bit more neutral, it will be a hold. I think
Speaker 2: there's so many uncertainties about what's going to happen with
Speaker 2: these tariffs. Don't forget we've seen you know, garis imposed,
Speaker 2: than delayed and postponed, then resort. Who knows what's going
Speaker 2: to happen. Is there's so many tariffs being talked about
Speaker 2: in the coming weeks. Is that a scenario, a situation
Speaker 2: when you want to be very hawkish with your messaging
Speaker 2: after holding I think it's more likely that they'll stick
Speaker 2: to a neutral take no change. That's what all fifty
Speaker 2: two of our economists surveyed recently expect at this meeting,
Speaker 2: and I think they'll keep the language fairly neutral going ahead,
Speaker 2: just staying with this idea that if their forecasts are realized,
Speaker 2: they will continue with gradual increases in interest rates.
Speaker 1: You and I have talked in the past about the
Speaker 1: proposed acquisition of US Steel on the part of Nipon steal.
Speaker 1: It was certainly a hot button issue going into the
Speaker 1: presidential election. I haven't heard much and there really hasn't
Speaker 1: been a resolution yet. What are we hearing about this?
Speaker 2: Well, if you remember when Prime Minister Ishiba met with
Speaker 2: President Trump recently in DC, you know they discussed this.
Speaker 2: This came out at their press conference and they tried
Speaker 2: to re imagine the takeover as instead a direct investment
Speaker 2: of of course less than half so now trying to
Speaker 2: realize that reimagining the deal as instead a direct investment.
Speaker 2: That's quite a leap of the characterization of what's going on.
Speaker 2: So I think both sides are still trying to work
Speaker 2: through that. My understanding is Nipon Steele's the case, insisting
Speaker 2: that it should go ahead and fighting against the block
Speaker 2: that former President Biden put on the deal that is
Speaker 2: still in process, still going ahead, So a lot of
Speaker 2: questions still to be answered on that deal.
Speaker 1: Paul will leave it there. It's always a pleasure. Thank
Speaker 1: you for joining us. Paul Jackson there, Bloomberg News Economy
Speaker 1: editor joining us from Tokyo. Here on the Daybreak Asia podcast.
Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 1: It certainly was another volatile day in the equity market,
Speaker 1: and the cross currents were many. We had the trade
Speaker 1: tension between the US and Canada. We also had Ukraine
Speaker 1: saying it's ready to accept a US proposal for a
Speaker 1: thirty day truce with Russia, and here in the States,
Speaker 1: heightened concern over economic growth. Let's get to it now
Speaker 1: with Michelle Martin. She's our guest. Michelle is president of Prosperity,
Speaker 1: the wealth management arm of Eisner Amper and Michelle joining
Speaker 1: us from just outside Minneapolis. Good of you to make
Speaker 1: time to chat with us. Can we begin with the
Speaker 1: tariff story, because tonight at twelve oh one am, the
Speaker 1: US tariffs of twenty five percent on imported steel and
Speaker 1: aluminum will take effect. Obviously, in terms of equity market action,
Speaker 1: we've seen some heavy selling recently on concern over the
Speaker 1: impact of these tariffs. To what extent do you think
Speaker 1: the market is now fully embraced the risk or is
Speaker 1: there still potentially some more downside as it relates to
Speaker 1: these tariffs biting.
Speaker 3: Well, that's an interesting question, Doug, and I think that
Speaker 3: that question is going to remain out there until we
Speaker 3: actually start to see this communication in the back and
Speaker 3: forth settle down a little bit. I think that tariffs
Speaker 3: are absolutely having an impact on the markets right now,
Speaker 3: and I think that the fact that the markets were
Speaker 3: so the valuations were so high, this is kind of
Speaker 3: the pen that's bursting the air out of the bubble
Speaker 3: here a bit. We're seeing Nasdaq in correction territory, and
Speaker 3: you know, it's really difficult at this point to even
Speaker 3: keep track of on a day to day basis what
Speaker 3: is happening with the tariffs. I'm as you said, I'm
Speaker 3: here in Minneapolis, and the premiere of Ontario just removed
Speaker 3: the threat to our electric grid here in northern Minnesota,
Speaker 3: in Michigan and New York. So there's a lot of
Speaker 3: bargaining going on, and I think it's important that we
Speaker 3: follow that. But I think it's creating a lot of
Speaker 3: uncertainty and fear, which is affecting the markets, absolutely.
Speaker 1: No doubt. It's kind of curious. Today President Trump seemed
Speaker 1: to downplay the recent sell off that we have seen
Speaker 1: in the equity market. At one point when he was
Speaker 1: talking with reporters, he said, and I'm quoting him, it
Speaker 1: doesn't concern me. So if you look at the concerns,
Speaker 1: I'm sure there are many, and I'm sure that you're
Speaker 1: hearing a lot of concerns coming from your clients. What
Speaker 1: are they asking you when the phone rings.
Speaker 3: Clients are definitely concerned, and I think that just the
Speaker 3: lack of certainty is really on settling to them. I
Speaker 3: think that people are feeling like perhaps it was time
Speaker 3: for a pullback. And one of the things that we
Speaker 3: talk about a lot with our clients is just having
Speaker 3: a diversified strategy and being diversified in your portfolio. You know,
Speaker 3: they're calling and asking where their equity exposures are and
Speaker 3: if if their portfolio is rebalanced appropriately. Those are all
Speaker 3: things that are top of mind for people. And I
Speaker 3: think the other thing is they're just concerned about, you know,
Speaker 3: if they have some short term investment needs, you know,
Speaker 3: need for cash, need for income. They're they're more apt
Speaker 3: to be putting more in cash and fixed income at
Speaker 3: this point, just thinking that there's gonna be a short
Speaker 3: term correction.
Speaker 1: Trump said today he does not foresee the US going
Speaker 1: into recession. I don't know how you get your economic reporting,
Speaker 1: whether or not you outsource that, or whether it's something
Speaker 1: that happens internally at Eisner Amper that you have access to.
Speaker 1: Is the house view right now that we are at
Speaker 1: risk of a recession?
Speaker 3: I think I think our view, and and you know
Speaker 3: this is from from several several investment houses, is really
Speaker 3: where we draw our information. I think we think it's
Speaker 3: a little bit early to say that a recession is
Speaker 3: absolutely on the horizon. I think that it is going
Speaker 3: to really depend largely on what we're seeing with consumer
Speaker 3: spending and jobs. Those are the key drivers here. And
Speaker 3: we've got some some reports, you know, coming out shortly,
Speaker 3: but I think monitoring that and really understanding consumer confidence
Speaker 3: is going to play largely into that.
Speaker 1: Do you think this is going to move the needle
Speaker 1: where the FED is concerned? I mean, there were many
Speaker 1: folks who watch market action saying that the FED is
Speaker 1: probably going to be on hold for the foreseeable future,
Speaker 1: and I'm one wondering whether what we've been seeing in
Speaker 1: terms of volatility and uncertainty changes that outlook slightly.
Speaker 3: I'm a former banker, Doug, and I think that we're
Speaker 3: in this. I think the FED, you know, it did
Speaker 3: some easying and last fall. I think that, you know,
Speaker 3: there was talk that perhaps they got ahead of themselves
Speaker 3: in September, but it actually has has has worked quite well,
Speaker 3: and we were, you know, heading for what appeared to
Speaker 3: be a soft landing. I think that the FED is
Speaker 3: going to hold steady for a while. I think they've
Speaker 3: signaled that, and I think one of the things that's
Speaker 3: important is that we listened to the messaging of the FED.
Speaker 3: The market tends to lean towards what the market thinks,
Speaker 3: not necessarily always what the FED is seeing, and so
Speaker 3: I think the FED would absolutely adjust if there's true
Speaker 3: signs of recession coming into play, but I think it's
Speaker 3: a little early for that.
Speaker 1: Where are you in terms of the opportunities that may
Speaker 1: exist in the bond market right now? Is that the
Speaker 1: place to be?
Speaker 2: Do you think?
Speaker 3: Yeah, it is. We've increased our allocations in fixed income.
Speaker 3: I think bonds are actually for the first time in
Speaker 3: in you know, a decade, really putting that ballast, that
Speaker 3: foundation into a portfolio when you're picking up a yield
Speaker 3: of four and a half to five percent. We extended
Speaker 3: duration last winter on our portfolio, and so you know,
Speaker 3: I think by locking in and holding individual bonds, clipping
Speaker 3: coupen's at five percent sounds pretty boring, but it actually
Speaker 3: works really well in a volatile market like this.
Speaker 1: So what type of credit risk are you taking? Where
Speaker 1: are you going in terms of credit quality?
Speaker 3: So we're we're taking We're not taking a lot of
Speaker 3: credit risk on our core bond portfolio. We're in high
Speaker 3: quality bonds, but we are taking some credit risk dug
Speaker 3: in private credit and high yield. That has served us
Speaker 3: very well over the last twelve to eighteen months. And
Speaker 3: as you've talked about with you know, a change here
Speaker 3: and a shift, I think we were watching that very carefully.
Speaker 3: That's an area where obviously it can be affected if
Speaker 3: we see a real downturn in the economy, but for now,
Speaker 3: those yields are working quite well.
Speaker 1: Are there opportunities offshore something outside the United States that
Speaker 1: maybe has peaked your interest a little?
Speaker 3: Oh well, it's so interesting right now because there's clearly
Speaker 3: a rotation going on. And you mentioned this earlier with
Speaker 3: the talks with Russia and Ukraine. But you know, just
Speaker 3: in general, the equity markets in Europe are the valuations
Speaker 3: are much lower than they are here in the United States,
Speaker 3: and we're actually seeing that rotate where you know, the
Speaker 3: IFA is actually up almost eight percent year to date
Speaker 3: and when we've seen a pullback in the US markets.
Speaker 3: So that is an opportunity we have an allocation to
Speaker 3: international We're watching and not necessarily jumping in on emerging
Speaker 3: markets or China at this point, I think that that
Speaker 3: economy still has some issues, but just really when you
Speaker 3: look at Western Europe, it's just riding along pretty steadily
Speaker 3: right now.
Speaker 1: Michelle will leave it there. It's always a pleasure. Thank
Speaker 1: you so much for joining us. Michelle Martin there. She
Speaker 1: is president of Prosperity, that is the wealth management arm
Speaker 1: of Eisner Amper, joining us from Minneapolis here on the
Speaker 1: Daybreak Asia Podcast. Thanks for listening to today's episode of
Speaker 1: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
Speaker 1: at the story shaping markets, finance, and geopolitics in the
Speaker 1: Asia Pacific. You can find us on Apple, Spotify, the
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Speaker 1: us again tomorrow for insight on the market moves from
Speaker 1: Hong Kong to Singapore and Australia. I'm Doug Prisoner and
Speaker 1: this is Bloomberg