WEBVTT - First US-Japan Joint Yen Intervention in 15 Years Sparks Advance

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Charlie Peal at

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<v Speaker 2>the Yen advanced sharply on Monday. This comes after Japan

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<v Speaker 2>confirmed its first joint intervention with the US and currency

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<v Speaker 2>markets in fifteen years and warned it is ready to

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<v Speaker 2>act again after the en last week slid to a

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<v Speaker 2>four decade low. Japan's Finance ministry says it intervened in

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<v Speaker 2>the market on Friday in coordination with the US Treasury Department.

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<v Speaker 2>President Trump earlier said the US joined the currency market

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<v Speaker 2>intervention as a sign of friendship with Japan, adding that

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<v Speaker 2>he expects Washington to repate financial benefit from helping the ally. Separately,

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<v Speaker 2>Treasury Secretary Scott Besson said in a post on x

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<v Speaker 2>that the US stepped in to help fight quote disorderly

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<v Speaker 2>movements in the yen and is ready to keep helping Japan.

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<v Speaker 2>And to get more on the story, we heard from

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<v Speaker 2>the head of Asia Economics at Oxford Economics, Louise lou

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<v Speaker 2>She spoke with Bloomberg's Paul Allen and Heidi Stroud Watts.

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<v Speaker 3>It's it's a lot of it's a lot of things

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<v Speaker 3>happening to get at the same time as Japan, right,

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<v Speaker 3>I think a lot of the weakness around the currency

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<v Speaker 3>has got to do with you know, structural underlying fundamentals,

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<v Speaker 3>in particular at its current stage, you know, the fiscal

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<v Speaker 3>poist from the government. So I think so long as

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<v Speaker 3>that stays unchanged, and so long as you know, the

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<v Speaker 3>fact remains unmoved in its in its interest rate, then

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<v Speaker 3>we should continue to see some of these currency weakness

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<v Speaker 3>coming from Japan. So you know, the intervention may work temporarily,

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<v Speaker 3>but to the extent that markets continue to think that

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<v Speaker 3>the Bank of Japan is behind a cuff, I think

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<v Speaker 3>that weakness will prevail.

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<v Speaker 4>Yeah, the Bank of Japan moving at utterly glacial speed

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<v Speaker 4>on tightening and showing no real urge to pick up

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<v Speaker 4>the pace either. Is the pressure starting to build? When

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<v Speaker 4>do you think we might see tightening?

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<v Speaker 3>Well, our base case is still that the Bank of

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<v Speaker 3>Japan would high grate in December, which feels like an

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<v Speaker 3>awfully long way away. But I think, you know, to

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<v Speaker 3>the extent that we have, for instance, higher oil prices

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<v Speaker 3>aggravating the terms of trade shock along with a weaker currency,

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<v Speaker 3>to the extent that we have that I think Marcus

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<v Speaker 3>may start to think that the economy has a real

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<v Speaker 3>risk of falling into tacfulation, and so you know, the

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<v Speaker 3>bets against the faster BOJ rate heights will go up.

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<v Speaker 3>The concern here is that, you know, faster rate heights

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<v Speaker 3>may support the yen temporarily, but it would be quite

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<v Speaker 3>negative for the economy that really hasn't been very strong

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<v Speaker 3>domestically and organically. So you know, the economy remains quite

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<v Speaker 3>structurally vulnerable to the kind of terms of trade shop

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<v Speaker 3>that could feed through quite quickly.

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<v Speaker 1>December feels like a long way away from beerj particularly

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<v Speaker 1>at a time when there's increased volatility and FED expectations. Right,

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<v Speaker 1>are you in the camp? You know, insofar as obviously

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<v Speaker 1>the be a massive impact on emerging markets and Asian

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<v Speaker 1>economies and for the Japanese yen, as we've been talking about,

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<v Speaker 1>which can be you in when it comes to the

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<v Speaker 1>FED because Vetcher Walsh has kind of been keeping markets

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<v Speaker 1>and economists in the dark as to how he plans

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<v Speaker 1>to travel this road of finding inflation.

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<v Speaker 3>Yeah, I think, yeah, I think the concern around the

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<v Speaker 3>FAT is no longer you know, whether it would increase rates,

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<v Speaker 3>which is always a case for emergent markets or whether

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<v Speaker 3>or not it would actually stay pod. The concern here

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<v Speaker 3>is that there is just not much visibility, right, and

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<v Speaker 3>I think a level of transparency is not going to

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<v Speaker 3>cause currencies to be weaker in the region. It's just

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<v Speaker 3>going to cause a lot more volatility and therefore a

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<v Speaker 3>lot more corrections post fact. And I think that is

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<v Speaker 3>you know, something that central bites can't really grapple with

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<v Speaker 3>at the same time, whether they have to to still

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<v Speaker 3>deal with, you know, inflationary risks domestically. So I think

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<v Speaker 3>that that opagueness is going to drive more volatility, but

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<v Speaker 3>also possibly more policy errors are coming out of Asia.

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<v Speaker 1>We now have another sort of pause when it comes

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<v Speaker 1>to potential US around talks. We see the oil market

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<v Speaker 1>certainly reacting, but how do you view the pass through

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<v Speaker 1>when it comes to the recent revival when the gains

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<v Speaker 1>that we have seen in oil prices.

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<v Speaker 3>Yeah, I think the past through well, even before you

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<v Speaker 3>know where we were the CEAS file point, which was

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<v Speaker 3>you know, sometime in June, it did feel like, you know,

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<v Speaker 3>oil prices might have bottom out and you know, inflation

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<v Speaker 3>expectations could have been arrested. But obviously since then there's

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<v Speaker 3>a lot of all of the listing the oil prices,

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<v Speaker 3>and I think for Asian economies, the past through hasn't

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<v Speaker 3>really been complete, right. We do have a lot of

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<v Speaker 3>the h a lot of the hitline CPI being muted

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<v Speaker 3>because of some of these government interventions they were in

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<v Speaker 3>place that helps subsidize and cap the headline crisis. But

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<v Speaker 3>underlying inflation expectations have actually been increased, and a lot

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<v Speaker 3>of the economies where we see more complete pass through,

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<v Speaker 3>where you know, there hasn't been the influence of subsidies,

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<v Speaker 3>prices have actually started trending up and hasn't really stopped

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<v Speaker 3>that up trend. So, you know, in the coming months,

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<v Speaker 3>and especially in the CPI data this week, we are

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<v Speaker 3>expecting that inflation will continue to stay quite elevated. And

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<v Speaker 3>that reflects not the fact that the headline breadth prices

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<v Speaker 3>have come down on gonna. It reflects the fact that

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<v Speaker 3>refined fuel, which is what matters more for Asian economies,

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<v Speaker 3>have continued to stay quite elevated, and I think that

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<v Speaker 3>will keep central banks in the region on a more

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<v Speaker 3>hawkish path than we previously anticipated.

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<v Speaker 2>Louise lou head of Asia Economics at Oxford Economics, speaking

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<v Speaker 2>with Bloomberg's Paul Allen and Heidi Stroud Watts bringing you

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<v Speaker 2>their conversation on the Daybreak Asia podcast. Welcome back to

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<v Speaker 2>the Daybreak Asia Podcast. I'm Charlie pellantt amid us intervention

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<v Speaker 2>with the yen in Japan, bond investors say the risk

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<v Speaker 2>of a deeper treasury route is rising as FED chair

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<v Speaker 2>Kevin Walsh keeps investors in the dark about how officials

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<v Speaker 2>will respond to the evolving economy. The treasury market is

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<v Speaker 2>signaling that Warsh's inflation fighting credibility is eroding after he

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<v Speaker 2>declined to outline how he plans to curb price pressures.

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<v Speaker 2>When policymakers left interest rates unchanged last week, the result

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<v Speaker 2>is steeper borrowing costs for the government, homeowners and companies,

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<v Speaker 2>with the rate on the thirty year treasury at a

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<v Speaker 2>nineteen year high. And with more on the story, as

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<v Speaker 2>well as an outlook on South Korean exports, we heard

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<v Speaker 2>from Julia Wong, North Asia CIO for Nomura International Wealth

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<v Speaker 2>Management and she spoke with Bloomberg's Paul Allen and Heidi

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<v Speaker 2>Stroud Watts.

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<v Speaker 5>We think that the focus for yen this week obviously

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<v Speaker 5>based on the intervention given what's being flat by the

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<v Speaker 5>officials UH, and that's going to determine against the near

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<v Speaker 5>term direction for the currency.

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<v Speaker 3>UH.

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<v Speaker 5>If there's a forceful intervention, we could see probably at

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<v Speaker 5>the yen reate testing one fifty five or levels around that.

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<v Speaker 5>Is that really a game changer for the currency. Look,

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<v Speaker 5>we think that you know, the currency is really driven

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<v Speaker 5>by uh the inflation in Japan is driven by oil

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<v Speaker 5>prices and the concern over fiscal fiscal policy, and that

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<v Speaker 5>really translates into the rates differential between the US and Japan.

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<v Speaker 5>Uh that macro backdrop is not getting more favorable for

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<v Speaker 5>the end is actually going against the n SO. I

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<v Speaker 5>think against this big backdrop of from a macro perspective,

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<v Speaker 5>the fax policy strategy, maybe it's more about uh SO

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<v Speaker 5>slowing the pace of en depreciation rather than really seeking

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<v Speaker 5>to turn it around from a directional perspective. So, yes,

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<v Speaker 5>we think that for the for the week, probably we

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<v Speaker 5>can see some more trupiness and probably more temporary yeah

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<v Speaker 5>and strengths. But we do think that this does not

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<v Speaker 5>change actually direction for dollar in and probably could still

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<v Speaker 5>continue to go higher once the intervention is behind us.

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<v Speaker 4>Yeah, what's the role of the Bank of Japan and

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<v Speaker 4>all of this sort. They don't even appear to be

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<v Speaker 4>playing a role at the moment. I'm more doing a

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<v Speaker 4>sloth impersonation. If Friday's meeting was anything to go by,

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<v Speaker 4>it do you see the Bank of Japan feeling motivated

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<v Speaker 4>now to Titan sooner rather than later.

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<v Speaker 5>Well, I think there is some motivation because you know,

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<v Speaker 5>the obviously the lack of action from the Bank of

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<v Speaker 5>Japan slower the expected move has been one of the

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<v Speaker 5>one of the reasons. And you can see some upgrades

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<v Speaker 5>of inflation forecasts. Uh, some internal more internal debate at

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<v Speaker 5>the BOJ But does this is this enough to really

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<v Speaker 5>propel them to make take a more aggressive stance overall

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<v Speaker 5>on the pace of rate hike. We actually do doubt it.

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<v Speaker 5>So I think there's a case for maybe moving forward

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<v Speaker 5>the December rate hike now to October, so we do

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<v Speaker 5>see that as a more live meeting. But we still

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<v Speaker 5>see as roughly like a you know, once every six

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<v Speaker 5>month type of policy rate move. And it's really hot

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<v Speaker 5>given what's going on in the global economy from Middle

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<v Speaker 5>eastward to what's going on now the tach trait and

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<v Speaker 5>all of that disruption that's playing out in the equity market,

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<v Speaker 5>we actually see a very tall hurdle for the Bank

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<v Speaker 5>of Japan to really go much faster than our forecast

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<v Speaker 5>for two rate hikes every year. So if they move

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<v Speaker 5>forward the December meeting to October, we actually still see

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<v Speaker 5>the next rate hike probably somewhere in mid twenty twenty seven.

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<v Speaker 1>So I guess the question is if they don't feel

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<v Speaker 1>like they can move any faster, that phade from this

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<v Speaker 1>intervention could come pretty quickly without fundamental restructuring of that

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<v Speaker 1>differential between the US and Japan.

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<v Speaker 5>Yeah, so I think the differential unfortunately is moving away

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<v Speaker 5>from from Japan. Uh. And you know, if the US

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<v Speaker 5>front end have priced too hike, so maybe even more

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<v Speaker 5>than that by the fad in the next year or so.

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<v Speaker 3>Uh.

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<v Speaker 5>The Bank of Japan, we don't think that they really

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<v Speaker 5>have what it takes to move faster. So if the

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<v Speaker 5>for the forward markets are right, then we probably have

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<v Speaker 5>seen the narrows of rate differential between Japan and US

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<v Speaker 5>in the cycle, and going forward that rate differential is

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<v Speaker 5>going to actually widen. So that speaks to maybe more

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<v Speaker 5>strengths for the dollar, at least particularly from the front

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<v Speaker 5>end rate perspective. Less so for Japan, so I think

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<v Speaker 5>that interest rate differential really does determine a lot of

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<v Speaker 5>where dollar yen is. But of course the carriage trade, uh,

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<v Speaker 5>what the sentiment is for equity market also matters from

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<v Speaker 5>a carriage traite perspective, that is going through a little

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<v Speaker 5>bit of volatility at the moment. But our thesis is

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<v Speaker 5>that we think that there's enough growth uh, both in

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<v Speaker 5>the real economy as well as powered by AI that

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<v Speaker 5>probably will still keep equity market in a book market

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<v Speaker 5>range for the next year. So both of that factor

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<v Speaker 5>speaks to I think probably a still continue grind up

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<v Speaker 5>higher for dollar, yet maybe at a more gradual pace

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<v Speaker 5>now because the Bank of Japan and Treasury now is

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<v Speaker 5>showing their hands and the strong preference for more gradual

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<v Speaker 5>pace of depreciation.

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<v Speaker 1>Jolly, let's talk a little bit about that tech story,

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<v Speaker 1>because obviously it's been pretty chaotic, particularly for Korean markets,

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<v Speaker 1>and that's sort of still bleeding through. If you look

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<v Speaker 1>at this as a leverage washout if you will, and

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<v Speaker 1>we kind of resume gains, or do you look at

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<v Speaker 1>this as is further to go for a kind of

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<v Speaker 1>fundamental restructuring of how investors view the amount of investment

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<v Speaker 1>that's going to AI and how much you know they're

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<v Speaker 1>going to say that this is worth.

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<v Speaker 3>Yeah.

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<v Speaker 5>So I think that overall very quickly for the overall

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<v Speaker 5>tax trade. I think you know, there are two headwing.

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<v Speaker 5>One of the head when is long and needs going

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<v Speaker 5>ever higher. It's not a problem for tech for now,

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<v Speaker 5>but it would be for medium term if we continue

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<v Speaker 5>to see a gradual grind up higher in long lane

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<v Speaker 5>race in the US. The second headwind is the volatility.

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<v Speaker 5>That's because of the leverage and something that we were

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<v Speaker 5>worrying about in our media outlook that sometimes sometimes the

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<v Speaker 5>price is right, but the market structure through which we

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<v Speaker 5>got there speaks to incredible volatility and fragility to come.

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<v Speaker 5>So Carea is a very good example of that. I

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<v Speaker 5>continue to see that being a headwind for this market,

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<v Speaker 5>the particularly for memories. I do think that the fundamental

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<v Speaker 5>has changed a little bit compared to where we like

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<v Speaker 5>to trade the most, which was early in the year.

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<v Speaker 5>That is because even though the men's supply imbalance is

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<v Speaker 5>still there, we're heading to twenty twenty seven now and

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<v Speaker 5>that is when more of the capext will start to

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<v Speaker 5>come through. And now you have China joining the supply

0:12:52.960 --> 0:12:55.599
<v Speaker 5>landscape as well, so that speaks to maybe potentially the

0:12:55.720 --> 0:12:58.760
<v Speaker 5>risk of a quicker adjustment on the demand's side. We

0:12:58.800 --> 0:13:02.040
<v Speaker 5>do see more rationalized by hyperscalers in the US from

0:13:02.040 --> 0:13:05.200
<v Speaker 5>a demand side perspective as well, So mess applying balance

0:13:05.280 --> 0:13:07.480
<v Speaker 5>is still there, but we're counting down to the time

0:13:08.200 --> 0:13:11.720
<v Speaker 5>to get more corrected. So I think that we are

0:13:11.720 --> 0:13:15.400
<v Speaker 5>probably more new too positive, but less positive compared with

0:13:15.800 --> 0:13:17.840
<v Speaker 5>early in the year, and the volutility from a leverage

0:13:17.840 --> 0:13:21.480
<v Speaker 5>perspective doesn't help that. So our preferred way to play AI,

0:13:21.520 --> 0:13:24.480
<v Speaker 5>which is still a fundamental thing for next two to

0:13:24.559 --> 0:13:27.120
<v Speaker 5>three years, is actually look at you know, what's been

0:13:27.160 --> 0:13:30.040
<v Speaker 5>a message from the earning season this time, and that

0:13:30.240 --> 0:13:34.760
<v Speaker 5>is that some companies, not everyone, are able to money tize,

0:13:34.960 --> 0:13:38.000
<v Speaker 5>and investors reward those who are able to monetize by

0:13:38.040 --> 0:13:40.839
<v Speaker 5>allowing them to build up more leverage and borrow more.

0:13:41.240 --> 0:13:44.480
<v Speaker 5>So we think that actually there's some that have shown

0:13:44.520 --> 0:13:46.560
<v Speaker 5>the strength in the earning season, there's some maybe they

0:13:46.559 --> 0:13:48.679
<v Speaker 5>are punished a little bit more than we think they

0:13:48.720 --> 0:13:51.640
<v Speaker 5>should be. So a lot of the focus probably will

0:13:51.720 --> 0:13:54.000
<v Speaker 5>go back, I think, to some of the hyperscalers in

0:13:54.000 --> 0:13:56.640
<v Speaker 5>the US now, given that the earning strength has been

0:13:56.640 --> 0:13:59.600
<v Speaker 5>so impressive, and I think that's probably in the market

0:13:59.640 --> 0:14:02.120
<v Speaker 5>where the rich reward the pocket market where the rich

0:14:02.160 --> 0:14:05.040
<v Speaker 5>reward is the best of an AI trade perspective.

0:14:07.320 --> 0:14:09.680
<v Speaker 4>In terms of the AI trade. What's your approach to

0:14:09.720 --> 0:14:12.280
<v Speaker 4>the China side of that story, how's your allocation there?

0:14:12.280 --> 0:14:15.040
<v Speaker 4>Because you know, we've got the Shanghai composite, the cs

0:14:15.080 --> 0:14:18.920
<v Speaker 4>I three hundred, both soft year to date, this is

0:14:18.960 --> 0:14:22.800
<v Speaker 4>a market relatively insulated from the Iran War other such factors,

0:14:23.080 --> 0:14:26.200
<v Speaker 4>and a escent but pretty successful AI story as well.

0:14:26.240 --> 0:14:27.000
<v Speaker 4>What's your allocation?

0:14:29.040 --> 0:14:33.440
<v Speaker 5>Yeah, So for China AI, I think there's two three

0:14:33.520 --> 0:14:36.160
<v Speaker 5>broad parts. The parts, way like the most at the

0:14:36.200 --> 0:14:39.720
<v Speaker 5>moment is actually still the hardware story that goes into

0:14:39.760 --> 0:14:42.720
<v Speaker 5>the global supply chain because we are positive about overall

0:14:42.720 --> 0:14:46.840
<v Speaker 5>IF development. We see a lot of continued capacks even

0:14:46.880 --> 0:14:50.000
<v Speaker 5>though not ever ever higher, so there's more rationality, but

0:14:50.080 --> 0:14:53.760
<v Speaker 5>still overall capack strength is going higher. So we think

0:14:53.800 --> 0:14:56.840
<v Speaker 5>that the part of China supply hardware space that goes

0:14:56.840 --> 0:14:59.840
<v Speaker 5>into the global supply chain can still benefit the risk

0:15:00.080 --> 0:15:03.520
<v Speaker 5>of in expual band et cetera. Notwithstanding, that's still the

0:15:03.520 --> 0:15:05.480
<v Speaker 5>part where we see the most visibility in terms of

0:15:05.480 --> 0:15:09.360
<v Speaker 5>earning growth. China still also does have a lot of

0:15:09.440 --> 0:15:11.800
<v Speaker 5>strength in terms of models, but we think that that's

0:15:11.880 --> 0:15:14.960
<v Speaker 5>very hard to monetize because the competition is so intense,

0:15:15.200 --> 0:15:18.720
<v Speaker 5>So watching closely for clue or innovation, but that's not,

0:15:19.080 --> 0:15:21.840
<v Speaker 5>you know, very profitable at the moment. And the last

0:15:21.840 --> 0:15:26.240
<v Speaker 5>part is China. China large cap tech and they've rallied

0:15:26.240 --> 0:15:31.440
<v Speaker 5>in July because of the rotation into underperformers, so they've

0:15:31.480 --> 0:15:33.120
<v Speaker 5>gone up quite a bit. Maybe it's still a little

0:15:33.120 --> 0:15:35.000
<v Speaker 5>bit more to go, but we're heading in to earnings

0:15:35.040 --> 0:15:38.040
<v Speaker 5>as well for those guys. And the takeaway from message

0:15:38.040 --> 0:15:41.720
<v Speaker 5>earning season message overall this time is that investors will

0:15:41.760 --> 0:15:45.400
<v Speaker 5>scrutinize company by company your ability to really monetize the

0:15:45.440 --> 0:15:48.720
<v Speaker 5>cap AAX. So if you believe that certain companies can monetize,

0:15:48.800 --> 0:15:50.960
<v Speaker 5>then their stock is due to buy. But they've actually

0:15:51.000 --> 0:15:52.840
<v Speaker 5>rad it quite a bit, so I think from a

0:15:52.920 --> 0:15:57.160
<v Speaker 5>rich reward perspective, hardware, an overall global supply chain within

0:15:57.320 --> 0:15:59.240
<v Speaker 5>China is still we want to go. So that's the

0:15:59.280 --> 0:16:01.760
<v Speaker 5>space we'll probably would look to be buying a dip

0:16:01.840 --> 0:16:03.000
<v Speaker 5>or a buy into weakness.

0:16:03.320 --> 0:16:08.040
<v Speaker 2>Julia Wong North Asia CIO for Nomura International Wealth Management,

0:16:08.400 --> 0:16:12.600
<v Speaker 2>speaking with Bloomberg's Paul Allen and Heidi Stroud Watts, bringing

0:16:12.640 --> 0:16:18.440
<v Speaker 2>you their conversation on the Daybreak Asia podcast. Thanks for

0:16:18.520 --> 0:16:23.119
<v Speaker 2>listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

0:16:23.440 --> 0:16:26.600
<v Speaker 2>Each weekday, we look at the story shaping markets, finance,

0:16:26.920 --> 0:16:30.040
<v Speaker 2>and geopolitics in the Asia Pacific. You can find us

0:16:30.040 --> 0:16:34.280
<v Speaker 2>on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

0:16:34.280 --> 0:16:37.360
<v Speaker 2>else you listen. Join us again tomorrow for insight on

0:16:37.400 --> 0:16:41.560
<v Speaker 2>the market moves from Hong Kong to Singapore and Australia.

0:16:42.000 --> 0:16:44.479
<v Speaker 2>I'm Doug Chrisner, and this is Bloomberg