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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Charlie Pellett

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Speaker 2: Doug Chrisners off this morning. Major news out of Japan

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Speaker 2: over the weekend with Prime Minister Shiguru Ishiba announcing his

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Speaker 2: intention to step down. More on that in the moment

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Speaker 2: when we hear from Amy Katalink, professor of politics at

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Speaker 2: New York University. Plus we'll get the first Asian trading

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Speaker 2: session after Friday's bleak US jobs report, and coming up

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Speaker 2: we'll hear from Candace Browning, head of Global Research at

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Speaker 2: b of A Securities. But we begin in Tokyo. Japanese

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Speaker 2: markets are facing the prospect of more instability as investors

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Speaker 2: prepare for Prime Minister Ishiba's departure. For a closer look,

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Speaker 2: we heard from Bloomberg Eco Gov reporter Sakura Murakami. She

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Speaker 2: spoke with Bloomberg Scherryon and April Hong on the Asia trade.

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Speaker 1: And we were expecting the Prime Minister to resign given

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Speaker 1: the increasing pressure, but it came a little bit earlier

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Speaker 1: over the weekend and what set this emotion.

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Speaker 3: So ultimately it comes down to the two bruising national

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Speaker 3: election losses that Ishiba oversaw while he was Prime minister.

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Speaker 3: There was this growing momentum within the party to try

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Speaker 3: and bring him down. There's no protocol within the Liberal

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Speaker 3: Democratic Party to oust a sitting prime minister who's unwilling

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Speaker 3: to go, So that's why they were going to hold

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Speaker 3: this vote on whether to bring up and to hold

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Speaker 3: an early leadership race, which would technically have been an

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Speaker 3: Ouster surveys over the weekend showed that there was growing

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Speaker 3: momentum that it looked increasingly likely that the LDP was

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Speaker 3: going to kind of hold no confidence motion against Ishiba,

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Speaker 3: and then ultimately he had a chat with former Prime

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Speaker 3: Minister Suga and also kind of ld UH prime Minister

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Speaker 3: hope for Shindaro Koizumi, and those two people are powerful,

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Speaker 3: well known figures within the l DP. They supported Issuba

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Speaker 3: and without their support, Ishiba would not really last. So

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Speaker 3: that's probably what triggered his resignation.

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Speaker 1: And you mentioned Koizumi for example, as presidential as a

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Speaker 1: prime minister hopeful. Who are the other contenders right now

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Speaker 1: in the running.

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Speaker 3: So the two top contenders right now, we've heard Toshimitsu

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Speaker 3: Moteki is planning to run, but the real focus will

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Speaker 3: probably be on Sanai Takaichi, who is a former protege

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Speaker 3: of former Prime Minister Abe, and as I mentioned Koizumi

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Speaker 3: Shinduro Koizumi, who's the son of maverick reformist former Prime

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Speaker 3: Minister Jui Koizumi. The focus, especially on Takaichi will be

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Speaker 3: she's very much for fiscal stimulus, so that would probably

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Speaker 3: impact market and also so she's would be the first

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Speaker 3: female prime minister, whereas shinjad or Koizumi, he's forty four, young,

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Speaker 3: fresh faced, very media savvy, has a very broad public appeal.

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Speaker 3: So they both have their weakness and weaknesses and their strengths.

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Speaker 3: It'll be up to the LDP to decide who they

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Speaker 3: want to see lead the party.

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Speaker 4: As we watch for who these contendents are going to be,

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Speaker 4: what's the next step for the LDP, what are the

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Speaker 4: signs to look up for in the coming weeks.

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Speaker 3: So, as I mentioned, Koizumi and Takaiji all have their

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Speaker 3: respective strength. They appeal to different demographics. Especially Takayiji would

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Speaker 3: appeal to kind of more right wing and conservative base.

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Speaker 3: Koism has more of a broader appeal. So the focus

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Speaker 3: the next focus will be how the LDP holds its

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Speaker 3: leadership race, and there's a shortened abridged version that they

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Speaker 3: can hold, and then there's like what's called the full

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Speaker 3: spec version or like the full version, And depending on

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Speaker 3: which they hold, the number of votes that are allocated

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Speaker 3: to normal regular rank and file LDP members, you know people,

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Speaker 3: normal people who play that pay their membership fees and

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Speaker 3: support the LDP, the number of votes that they are

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Speaker 3: allocated to them differs.

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Speaker 5: And so.

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Speaker 3: If it's a full spec version, then Koizumi would probably

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Speaker 3: have an edge because he has broader a public appeal,

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Speaker 3: whereas if it's more folks, if less votes are allocated

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Speaker 3: to those rank and file members, Takeishi would probably have

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Speaker 3: more of an edge because she has more support within

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Speaker 3: the party, within the LDP lawmakers.

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Speaker 1: Bloomberd Japan Politics and economics reporters Saku Munakami here joining

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Speaker 1: us in Tokyo. Let's bring in Amy Katalinak, Associate professor

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Speaker 1: of politics at New York University, where she focuses on

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Speaker 1: Japanese politics as well.

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Speaker 5: Great to have you with us.

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Speaker 1: Of course, we've been focusing on the range of potential

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Speaker 1: contenders for the premiership, but at the same time, when

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Speaker 1: it comes to global investors. I'll be watching what the

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Speaker 1: new prime minister will do in terms of fiscal spending,

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Speaker 1: which will make such a big difference when it comes

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Speaker 1: to Japanese government bonds and also global bonds. What are

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Speaker 1: your expectations of what fiscal stimulus will look like with

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Speaker 1: whoever it becomes the next prime minister.

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Speaker 6: I think it's a little bit hard to say, because

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Speaker 6: we're likely to see quite a few contenders in the race.

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Speaker 6: So last year gives an election, obviously that elected issue,

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Speaker 6: and we.

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Speaker 7: Saw nine different contenders and they.

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Speaker 6: All had sort of slightly different views on this, and

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Speaker 6: I think at this time as well.

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Speaker 7: We're likely to see a crowded field.

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Speaker 6: I think it's hard to say what type of candidate

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Speaker 6: might emerge, but there are a couple of candidates. Takaichi

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Speaker 6: Sanaya is one of them who probably won't advocate for.

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Speaker 7: More fiscal stimulus and monetary easing, so I know.

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Speaker 6: That her stance is pretty clear on that, But some

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Speaker 6: of the others, I think it's a little bit hard

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Speaker 6: to say. The resignate, the issue for his decision to

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Speaker 6: stepped down has literally only just happened, so I'm not

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Speaker 6: sure we don't have a clear picture of who's going

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Speaker 6: to run.

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Speaker 1: And given that the ruling party lacks the majority in

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Speaker 1: both houses, what does it mean in terms of needing

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Speaker 1: the cooperation of opposition parties which could mean more spending

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Speaker 1: in the future. And just tell us about the state

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Speaker 1: of the LDP right now.

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Speaker 6: Yeah, So the LDP has just suffered a really like

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Speaker 6: two bruising electoral losses.

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Speaker 5: So it's been kicked out of its.

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Speaker 6: Majority in the lower house last year and also it's

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Speaker 6: lost its majority in the upper House. So the LDP

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Speaker 6: has to go through a period of trying to figure

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Speaker 6: out what went wrong in these two elections.

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Speaker 5: So they are looking for they're going to be looking

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Speaker 5: for a.

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Speaker 6: Person who can kind of set the party on the

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Speaker 6: right track and come up with reasons why the party

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Speaker 6: lost some of its conservative supporters in the previous election.

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Speaker 5: It was clear that it did so, and why it also.

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Speaker 6: Failed to mobilize votes among so called floating voters, people

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Speaker 6: who are sort of.

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Speaker 7: Non partisan and don't have strong attachments.

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Speaker 5: So the opposition.

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Speaker 6: But as you said, Ishiba, Prime Minister to Issuba, who's

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Speaker 6: now stepping down, one of his signature achievements I think

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Speaker 6: while he's been in office was his astute management of

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Speaker 6: relations with the opposition. So since October last year, the

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Speaker 6: LVP has been in a minority in the lower House

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Speaker 6: and Prime Minister to Issuba was very good, in my opinion,

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Speaker 6: at mobilizing support among this party for this bill, that

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Speaker 6: party for the budget, another party for the supplementary budget.

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Speaker 6: So he did a very good job of managing relations

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Speaker 6: with the opposition parties. And whoever the party selects now

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Speaker 6: to replace him is probably going to have to draw

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Speaker 6: on that expertise potentially, or maybe the party will try

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Speaker 6: and choose someone with that expertise because they don't have

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Speaker 6: a majority. So if the first thing the person has

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Speaker 6: to do, by the way, is actually win the.

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Speaker 7: Vote in the lower House to become Prime minister, and

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Speaker 7: so that in and.

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Speaker 6: Of itself is going to require some because the party

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Speaker 6: doesn't have a majority, is going to require some people

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Speaker 6: from the opposition. So that was something that she did

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Speaker 6: quite well, and so the party will probably be thinking

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Speaker 6: about that as they choose a potential contender.

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Speaker 5: His replacement, Professor.

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Speaker 4: As we were hearing from our colleague Sakura earlier, we're

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Speaker 4: also waiting to hear whether this leadership election is going

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Speaker 4: to be a full spectrum one not under emergency rules.

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Speaker 4: How might either wear sheape the outcome.

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Speaker 6: Yeah, So the full spec version is the one that

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Speaker 6: we had last year, the one that elected Ishiva, And

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Speaker 6: that's one in which the rank and file get to vote.

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Speaker 6: And there's about a million LVP members right now, and

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Speaker 6: they all cast their ballots, they all get sent ballots

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Speaker 6: in the mail, they cast their ballots and that is

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Speaker 6: the translated proportionally into the same number of the same

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Speaker 6: number of votes that the LDP Diet members have. So

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Speaker 6: that's the full spec version. The abridged version the sort

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Speaker 6: of you know, the quicker version can take place via

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Speaker 6: plenary session of people in both houses of the Diet

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Speaker 6: who are LDP polots. And in that instance, each LDP

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Speaker 6: politician is two hundred and ninety five right now, they

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Speaker 6: have one vote each. And the prefectual chapters, which there

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Speaker 6: are forty seven, so the party has forty seven prefectual

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Speaker 6: chapters around the country.

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Speaker 5: They all get three votes each. And it's also a runoff.

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Speaker 6: So the election rules do differ across the two full

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Speaker 6: spec versus abridged versions, but as the former commentator said,

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Speaker 6: the abridged version gives more weight to diet members votes

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Speaker 6: and so the full spec version all the party members

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Speaker 6: get to vote, and in the.

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Speaker 5: Second they don't have the same weight.

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Speaker 6: And so that could lead to the full spec version

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Speaker 6: does prioritize someone with a lot of broad support throughout

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Speaker 6: the country.

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Speaker 5: So I'm not sure exactly how.

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Speaker 6: I don't think Prime Minister has announced which one is

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Speaker 6: going to take place, but there are some slight differences there.

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Speaker 4: Speaking of support regardless of who the contender is, what

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Speaker 4: is your sense of how factions within the LDP might

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Speaker 4: provide that sort of support, including taraf Source faction for example.

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Speaker 5: Yeah, so the faction. So the reason that we saw

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Speaker 5: such a.

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Speaker 6: Crowded field last year with nine contenders and we're likely

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Speaker 6: to see sort of quite a few people this year

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Speaker 6: is that factions have really, I mean they've been substantially weakened.

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Speaker 6: So I've basically been dissolved last year because of in

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Speaker 6: response to the slush farm scandal.

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Speaker 5: So I see there are sort.

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Speaker 6: Of two groups that remain, but I don't see them

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Speaker 6: as having a lot of power actually in this vote,

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Speaker 6: I think it's likely that people are going to vote

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Speaker 6: according to what the who they think will become what

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Speaker 6: should become the party leader.

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Speaker 5: However, if you are a.

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Speaker 6: Faction leader, you have a sort of an incentive to

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Speaker 6: sort of argue that you played a role in the

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Speaker 6: election of this person because you want that person to

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Speaker 6: help you and to help you please your faction members

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Speaker 6: and past policies that you want after the election. But

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Speaker 6: I don't see factions as playing big role in this

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Speaker 6: election at all. There could be some, you know, maybe

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Speaker 6: in the runoff and the convincing people to change who

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Speaker 6: they voted for it if there is a runoff. In

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Speaker 6: those scenarios, factions the two remaining groups might play a role.

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Speaker 6: But in general, I think we're going to see a

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Speaker 6: lot of contenders and people will probably vote according to

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Speaker 6: who they think can can sort of take the party

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Speaker 6: ahead and try to recoup some of its support that

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Speaker 6: it's lost in these two previous elections.

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Speaker 1: Amy Catalinak, really good to have you with us, Associate

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Speaker 1: Professor of Politics at New York University.

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Speaker 2: Welcome back to the Daybreak Asia podcast. Charlie Pealojan This

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Speaker 2: morning for Doug Krisner. The end fell in early Asia

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Speaker 2: trading is Japanese markets braced for fresh volatility this after

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Speaker 2: Prime Minister Shiguru Ishiba announced over the weekend that he

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Speaker 2: is stepping down. Meantime, Asian stock benchmarks are set to

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Speaker 2: track Wall Street law after a weeker than expected US

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Speaker 2: jobs report on Friday. For more, we heard from Candace Browning,

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Speaker 2: head of Global Research at BAA Securities, and she spoke

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Speaker 2: with Bloomberg's Sherry On and April Hong on the Asia trade.

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Speaker 4: Cannes is, maybe let's start that out of Japan, because

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Speaker 4: we are seeing futures pointing to some upside. What is

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Speaker 4: your sense of from your Tokyo trip in terms of

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Speaker 4: corporate governance reforms, maybe fiscal stimulus expectations, a cheaper Japanese currency,

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Speaker 4: how that might fuel for the Japanese stock gains.

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Speaker 5: So thank you very much.

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Speaker 8: So when I was in Japan last week talking to investors,

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Speaker 8: I guess if I had to sum up the overall feeling,

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Speaker 8: it would be sort of that quote from All or

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Speaker 8: Twist when the young boy says please or may I

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Speaker 8: have some more? So basically, I think that equity investors

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Speaker 8: in particular really like the deflation story in Japan, and

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Speaker 8: they really like the corporate reform story, and that corporate

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Speaker 8: reform story seems to be if anything, accelerating rather than decelerating.

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Speaker 5: Now.

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Speaker 8: You know, over the weekend we did have the surprising

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Speaker 8: news about Prime Minister Ishiba, you know, resigning, and I

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Speaker 8: think that, you know, that does have some very strong implications,

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Speaker 8: depending on.

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Speaker 5: Of course, who takes his place.

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Speaker 8: But I think overall the equity market, as long as

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Speaker 8: the corporate reform story stays in place and the deflation

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Speaker 8: story stays in place, I think the equity market will

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Speaker 8: be absolutely fine. I think there's some questions in the

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Speaker 8: bond market as it relates to what will the new

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Speaker 8: leader's policies be, you know, regarding fiscal spending and monetary

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Speaker 8: policy as well, But to answer that question in a nutshell, overall,

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Speaker 8: investors remain quite positive on Japan.

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Speaker 4: To quote another Dickens novel, Great Expectations. Let's talk about AI.

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Speaker 4: Where are you seeing opportunities in the Asia Pacific there?

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Speaker 8: Yes, I think there are enormous opportunities the best of

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Speaker 8: times in the worst of times, but I put more

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Speaker 8: of the emphasis on the best of times. You know,

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Speaker 8: about three hundred and fifty billion dollars was spent on

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Speaker 8: AI this year. We project that by twenty thirty that's

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Speaker 8: spending will rise to about one point two trillion per year,

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Speaker 8: So if you add you know, the whole period together,

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Speaker 8: you're looking at three to five trillion dollars being spent

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Speaker 8: on AI, and just over a trillion of that will

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Speaker 8: be in Asia Pacific. Asia Pacific is very much the

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Speaker 8: backbone of all of the components that go into developing AI,

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Speaker 8: whether it's the AI foundaries in Taiwan or the HBM

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Speaker 8: in Korea. You know, Asia Pacific is a very important

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Speaker 8: component of this new AI infrastructure. So we're very positive

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Speaker 8: on that, and that is actually one of the tracks

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Speaker 8: that we're emphasizing at our conference here in Hong Kong.

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Speaker 1: How much of that boosting AI here across Asia will

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Speaker 1: also be made up of China. Of course, we have

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Speaker 1: seen the optimism over Ali Baba's investments into this sector

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Speaker 1: as well.

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Speaker 8: Yeah, so listen, I think that China, you know, which

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Speaker 8: you know, the innovation that's been coming out of China

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Speaker 8: as it relates to AI has really been very positive

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Speaker 8: over the last year or so, and I think that

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Speaker 8: really has contributed to a bit of a turnaround and

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Speaker 8: perception of the Chinese market, and as you know, it's

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Speaker 8: been reflected in the very strong stock market performance in

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Speaker 8: China as well. So China is a key component of

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Speaker 8: this new AI infrastructure and back bone throughout Asia.

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Speaker 1: When it comes to monetary policy, given of course that

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Speaker 1: we are seeing divergent paths, whether it's from the PBOC

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Speaker 1: or here in the Bank of Japan and perhaps a

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Speaker 1: delay of normalization, what sort of dynamics will you be

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Speaker 1: on the watch out for in the next year, especially

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Speaker 1: given also the political landscape is a little bit unstable

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Speaker 1: at the moment.

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Speaker 8: Well, you know, in the US, you know, given the

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Speaker 8: very weak jobs report that we had, we're now expecting

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Speaker 8: actually two cuts, one in September and one in December,

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Speaker 8: and then we think there won't be any cuts until

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Speaker 8: June of next year. And it's kind of a complicated

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Speaker 8: story that they're dealing with because the reality is that

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Speaker 8: it would appear that the job market is definitely weakening,

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Speaker 8: although the unemployment rate still remains historically low, and we

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Speaker 8: don't really know, by the way, what happened in the

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Speaker 8: jobs market. Is is it a result of of new

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Speaker 8: immigration policies which were sort of a supply cut, or

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Speaker 8: was it that employers simply were demanding fewer new jobs.

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Speaker 8: We don't really know that it's a little bit marky.

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Speaker 8: So but on the other hand, what the Fed has

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Speaker 8: to deal with is the fact that inflation remains stubbornly

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Speaker 8: above their target and may in fact go even higher.

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Speaker 8: So they're dealing with a very complicated situation. We do

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Speaker 8: think that they're going to muddle through. We don't think

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Speaker 8: that there will be a recession. And one of the

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Speaker 8: reasons for that is consumer spending in the United States.

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Speaker 8: Even using our own Internal Bank of America data, consumer

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Speaker 8: spending has remained resilient. And also if you think about

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Speaker 8: AI and what I talked about previously, you know, you've

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Speaker 8: got a lot of cap spending going on, whether it's

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Speaker 8: AI or it's sort of made in America bring manufacturing

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Speaker 8: back to the US, and you've got the one beautiful

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Speaker 8: Bill which is a stimulus. So, yes, there's some problems

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Speaker 8: in the job market, but there's a lot of positives

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Speaker 8: as well.

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Speaker 4: And the inflation outlook I think is still something that

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Speaker 4: we should be focused on. Candace. Thank you very much

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Speaker 4: for your insights.

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Speaker 5: Good to chat.

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Speaker 4: Candace Browning is global research head at bof A.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg