Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Wall
Speaker 2: Street closed at record highs on Thursday. We had the
Speaker 2: s and p eking out a small gain and in
Speaker 2: the process notching its tenth record in the last nineteen
Speaker 2: trading days. The Nasdaq Composite also closed at an all
Speaker 2: time high. Global markets appear to be finding encouragement from
Speaker 2: President Trump signing a number of trade deals, and in
Speaker 2: a moment, we'll get the market perspective of Janet Henry.
Speaker 2: She is the Global Chief economist at HSBC. You know,
Speaker 2: we're a week away from the Trump administration's August first
Speaker 2: deadline for those trade agreements. Now, officials from the US
Speaker 2: and South Korea are set to meet this week. Now,
Speaker 2: Trump has hailed the deal with Japan as a potential
Speaker 2: model for other countries. That deal, by the way, sets
Speaker 2: tariffs at fifteen percent across the board, including on autos. Now,
Speaker 2: Tokyo also agreed to a whopping five hundred and fifty
Speaker 2: billion dollars in investments in American industries. Bloomberg Opinion colonist
Speaker 2: Garod Redi says this deal maybe Prime Minister Shiguri Ishiba's
Speaker 2: final act. And I'm pleased to say that Garod joins
Speaker 2: us now from the Japanese capital. Thank you so much
Speaker 2: for making time to chat with me on this. Make
Speaker 2: the case that this, in fact, this trade agreement is
Speaker 2: Ishiba's final act, that this is basically the last thing
Speaker 2: that he will be known for.
Speaker 3: Well, in terms of Ishiba, We've just had an extraordinary
Speaker 3: couple of days here in Tokyo where pretty much as
Speaker 3: soon as this deal was agreed, almost all of the
Speaker 3: mainstream Japanese media outlets were reporting that Ishiba was soon
Speaker 3: to announce his resignation. Of course, this follows the elections
Speaker 3: on Sunday where Mishiva's Liberal Democratic Party lost their majority
Speaker 3: in the Upper House. They already lost majority in the
Speaker 3: lowerhouse and election last year, and this is the third
Speaker 3: successive election with Ishiba as head where voters have essentially
Speaker 3: rejected him. Normally you would see a prime minister step
Speaker 3: down after such results. And the suspicion was, and the
Speaker 3: case that I was making, was that the threat of
Speaker 3: the tariffs from Trump had essentially given his premiership artificial life.
Speaker 3: Already he had christened this tariff threat as a national
Speaker 3: crisis in a sense that gave him breathing room where
Speaker 3: he could say, look, things are too tense right now.
Speaker 3: This is too important to worry and bicker about internal
Speaker 3: politics now. By agreeing to this deal with Trump, he
Speaker 3: has essentially given away his last piece of leverage. And
Speaker 3: he has a lot of rivals and a lot of
Speaker 3: people were not happy with his performance as leader, and
Speaker 3: they're going to be coming for him.
Speaker 2: So if it is some sort of capitulation, I'm wondering
Speaker 2: about what the feeling within the diet, the Japanese parliament
Speaker 2: may be about what Ishiba agreed to in this trade deal.
Speaker 3: I do think there is a sense of relief, certainly
Speaker 3: within the markets. You've seen, you know, the market reaction
Speaker 3: to this deal has been you know, one of sort
Speaker 3: of the uncertainty has lifted around, certainly Japanese stocks, and
Speaker 3: we saw the topics yesterday reach a new record high
Speaker 3: within the country. I think there is a bit of
Speaker 3: a sense that this is about as good of a
Speaker 3: deal as they were likely to get. I think the
Speaker 3: question is the question I have is why did we
Speaker 3: spend three months with Ishiba Isshba had this this red
Speaker 3: line essentially that he said he was never going to
Speaker 3: accept tariff's on auto's and he has a you know, basically,
Speaker 3: as soon as the election was over on Sunday, he
Speaker 3: crossed that red line. And now he's saying fifteen percent
Speaker 3: tariff on everything, including autos is fine. However, that still
Speaker 3: is better than what they had already, which was twenty
Speaker 3: five percent on autos, with an additional twenty five percent
Speaker 3: to come on all of the exports that are not
Speaker 3: autos at the start of next week if they hadn't
Speaker 3: agreed this deal.
Speaker 2: So give me a sense of what you think is
Speaker 2: at work, because it's not just the fifteen percent levey
Speaker 2: across the board on exports from Japan into the United States.
Speaker 2: There's a five hundred and fifty billion dollar investment that
Speaker 2: is being pledged to the US. Makes sense of that
Speaker 2: for me?
Speaker 3: I wish I could, but I can't, and I'm not
Speaker 3: sure anyone can make sense of the five hundred and
Speaker 3: fifty billion dollar investment. The short answer is, we really
Speaker 3: don't know what form that's going to take. It would
Speaker 3: seem quite unusual to be investing that much in projects that,
Speaker 3: you know, according to President Trumpet, the US is going
Speaker 3: to retain ninety percent of any of the profits from
Speaker 3: these projects. I guess what it's looking like is that
Speaker 3: it's going to look something like, you know, I guess
Speaker 3: sort of like financing agreements for projects within the US
Speaker 3: that would be strategically important to Japan, So semiconductors, possibly,
Speaker 3: you know, the energy projects, got the LNG project that's
Speaker 3: going in Alaska. Possibly, you know, rare earths that that
Speaker 3: kind of thing. To a certain extent, that makes sense.
Speaker 3: What form this takes? Is it? You know, is it
Speaker 3: low is it debt? Is it loans? Is it equity investment?
Speaker 3: We don't really know who's giving that money. Does it
Speaker 3: need to be paid back? All of this we don't know, essentially,
Speaker 3: And the figure of the five hundred and fifty billion
Speaker 3: dollars itself seems quite unusual, and I don't think anyone
Speaker 3: knows really where it's coming from. Presumably it includes a
Speaker 3: lot of spending that maybe is already happening or was
Speaker 3: already planned. We just don't know.
Speaker 2: I think I'm reminded of Trump agreeing to allow the
Speaker 2: Nippon Steel acquisition of US Steel to go forward, and
Speaker 2: there was some investment that was a part of that deal.
Speaker 2: Maybe that could have been a bit of a leading
Speaker 2: indicator that something in this order would be a part
Speaker 2: of any trade agreement.
Speaker 3: That's right, I mean the Nipon Steel agreement was I
Speaker 3: think a positive step forward for both countries. I have
Speaker 3: other issues with the deal as a deal for Nippon Steel,
Speaker 3: but it was good I think that and certainly good
Speaker 3: for US Japan relations. The President Trump essentially backtracked on
Speaker 3: his opposition to that in return for more promises of investment.
Speaker 3: That was I think fourteen billion dollars of additional investment
Speaker 3: that they promised to kind of get that over the line.
Speaker 3: Soft Bank is also promising to invest, you know, one
Speaker 3: hundred billion in the US, and presumably that includes you know,
Speaker 3: their various Vision Fund investments and semiconductor investments than AI
Speaker 3: investments that they're making.
Speaker 4: Now.
Speaker 3: Are all these figures in the five hundred and fifty
Speaker 3: billion possibly we saw there was there was a leaked
Speaker 3: a leaked photo from the last round of negotiations where
Speaker 3: Japan seemed to be presenting a figure of four hundred billion,
Speaker 3: and by the time that meeting was over it had
Speaker 3: increased to five hundred and fifty billion in the space
Speaker 3: of I think that meeting went on for seventy five minutes,
Speaker 3: so I think the exact figure probably has a lot
Speaker 3: a lot in it. And you know, the fact that
Speaker 3: we haven't really seen any clarification from either side of
Speaker 3: what this figure actually is, I think shows that that
Speaker 3: maybe neither side really knows well.
Speaker 2: So let's remember that the US and Japan have been
Speaker 2: allies for decades. I'd like to get your view as
Speaker 2: to whether or not this trade deal does anything to
Speaker 2: alter that relationship in the slightest I.
Speaker 3: Think Japan at the start of this obviously, you know,
Speaker 3: Japan was quite taken aback that, you know, not just
Speaker 3: an ally, but probably their most important ally in Asia,
Speaker 3: and certainly their most important ally to at least the
Speaker 3: China Hawks within the Trump administration. If they wish to
Speaker 3: contain China, they need Japan on board. So the fact
Speaker 3: that you know, Japan was not given any sort of
Speaker 3: exemption or preferential treatment when the taris were first announced
Speaker 3: in April did come as a shock. However, I think
Speaker 3: Japan has been pretty pragmatic, and they said very early
Speaker 3: on that they wanted to separate out, you know, the
Speaker 3: economic negotiations, the tariff negotiations and any defense negotiations, they
Speaker 3: put them on to depletely different tracks, and I think
Speaker 3: that probably was a smart move, and I think both
Speaker 3: sides recognized that there are, you know, fundamental ties within
Speaker 3: the security alliance that short term there's just no way
Speaker 3: of getting around them. You know, Japan needs Japan needs
Speaker 3: the US from a security perspective, and the US needs Japan,
Speaker 3: and I think they were able to separate out that
Speaker 3: part of the relationship from the trade negotiations.
Speaker 2: Goroth, thank you so much for your perspective. Goode Reedy
Speaker 2: Bloomberg opinion columnists joining us here on the Daybreak Asia podcast.
Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 2: Earlier today in South Korea, Yon Happ reported the country's
Speaker 2: top trade negotiators have held a joint meeting with Commerce
Speaker 2: Secretary Howard Lutnik and Washington. The two sides reportedly reaffirmed
Speaker 2: their commitment to reach a teriff agreement before that August
Speaker 2: first deadline. Let's take a closer look now at the
Speaker 2: ongoing economic impact of these negotiations. We heard earlier from
Speaker 2: Janet Henry. She is the Global Chief Economist at HSBC.
Speaker 2: Janet spoke with Bloomberg TV host Cherry On and Heidi
Speaker 2: Stroud Watts on the Asia trade.
Speaker 5: Jannet, really great to have you with us at time
Speaker 5: of enormous uncertainty, but also i'd imagine quite a bit
Speaker 5: of fun for economists trying to model around all of
Speaker 5: the different scenarios. Are you feeling as sanguine as financial
Speaker 5: markets seem to be that things are only going to
Speaker 5: progress when it comes to trade and at the very
Speaker 5: least we're not going to go back to sort of
Speaker 5: so called liberation day rates.
Speaker 4: Good morning, and it's a pleasure to be here. As
Speaker 4: you say, it's fun time for economists. It's certainly keeping
Speaker 4: us busy, giving us plenty to talk about. But the
Speaker 4: key point is one of uncertainty. And it's interesting you
Speaker 4: mentioned financial markets. Equity markets. The US equity market, at
Speaker 4: least for dollar investors, and global equity markets are taking
Speaker 4: a pretty sang Win view because the fact is the
Speaker 4: global economy has been relatively resilient relative to expectations just
Speaker 4: a couple of months ago, and they do seem to
Speaker 4: be taking the view that the worst case scenarios regarding
Speaker 4: tariffs and trade now have a much lower probability also
Speaker 4: they've priced in some expectation of quite a lot of
Speaker 4: rate cuts. You know, the market's still expecting about five
Speaker 4: feder rate cuts by the end of twenty twenty six.
Speaker 4: So if one of those factors change, if we do
Speaker 4: get worst case scenarios on tariffs, we do get some
Speaker 4: higher tariffs, or if the US economy slows down more
Speaker 4: materially but perhaps with higher inflation, so you don't get
Speaker 4: the rate cuts, then obviously even equity markets would have
Speaker 4: to question the outlook and actually maybe the dollar. Maybe
Speaker 4: bond markets aren't quite a sanguine as equity markets seem to.
Speaker 5: Got at the longer end of bond markets at the moment.
Speaker 5: But when it comes to not quite seeing the economic impact,
Speaker 5: get is that just to pass through situation? Do you
Speaker 5: think the risk is that in the coming months and
Speaker 5: data will start to show, both in terms of confidence
Speaker 5: and inflation, that there is an impact.
Speaker 4: What to some extent we saw it in the June
Speaker 4: inflation data. The headline number, if anything, was lower than expected,
Speaker 4: because actually, what you're finally seeing in the US is
Speaker 4: the housing component of inflation is starting to moderate. But
Speaker 4: when you look in the weeds of the consumer goods
Speaker 4: data finished goods, particularly those from China. You saw it
Speaker 4: in household appliances, you saw it in audio equipment. And
Speaker 4: these are prices that have been persistently falling for the
Speaker 4: last few years. Suddenly they rose on the month by
Speaker 4: about ten percent. So you are seeing some signs of
Speaker 4: certain items where there is a pass through, particularly or
Speaker 4: finished goods. But some of the uncertainty regarding towerists relates
Speaker 4: to intermediate goods components. The tariffs on aluminium and steel,
Speaker 4: potentially on copper, maybe on certain areas of pharmaceuticals that
Speaker 4: could be quite hefty, and they tend to pass through
Speaker 4: over time. So you've seen it in the data already,
Speaker 4: the front loading anticipation of tariffs, you buy a lot
Speaker 4: more consumers have been front loading. And now the question
Speaker 4: obviously is whether the labor market slows down or indeed
Speaker 4: you see more of the inflation numbers actually squeezing, squeezing
Speaker 4: spending power but also pushing up inflation expectations, putting the
Speaker 4: fad in that very difficult position. But I think we
Speaker 4: will see it. Calling the exact timing both in the
Speaker 4: US and what it means globally is the really difficult call.
Speaker 4: We think you'll see it before the end of the year.
Speaker 4: You probably will see it in the coming months.
Speaker 1: Do you have any indications of where the Bank of
Speaker 1: Japan might go given what the Federal Reserve is doing,
Speaker 1: and now that we have a trade deal with fifteen
Speaker 1: percent tariffs on Japanese goods too, it's interesting.
Speaker 4: To say, now we have a trade deal with fifteen
Speaker 4: percent tariffs some on goods, tariffs are a lot higher.
Speaker 6: Than they were.
Speaker 4: They're just not as bad as have been feared back
Speaker 4: on April the second. So we find, you know, everyone
Speaker 4: celebrating the fact that we've only got fifteen percent tariffs
Speaker 4: on Japan. But I think you know, what you've seen
Speaker 4: in Japan is higher inflation, a lot of it driven
Speaker 4: by the doubling of rice prices, and people hate those
Speaker 4: kind of inflation releases, those everyday items that they tend
Speaker 4: to buy. It feeds through to their inflation expectations, So
Speaker 4: it's kind of the wrong kind of inflation.
Speaker 6: Obviously.
Speaker 4: What we've been hoping for, and there are some signs
Speaker 4: of it coming through, are a more self sustained improvement
Speaker 4: in inflation, particularly on wages, and there are signs of
Speaker 4: that coming through. So the Bank of Japan can normalize policy.
Speaker 4: So yes, we do expect the Bank of Japan obviously
Speaker 4: not imminently, but before the end of the year, most
Speaker 4: likely in October, we'll be able to.
Speaker 6: Raise rates once more this year.
Speaker 4: So you know, it's still getting there gradually, but it
Speaker 4: will be helpful obviously if rice price inflation continues to
Speaker 4: moderate and you get more of the sustainable inflation rather
Speaker 4: than a cost shock.
Speaker 1: Jen And when you talk about, of course the tier
Speaker 1: of rate here in Japan being fifty percent, which yes,
Speaker 1: to your point is higher than it was. But do
Speaker 1: you also consider perhaps a relative impact, say as opposed
Speaker 1: to South Korea. The Koreans are trying to lower their
Speaker 1: tariffs to the rate of Japan because they compete in
Speaker 1: similar goods, right, so if they have a competitive disadvantage
Speaker 1: in automaker auto sales to the US, for example, that
Speaker 1: would be comparatively not as great. Is that something that
Speaker 1: as an economist you keep an eye on these relative
Speaker 1: tariffs as opposed to just the net impact of what
Speaker 1: the levees do to one economy.
Speaker 4: Yes, absolutely, that's a really important point. I mean, the
Speaker 4: fact is different countries compete with each other, but there
Speaker 4: are other factors of them in tariffs that relate to
Speaker 4: that currency moves. The level of the exchange rate can
Speaker 4: matter as well. Also the position of different countries relative
Speaker 4: performance even before the tariffs take effect, and Korea's exports
Speaker 4: certainly haven't been quite a strong on a number of
Speaker 4: items than for instance, Taiwan areas of Japan's exports, So
Speaker 4: all of these factors come into play.
Speaker 6: But you're absolutely right.
Speaker 4: Fifteen percent is the new aspiration, rather than getting back
Speaker 4: to just a couple of percentage points.
Speaker 6: But when you look at the.
Speaker 4: Data, it's still going to be very, very hard to read,
Speaker 4: and it's still going to be very difficult for companies
Speaker 4: to plan in advance if they don't know what tariffs
Speaker 4: are going to be tomorrow next week.
Speaker 6: And don't forget on the tariffs.
Speaker 4: We've still got this court challenge that's underway in the
Speaker 4: world regarding the use of emergency powers to impose these
Speaker 4: reciprocal tariffs altogether, and that could go all the way
Speaker 4: to the Supreme Court. And it seems like we're constantly
Speaker 4: waiting for the next deadline. Now it's August first, there
Speaker 4: are other deadlines that are later in August. There are
Speaker 4: others that might extend in the course of the year.
Speaker 4: So all of that does play into the uncertainty angle
Speaker 4: and the difficulty for companies trying to navigate the course
Speaker 4: shipping things that they don't know what the tariff will
Speaker 4: be when by the time it actually arrives in the
Speaker 4: United States. But you're right, relative performance between economies in
Speaker 4: similar goods can make quite a big different, and we've.
Speaker 5: Seen from the first Trump administration that taras tend to
Speaker 5: compound and endure. Right, Have we sort of taken a
Speaker 5: look at what the longer term impact is going to be,
Speaker 5: even perhaps with the changing government.
Speaker 4: Well, it's a good question regarding the longer term impact
Speaker 4: because you know what you saw for you know, a
Speaker 4: couple of decades or more. Certainly up until twenty eighteen,
Speaker 4: with the first Trump administration, there was quite a big
Speaker 4: relative price change because you were reducing frictions in world trade.
Speaker 4: The US saw persistent declines in goods prices of one, two,
Speaker 4: sometimes three percent per year, and that was a boost
Speaker 4: to real incomes.
Speaker 6: They were spending so much less on goods prices.
Speaker 4: They had strong growth and in many ways that supported
Speaker 4: their spending on domestically produced most services in what is
Speaker 4: largely a service sector.
Speaker 6: Economy the United States.
Speaker 4: The industrial sector is less than ten percent of GDP
Speaker 4: in the US, So the longer term implications would be
Speaker 4: that people perhaps will buy less on goods. Goods are
Speaker 4: more expensive because the US.
Speaker 6: Can't produce all of these goods.
Speaker 4: Themselves immediately, and so actually it can dampen the ability
Speaker 4: to spend on other areas of the economy service sector
Speaker 4: spending in particular, and also the more macro sense, it
Speaker 4: means lower growth, higher inflation, and interest rates being higher
Speaker 4: than they would have otherwise been.
Speaker 5: Janet Henry, here's a Globe wal Chief economist at HSBC.
Speaker 6: Here with us.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday, we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg