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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Prisner. We begin today in Japan,

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Speaker 1: where the country's finance minister, together with a top currency official,

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Speaker 1: issued a warning to speculators after the end weakened to

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Speaker 1: its lowest level against the dollar in eighteen months. The

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Speaker 1: officials said they will respond appropriately to any moves they

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Speaker 1: deem excessive, including those that are speculative. Now, betts against

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Speaker 1: the End seem to pick up speed after sana E

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Speaker 1: Takiichi emerged as the leading candidate to become Prime Minister

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Speaker 1: last October. Takiichi is known for her pro fiscal and

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Speaker 1: monetary stimulus views. Well now Takiichi is obviously Prime Minister,

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Speaker 1: and she will be calling a snap election later this

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Speaker 1: month at the start of the parliamentary session. This is

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Speaker 1: an attempt by Takiichi to shore up her leadership and

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Speaker 1: secure mandate for a new ruling coalition. For a closer look,

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Speaker 1: I'm joined by Bloomberg's Isabel Reynolds. Isabel is Bloomberg's Tokyo

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Speaker 1: bureau chief, and she joins from our studios in the

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Speaker 1: Japanese capital. Thank you for being here. Happy New Year,

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Speaker 1: to you, Isabel, Can I get you to begin by

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Speaker 1: kind of laying out the dynamics that are at play

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Speaker 1: because Takei ICHI's Liberal Democratic Party is so reliant on

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Speaker 1: a coalition partner.

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Speaker 2: Yes, I mean for more than a quarter of a

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Speaker 2: century it was in this coalition partnership with a party

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Speaker 2: called Cormeto. They had very little in common in terms

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Speaker 2: of policy really, but what they did get out of

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Speaker 2: Cormeto was this ability to really turn out the vote

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Speaker 2: when it came to an election. So there were many

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Speaker 2: LDP members of parliament who in fact owed their seats

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Speaker 2: really to Cormeto. Then, when Takeichi came into power as

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Speaker 2: Prime Minister last year, she had certain views that Cormeto

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Speaker 2: really took issue with. But the one that finally sort

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Speaker 2: of put an end to the coalition was her refusal

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Speaker 2: to clamp down any further on these allegations about corruption

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Speaker 2: within the party, about slush funds and so on. So

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Speaker 2: Cormator left the coalition. She was left scrabbling around desperately

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Speaker 2: for another coalition partner. She did find one in the

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Speaker 2: form of the Japan Innovation Party, but that party is

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Speaker 2: very sort of regionally based, has less capacity to turn

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Speaker 2: out the vote, and in any case has said that

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Speaker 2: it will sort of not coordinate on seats and will

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Speaker 2: be end up fighting against the LVP in the next election.

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Speaker 2: So in terms of actual election cooperation, they're not as

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Speaker 2: nearly as strong a partner.

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Speaker 1: So if she is successful in shoring up per leadership,

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Speaker 1: is it a foregone conclusion that we're going to see

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Speaker 1: much more in the way of government stimulus going forward.

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Speaker 2: We don't know that for sure at all. At the moment,

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Speaker 2: this election looks much more uncertain than it does on

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Speaker 2: the surface. So if you look at Takehi's popularity, I mean,

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Speaker 2: she's had extremely high popularity ratings kind of personally and

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Speaker 2: for her cabinet, but that sort of same feeling doesn't

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Speaker 2: necessarily extend to her party. So what we don't know

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Speaker 2: is how far you know that positive feeling towards her

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Speaker 2: will actually translated into people getting off the couch on

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Speaker 2: that day and going into the polling station to vote.

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Speaker 1: So help me understand why her polling is showing such

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Speaker 1: strong kind of sentiment here in regards to her leadership.

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Speaker 1: Is there something that the population in Japan is expecting

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Speaker 1: from her?

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Speaker 2: I think she came in talking about all the things

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Speaker 2: that the Japanese are worried about at the moment. So

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Speaker 2: last summer during the Upper House elections, one of the

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Speaker 2: issues that kind of cropped up more than it ever

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Speaker 2: had done before was immigration, and well, I mean, she

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Speaker 2: didn't take a very strong stance on it, but she

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Speaker 2: was more outspoken about the need for limits on immigration

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Speaker 2: and the need to clamp down on sort of non

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Speaker 2: nationals who commit crimes or who break the rules. So

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Speaker 2: that was popular with the people who had kind of

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Speaker 2: drifted to a more sort of right wing new party

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Speaker 2: that had cropped up over the past couple of years.

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Speaker 2: So she was able to co opt I think those

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Speaker 2: people into supporting her. But I think there are other

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Speaker 2: issues that go beyond policy. To be honest, I mean,

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Speaker 2: I think she's she's conveyed this very enthusiastic and energetic

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Speaker 2: sort of atmosphere. She's always out there smiling. She's very

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Speaker 2: kind of dynamic in her relationship. If you see her

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Speaker 2: on the international stage, she'll be at summit, she'll be

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Speaker 2: rushing up to meet people and hug people, Whereas you know,

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Speaker 2: previous Japanese leaders would kind of sit in a corner

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Speaker 2: and play with their iPhone rather than going out proactively

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Speaker 2: to talk to the other leaders, and she's just comes

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Speaker 2: across as very dynamic, and I think people appreciate that

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Speaker 2: that although Japan has these huge problems and who knows

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Speaker 2: if she'll be able to resolve them, the aging population,

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Speaker 2: the massive debt, at least she looks like she's really trying.

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Speaker 1: And talking about breaking the glass ceiling, right. I mean,

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Speaker 1: she's the first female prime minister that Japan has had.

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Speaker 1: Talk to me a little bit about the way in

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Speaker 1: which she's being evaluated when comes to foreign policy, whether

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Speaker 1: we're talking about the relationship with US and trade issues,

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Speaker 1: whether we're talking about mainland China or even to somewhat

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Speaker 1: lesser extent, South Korea.

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Speaker 2: If you talk about the US. I mean, I think

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Speaker 2: Japan has resigned itself to the only thing that can

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Speaker 2: do with Donald Trump is to basically flatter him, offer

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Speaker 2: him gifts, just look as enthusiastic as possible, and never

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Speaker 2: contradict him, never criticize him. And that's exactly what she's done.

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Speaker 2: In space. I mean, we saw her going down to

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Speaker 2: the US military base at Your COSTCA, appearing by Trump's side,

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Speaker 2: talking to the all the military people there and looking really,

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Speaker 2: really happy to be there, and that's been the modus

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Speaker 2: operandi for Japan for some time. So I think the

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Speaker 2: Japanese and people appreciate that. I mean, I don't think

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Speaker 2: everybody in Japan supports Trump. I think he's relatively unpopular here,

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Speaker 2: but they recognize that that's the way that you have

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Speaker 2: to deal with him because Japan is sort of reliant

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Speaker 2: on the US for defensive purposes. When it comes to China,

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Speaker 2: she did make these remarks in parliament a while back

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Speaker 2: which angered China about the possibility of Japan sending in

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Speaker 2: its military if there were to be a sort of

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Speaker 2: a military clash over for Taiwan. Essentially, she hinted that

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Speaker 2: if it were to involve the US, and if it

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Speaker 2: were to be sort of an actual, full non military clash,

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Speaker 2: then Japan might have to send in its own military.

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Speaker 2: That has really angered China. But I think from the

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Speaker 2: Japanese perspective, although she's saying out lies something that sort

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Speaker 2: of politicians never said in the past, or at least

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Speaker 2: people in high office did not say in the past,

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Speaker 2: I mean, it's not a change in policy. And I

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Speaker 2: think this kind of backlash from China against her over

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Speaker 2: this has actually aided her own popularity domestically that they're

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Speaker 2: glad to see that she's sort of standing up for

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Speaker 2: what she says.

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Speaker 1: So when it comes back to the issue of economic stimulus,

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Speaker 1: I'm wondering whether or not there are obstacles in the way,

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Speaker 1: perhaps fiscal hawks that would push back against the idea

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Speaker 1: of that to government debt in Japan, that may tie

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Speaker 1: her hands to some extent. Is that a possibility, Well.

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Speaker 2: Yes, I mean it's it's a kind of a topsy

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Speaker 2: turvy situation in Japan, it is kind of in some

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Speaker 2: other parts of the world now. In that I mean,

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Speaker 2: she's seen as a right wing figure, but she favors

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Speaker 2: more spending, which is kind of not the traditional right

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Speaker 2: wing position, and there are the main opposition party, the CDP,

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Speaker 2: is a little less enthusiastic about spending, and that CDP

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Speaker 2: is now kind of in talks with the LDP's former partner, Cormeto,

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Speaker 2: and they are linking up potentially for the next election,

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Speaker 2: so they could take some votes away on that side.

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Speaker 2: So obviously, I mean, if Takai she wins a big

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Speaker 2: election victory for her LDP on on her own and

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Speaker 2: manages to get a majority on her own for the party.

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Speaker 2: I mean, she can pretty well do what she likes,

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Speaker 2: but that the budget has more less been put together already,

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Speaker 2: so it'd just be a question of passing what's already there.

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Speaker 2: The only other issue is, you know, whether that victory

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Speaker 2: will turn out to be as big as it might

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Speaker 2: potentially look on the surface.

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Speaker 1: As you and I both know, the Japanese equity market

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Speaker 1: is very near record highs, and I'm wondering about, away

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Speaker 1: from the politics, how people in Japan are feeling about

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Speaker 1: the economy.

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Speaker 2: Yes, I think the stock market is one thing, and

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Speaker 2: the way people are feeling on the ground is definitely

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Speaker 2: a different thing. While wages have been going up, they

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Speaker 2: have not kept pace with the cost of living at all,

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Speaker 2: especially for people kind of in the lower income groups.

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Speaker 2: And also, as you know, Japan's a very elderly country,

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Speaker 2: so people on these fixed incomes people and pensions and

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Speaker 2: so on are facing a rather painful financial situation on

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Speaker 2: personal level. So any poll you look at, if you

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Speaker 2: if you ask what is the biggest issue that the

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Speaker 2: govern should be focusing on, they all say the cost

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Speaker 2: of living, And whether she can really deliver on that

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Speaker 2: it is difficult to say because she's sort of overseen

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Speaker 2: this fall in the en, which contributes to inflation, because

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Speaker 2: Japan imports so much of the stuff that people need

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Speaker 2: to know for food and fuel and so on, that

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Speaker 2: this is part of their daily living expenses.

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Speaker 1: Normally, you and I don't speak about the Bank of Japan,

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Speaker 1: but if I can ask for a little bit of

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Speaker 1: perspective here, does this necessarily tie the hands of central

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Speaker 1: bankers in Japan right now until the dust settles on

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Speaker 1: what take Ichi intends to do on the fiscal side.

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Speaker 2: Yes, I mean I think with an election in the offing.

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Speaker 2: The next meeting is on January the twenty thirds, and

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Speaker 2: I'd be very surprised if they made any dramatic move

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Speaker 2: at that point, because they tend from past experience not

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Speaker 2: to do anything when there's political uncertainty. But in the

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Speaker 2: longer term, I don't necessarily think so. I mean, obviously

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Speaker 2: there's a lot of concern over the week a yen

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Speaker 2: at this point, I mean, it is getting to the

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Speaker 2: point where even the Bank of Japan would start to

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Speaker 2: think about it. So in the longer term I wouldn't

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Speaker 2: I wouldn't rule out further action by the bank.

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Speaker 1: Isabelle will leave it there. Thank you so very much.

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Speaker 1: Bloomberg's Isabelle Reynolds. She's a Bloomberg's Tokyo bureau chief. Joining

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Speaker 1: from our studios in Tokyo here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Prisoner.

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Speaker 1: Since the beginning of the year in the US stock market,

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Speaker 1: we have seen a steady rotation out of megacap tech shares. Well,

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Speaker 1: today that trend seemed to gather steam. We had the

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Speaker 1: Nasdaq Composite suffering its worst decline in about a month,

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Speaker 1: with a drop of one percent, and at the same time,

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Speaker 1: stocks with more exposure to the economy continue to benefit.

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Speaker 1: The Russell two thousand index of small cap shares added

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Speaker 1: seven tenths of one percent today. And that's where we

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Speaker 1: began our discussion with Jason lu Jason is head of

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Speaker 1: a pac equity and derivative strategy at BNP PERIBA. He

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Speaker 1: spoke with Bloomberg TV host Averril Honk and Paul Allen.

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Speaker 3: I do want to start with what we saw during

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Speaker 3: the US session, this move out of tech, the Nasdaq

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Speaker 3: having its worst day in a month, small caps doing

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Speaker 3: pretty well. Do you see this as being a US

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Speaker 3: specific story or could we expect to see a bit

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Speaker 3: of a weakness and Asia tech stocks going ahead as well.

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Speaker 4: Sure, I think that's a great question. When it comes

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Speaker 4: to rotation. We actually seen this started maybe towards later

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Speaker 4: of last year within the USI between tech and the

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Speaker 4: non tech, but even within tech we have also seen

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Speaker 4: some meaningful divergence as well. You may record it if

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Speaker 4: you look back at the tech rally last year. Very

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Speaker 4: often it tends to be a coordinated rally and a

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Speaker 4: coordinated decline. But since perhaps November and December last year,

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Speaker 4: where we see the success of Gemini, there's now a

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Speaker 4: lot more debate about even within the tech complex, which

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Speaker 4: AI model will be winning and subsequently which technology hardware

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Speaker 4: that are driving those AI models will be winning. And

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Speaker 4: so it resulted in the rather divergence among the MAC seven.

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Speaker 4: And also if you start this year, you're also seeing

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Speaker 4: a divergence between the hardware semiconductor side of things versus

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Speaker 4: the broader NASTAC And this also translates into Asia as well,

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Speaker 4: because if you look at you to date, some of

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Speaker 4: the best performing markets are Korea, Taiwan and Japan, who

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Speaker 4: tends to have a little bit more hardware exposure. When

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Speaker 4: it comes to the AI complex.

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Speaker 3: I noticed Jason missing from that list. You did not

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Speaker 3: say China. But if we take a look at a

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Speaker 3: chat that we have on the Bloomberg here, China AI

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Speaker 3: has been finding a lot of new niches, you know,

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Speaker 3: in terms of medical self diagnosis tools, short videos as well.

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Speaker 3: We've seen a bit of strength in this space. Do

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Speaker 3: you think there's better priced opportunities in the China AI

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Speaker 3: story away from the USAI story.

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Speaker 4: I think that's a great question. The reason I did

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Speaker 4: not mention China earlier is because when it comes to divergence,

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Speaker 4: there's also the divergence between the China AI complex versus

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Speaker 4: the rest of the world, which mostly driven by the

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Speaker 4: US market, and the behavior tends to be quite different.

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Speaker 4: So specifically on the China AI side, we are positive

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Speaker 4: on this, especially with the anticipation of the fifteen five

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Speaker 4: year plan that I believe investors are expecting more policy support,

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Speaker 4: and from the recent IPOs over the past month and

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Speaker 4: some of the outperformance of these AI related names, it

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Speaker 4: seems to suggests that there has been a structural change

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Speaker 4: when it comes to how investor think about the competitiveness

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Speaker 4: of China AI, but the way that they trade may

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Speaker 4: have slightly deviated from the rest of the world because

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Speaker 4: of the China ecosystem is not necessarily, at least at

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Speaker 4: this point, connected with the USAI ecosystem.

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Speaker 5: What could potentially derail this? I think this, I guess

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Speaker 5: is a bit of a background concern. But we see

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Speaker 5: how authorities on shore maybe looking to cub some of

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Speaker 5: the risks. You see the tightening of these margin financing ratios,

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Speaker 5: perhaps in the short term, longer term, what are you

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Speaker 5: seeing as how this might impact the trajectory?

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Speaker 4: Sure? I think when we look at the China rally

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Speaker 4: for over the past year or so, it actually started

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Speaker 4: as a policy driven rally, or driven by the liquidity

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Speaker 4: transfer from fixing come marketer deposits into equity. It is

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Speaker 4: true that we have also seen an increase of margin trading,

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Speaker 4: but that is very much a reflection of investor getting

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Speaker 4: more positive on the broader market. I think very often

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Speaker 4: we have heard investor looking at the absolute level of

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Speaker 4: the margin balance or the margin turnover. It is true

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Speaker 4: that they are now in absolute terms near a record high,

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Speaker 4: but we should also remember that the overall size of

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Speaker 4: the Chinese equity market has also expanded quite significantly. So

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Speaker 4: if you take the current margin balance outstanding as a

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Speaker 4: percentage of the overall market cap, we're only a sixty

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Speaker 4: percent of the previous peak that we saw back in

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Speaker 4: twenty fifteen. And speaking of twenty fifteen, I believe that

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Speaker 4: the policymakers have tried to learn from the experience of

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Speaker 4: those leverage driven market and they're trying to cool down

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Speaker 4: the market in order to encourage what they call the

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Speaker 4: slobal market, which is more based on long term capital

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Speaker 4: allocation rather than speculative flow on specific high growth sectors.

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Speaker 5: That's a good point talk to us about structurally. I mean,

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Speaker 5: we've been seeing data in the past they exports growth

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Speaker 5: in China is still growing really strong. We have Yuen strengths,

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Speaker 5: maybe taking a bit of breather for parts of this week.

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Speaker 5: How does that all affect inflows into China you think?

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Speaker 4: I think the info into China are quite divided, because

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Speaker 4: historically when investors look at info into China, they often

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Speaker 4: start from the consumer angle. But for the past year

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Speaker 4: or two, I think the consumer side remains quite weak.

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Speaker 4: Or you have the socolled new consumption that are very

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Speaker 4: specific to a handful of stocks, or specific subsectors instead.

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Speaker 4: I think we've seen a lot more focus on technology

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Speaker 4: and on healthcare and high end manufacturing that both of

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Speaker 4: you mentioned at the earlier point. So, for example, in

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Speaker 4: the Hong Kong market, we have seen a significant repricing

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Speaker 4: of a lot of the foreign appetite into the technology

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Speaker 4: related stocks, but that level of optimism are not equally

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Speaker 4: distributed across other sectors as well. So when it comes

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Speaker 4: to forum FLN flow, we maintain the view that this

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Speaker 4: year will be very targeted by the sectors, and it

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Speaker 4: will be very targeted by the different segments as well,

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Speaker 4: because when you look at the listing structure of the

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Speaker 4: Hong Kong market and the China onore market, they do

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Speaker 4: offer a very distinct exposure. For example, Hong Kong is

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Speaker 4: more on the AI application, internet and software, whereas you

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Speaker 4: can find a lot more hardware oriented companies and higher

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Speaker 4: manufacturings in the China onial market.

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Speaker 3: Jason, I know that one of the risks you see

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Speaker 3: potentially in twenty twenty six will be from a major

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Speaker 3: change in FED policy. There's certainly no evidence of that

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Speaker 3: happening at the moment, but could you foresee a set

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Speaker 3: of circumstances where that might change.

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Speaker 4: Sure, I think if you look at the fat on

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Speaker 4: market right now, I think it's pricing and roughly two

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Speaker 4: to three cut. But it is possible that as we

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Speaker 4: enter into Q two we'll be faced with a few

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Speaker 4: unknown number one, as we know now there are quite

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Speaker 4: a few legal cases around the Fed officials share power

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Speaker 4: and also Governor Lisa Cook. We also will likely start

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Speaker 4: to see the implementation of the One Big Beautiful Bill,

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Speaker 4: which will feed into the physical spending, and that could

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Speaker 4: also translate into a potential recovery in the employment market,

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Speaker 4: which feeds into the inflation. And at the same time

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Speaker 4: we will have a new fat chair. So in Q two,

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Speaker 4: I think there is a point that the market will

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Speaker 4: be forced to recalibrate the interest rate trajectory on the

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Speaker 4: latest economic data, and I think that could drive either to

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Speaker 4: a more dubbish or hackish tilt, and that will transmit

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Speaker 4: to the rest of the world as well. So I

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Speaker 4: think that is indeed a key event that we're watching

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Speaker 4: in Q two.

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Speaker 5: You alluded to some of the potential risks for tech,

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Speaker 5: in particular in terms of memory prices and demand. Do

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Speaker 5: you think there is a chance that the likes of

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Speaker 5: South Korean markets, they sort of become a victim of

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Speaker 5: their own success. Given how some of these big players

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Speaker 5: they're also flagging that that could affect growth in other

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Speaker 5: parts of their business.

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Speaker 4: I think you're right that when we look at the

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Speaker 4: memory price, we have seen a remarkable increase a recorded

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Speaker 4: during the fourth quarter. Some of the memory mardule price

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Speaker 4: has actually gone up four times, which drove the outperformance

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Speaker 4: of the Korean taxtocks throughout Q four and also at

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Speaker 4: the start of this year. And that actually creates some

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Speaker 4: very unique situation for the Asian tech or global tech

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Speaker 4: because it's like Korea and Taiwan, they do have a

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Speaker 4: dominant position in a very specific segment. So Korea will

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Speaker 4: be memory and storage, Taiwan will be foundries and AI servers.

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Speaker 4: There are no clear replacement of these companies, and so

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Speaker 4: they do have very strong price in power. And in fact,

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Speaker 4: I think we have seen early signs of the transmission

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Speaker 4: of higher component price into end products, and I think

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Speaker 4: we have seen a few companies raising their price on

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Speaker 4: laptops and PC or smartphone to start the year. So

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Speaker 4: I think if there is indeed a potential concern that

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Speaker 4: if these price continue to stay high will that hurt demand,

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Speaker 4: But I think specifically on the Ai side of things,

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Speaker 4: it seems that demand is still quite strong and it's

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Speaker 4: more of a supply constraint rather than a kind of

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Speaker 4: demand constraint. So I think on that part, perhaps it's

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Speaker 4: less of concern and it is wide because of that

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Speaker 4: very sharp increase in an expectation, it actually still make

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Speaker 4: Korean equity relatively cheap on a pe basis, because it

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Speaker 4: costs me two hundred right now trading around Henhog's pe,

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Speaker 4: and that is in line with its long term average.

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Speaker 4: And when they look at Taiwan, the tai x is

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Speaker 4: also trading at about a thirty percent discount to the

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Speaker 4: NESTAC of one hundred as well. So in that sense,

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Speaker 4: I think depending on the specific product, I think for

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Speaker 4: a certain part of the Asian market, they do have

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Speaker 4: very strong price and power. That's your feed into the

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Speaker 4: earning scrowth.

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Speaker 1: That was Jason leu Had of APAC Equity and Derivative

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Speaker 1: Strategy at BNP Pariba, speaking with Bloomberg TV host Avril

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Speaker 1: Hong and Paul Allen, bringing it to you here on

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Speaker 1: the Daybreak Asia podcast. Thanks for listening to today's episode

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

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

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

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

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

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisner,

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Speaker 1: and this is Bloomberg

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Speaker 4: Four