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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah. So,

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Speaker 1: the main event as we wake up here in New

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Speaker 1: York the Bank of Japan, the Governor Harahiko Corona pushing

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Speaker 1: through changes to his radical monetary stimulus program as the

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Speaker 1: central bank repairs for a longer struggle to stoke inflation.

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Speaker 1: DANAA joining us now JP Morgan Asset Management, fixed income

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Speaker 1: portfolio manager joins us to discuss Dana. Great to have

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Speaker 1: you with us on the program to get your thoughts

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Speaker 1: on the b o J several tweaks to policy. What

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Speaker 1: was the one that stood out for you? Um, I

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Speaker 1: think without a doubt it's um the widening of the

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Speaker 1: range um that they're willing to allow the tenure um

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Speaker 1: JGUB fluctuate. So they kept the rate um the target

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Speaker 1: for the tenure zero, but they moved the range from

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Speaker 1: zero point one to zero point two, so allowing the

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Speaker 1: possibility that if conditions allowed ten orbs could trade up

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Speaker 1: to zero point two percent. I think that's quite significant

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Speaker 1: in the grand scheme of things. Why is that significant

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Speaker 1: zero point on a tenure Japanese government bond. Well, of first,

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Speaker 1: it's a couple of things. Um. You know the message

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Speaker 1: itself that came out of the Central Bank, wasn't that

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Speaker 1: a bita message for the Japanese economy? Right? Um they

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Speaker 1: talked about they reduced their inflation expectations for this year

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Speaker 1: from one point three to one point one, but actually

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Speaker 1: for their focus to urizon, they also lowered inflation expectations

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Speaker 1: from one point eight to one point six, keeping in

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Speaker 1: mind their target is too Um. It actually does raise

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Speaker 1: the question of why do they feel they need to

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Speaker 1: move this rate higher going forward? And the reason for

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Speaker 1: that is because the local banks have been struggling with

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Speaker 1: this low rate environment. It's been denting their profitability. So

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Speaker 1: we're getting to a point now where quantitative easing and

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Speaker 1: the cost of quantitative evening are coming home to roost

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Speaker 1: um and that has implications for policymakers, especially a policymaker

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Speaker 1: such of the Bunk of Japan where they have a

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Speaker 1: price stability Monday, but they also have a financial stability Monday,

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Speaker 1: So the Bank of Japan today also introduced this forward

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Speaker 1: guidance added to the policy tweaks with a commitment to

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Speaker 1: keep the current extremely low levels for short term interest

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Speaker 1: right to makes low for an extended period of time.

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Speaker 1: And I just wanted Diana whether that was cover. There's

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Speaker 1: some people out there this morning questioning whether this is

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Speaker 1: just a stealth beginning of a normalization of policy at

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Speaker 1: the Bank of Japan. Do you subscribe to their theory

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Speaker 1: A's or Diana. They the forward guidance UM mixic clear,

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Speaker 1: especially linking it to the v E T hikes that

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Speaker 1: are expected in October nine. So we still have a

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Speaker 1: long period of time before we're talking at least for

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Speaker 1: the next all months before we're discussing hikes, so it's

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Speaker 1: not quite UM a hike in that extent um. I

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Speaker 1: think they are committed because there are nowhere near the

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Speaker 1: inflation target. I think what what this braises is the

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Speaker 1: issue of if we're going to be having this slow

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Speaker 1: glide higher in the tenure g g B, so if

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Speaker 1: as conditions improved, it warrants them to let the tenure

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Speaker 1: go higher, or if pressure on these banks remain, what

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Speaker 1: are the implications for the rest of the world. I

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Speaker 1: think that's the bigger question, right, um, what happens to

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Speaker 1: US rates um? And we saw a bit of that

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Speaker 1: a mini preview this week on and last week when

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Speaker 1: the headlines first came out. Diana, more than anyone we

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Speaker 1: speak to, you blend in portfolio management along with your

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Speaker 1: wonderful trading experience reents. How what do you see in

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Speaker 1: the trading market of foreign exchange that gives you any

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Speaker 1: signal that we move from idiosyncratic stories like Turkey Argentina

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Speaker 1: over to a more correlated currency e M issue. What

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Speaker 1: do you look for from a trading desk that begins

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Speaker 1: to show that things are going to coalesce into some

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Speaker 1: form of fear um. So there are few things that

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Speaker 1: we keep an eye on. Well, look at volatility implied

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Speaker 1: volves UM. I think one thing that's been quite um

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Speaker 1: interesting in the in the resent period of witness in

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Speaker 1: particularly in the margin markets, is just how low volatilting

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Speaker 1: other assets have been. So while that remains true, and

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Speaker 1: while you know pop markets are able to treat idiosyncratic

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Speaker 1: stories as that and volatiles doesn't pick up correlations, remain

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Speaker 1: um quite stable. I think we remain in a situation

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Speaker 1: where when you do see those sorts of wobbles, you

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Speaker 1: should try and look for where the value is and buy.

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Speaker 1: I think, you know, the bunk of Japan today was

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Speaker 1: important because if we do start to get a sense

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Speaker 1: that you're getting more synchronized normalization and that's not what

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Speaker 1: we've seen at all. Um. If it's not just the

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Speaker 1: FED doing all the work, If the bug is now

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Speaker 1: coming out and saying we are looking at normalizing and

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Speaker 1: the ECB likewise, um, then I think that could become

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Speaker 1: a much bigger, bigger problem forst But you and I

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Speaker 1: have studied the chapter and econ four oh two. It's

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Speaker 1: called hope and it's still from President Obama, Hope and audacity.

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Speaker 1: I'm looking at the chart I put out on Twitter

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Speaker 1: for Bloomberg Radio Diana and its nominal g d P

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Speaker 1: in Japan, and it is irrefutably in the last two

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Speaker 1: and a half years rolled over. They can job bon

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Speaker 1: it all they want. Do they see and escape from

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Speaker 1: deflation and particular kill early? Do they see an escape

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Speaker 1: from disinflation where they turn the vector around? Um? I think,

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Speaker 1: and that's why I say the message from the bog

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Speaker 1: to day was not a positive economic message. I think

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Speaker 1: there is a lot of hope that goes in some

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Speaker 1: of these projections, and the inflation numbers today that they

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Speaker 1: put out still look extremely unrealistic in our view. Um.

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Speaker 1: They released some paper on the inflation and what they're

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Speaker 1: saying is UM this was on a separate paper saying

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Speaker 1: inflation is low because of the usual suspect global competition. UM.

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Speaker 1: You know, low inflation expectations from an aging population, preferring

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Speaker 1: low inflation risk covers employees, etcetera. Some of these things

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Speaker 1: are structural issues. They're not going to go away. UM.

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Speaker 1: So I do agree with you. I think you know,

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Speaker 1: Japan's issues are very very entrenched. Or is Europe's issues

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Speaker 1: in trench? I mean, I get the idea. You know,

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Speaker 1: we can all look at the charts inside Japan's its

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Speaker 1: own unique experiment. But I'm taken by the idea on Pharaoh,

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Speaker 1: the g d P came in a little light. In

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Speaker 1: Europe and core inflation there is all of one point

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Speaker 1: one percent. I mean Diana and helped John and I

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Speaker 1: is this on the edge of Japan? I mean Europe

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Speaker 1: basically on the edge of the challenges that Japan has.

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Speaker 1: I don't think Europe is quite where Japan is. Um.

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Speaker 1: I think you know, when you look at the ALCU

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Speaker 1: cups in Europe, we still have a long way to come,

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Speaker 1: um liabor market dynamics, There's still a lot of room

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Speaker 1: for improvement there. Um. So I think the European story

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Speaker 1: is slightly better in that respect, in terms of the

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Speaker 1: long term prospects than what Japan faces. This has been

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Speaker 1: wonderful Diana moment, thank you so much with JP. Morgan

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Speaker 1: just thrilled to have her with us. Kim shown holds

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Speaker 1: with us, then why you New York University? And of

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Speaker 1: course he knows of dead meeting when he sees how

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Speaker 1: did we get into this or we have dead in

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Speaker 1: life meetings? Is this your fault? My fault? I hope not. Um. Look,

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Speaker 1: I think that they've they developed this habit of only

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Speaker 1: making policy changes when they have press conferences. The good

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Speaker 1: news is that they're going to have a press conference

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Speaker 1: with every meeting next year. So this this happened to

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Speaker 1: get away from the stupidity. I think we're going to

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Speaker 1: get away from it pretty quickly. They didn't used to

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Speaker 1: have press conferences to begin with. Kim, that's right, So

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Speaker 1: that gives you an idea of how much things have changed. Yeah, well,

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Speaker 1: they also didn't used to provide their quarterly forecast or

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Speaker 1: their quarterly projections. They've become far more transparent. That's all

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Speaker 1: good news general. How does the Carne press conference vary

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Speaker 1: from a druggy press conference. It's kind of the same.

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Speaker 1: It's kind of the same. I don't think it's too different.

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Speaker 1: It's quite orchestrated in the same way. They open up

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Speaker 1: with a statement. They sort of reveal their forecast, but

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Speaker 1: their bank aving that puts everything out all at once,

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Speaker 1: so everyone's already got this stuff, so they're laguely repeating

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Speaker 1: what we already know. And then the Q and A starts,

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Speaker 1: and Q and A is often the interesting bit, kam.

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Speaker 1: It does raise a question though they used to be

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Speaker 1: able to do stuff without a news conference. They used

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Speaker 1: to be able to do stuff without telling the market.

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Speaker 1: They've done stuff, um and now in a needle of

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Speaker 1: radical transparency, they seem to have a problem. Step in

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Speaker 1: a way, How much of a problem is it. Well,

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Speaker 1: I think it's pretty small. I think the transparency is

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Speaker 1: a big plus. I mean, think of it this way.

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Speaker 1: By being transparent, they condition us to anticipate their behavior. Um,

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Speaker 1: we know sort of know the things that drive them,

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Speaker 1: whether it's strong growth or rising inflation. We know what

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Speaker 1: changes their policy. We know that when they're running a

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Speaker 1: very accommodative policy, they're going to be uncomfortable with it.

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Speaker 1: If the economy is already doing well, that they're going

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Speaker 1: to want to get back to something like normal. Because

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Speaker 1: we know that we can anticipate it and it shows

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Speaker 1: up in market prices long before they act. Well, that's

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Speaker 1: the problem when you are tightening, when you're easing, that's

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Speaker 1: not a problem. That just amplifies the accommodation you're trying

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Speaker 1: to offer to the markets. When you're tightening, the market

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Speaker 1: can often run ahead of itself before the Bank of

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Speaker 1: Japan has even done it a thin Can we actually

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Speaker 1: all that to some extent with this mating? Is it

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Speaker 1: not a problem at all? Do you think when they're

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Speaker 1: tightening and they're trying to remove accommodation and the market

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Speaker 1: just keeps running ahead of it. I think the problem

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Speaker 1: is when they're not communicating clearly, and I think what

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Speaker 1: you observe the central Bank in Japan is running this

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Speaker 1: extraordinary policy of capping the long term bond yield. We

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Speaker 1: haven't seen a central bank do that since the FED

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Speaker 1: stopped doing it in so there's a reason why that's

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Speaker 1: a that's a rare policy. It's extremely aggressive and it's

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Speaker 1: difficult to escape. It creates lots of disturbance in markets,

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Speaker 1: and you're seeing that. So I don't think it's such

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Speaker 1: a bad thing. I think the problem is they need

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Speaker 1: to communicate clearly. Would you be willing to say that

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Speaker 1: the j GB market is no longer a market? I

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Speaker 1: think it's it's heavily influenced by the behavior of the

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Speaker 1: central bank. So if you're asking me, would but would

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Speaker 1: yields rise if it weren't for central bank behavior? Of yes,

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Speaker 1: they would, But I would say and what I mean this,

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Speaker 1: I think your question is brilliant. Anybody with a memory

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Speaker 1: of July in August has got to ask that question

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Speaker 1: about the artificiality of the of the bond market, the

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Speaker 1: note in the bill market in Japan. It's a huge deal,

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Speaker 1: joone huge deal the way I mean, come on, there's

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Speaker 1: no liquid in he there. Let me ask you a

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Speaker 1: different question. When the Swiss Center interview the Swiss Central

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Speaker 1: Bank captain the exchange rate against the Euro, would you

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Speaker 1: say there was no longer a market for for Swiss frames.

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Speaker 1: I never said that, but in sense that would be true,

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Speaker 1: in the same sense that it's true because they're the

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Speaker 1: center gang is fixing an exchange rate in that world, John,

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Speaker 1: why do we feel like we're in a class and right, Well, no,

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Speaker 1: I'm happy to be in a class. I'm happy to

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Speaker 1: be in. But folks, this is what what Professor Showolds

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Speaker 1: has done is moved from a class from Here's the

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Speaker 1: interesting thing about the euro Swiss example. For a long

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Speaker 1: long time people thought that could not be broken, and

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Speaker 1: then it was broken, and a tally of the SMB

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Speaker 1: try to bring back a euro Swiss floor. That have

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Speaker 1: great difficulty doing so because the market wouldn't be can

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Speaker 1: vins that it would be kept. Now I do wander

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Speaker 1: with j g B S as they've shown that they

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Speaker 1: can shift where they cap the yield on a Japanese tenure.

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Speaker 1: I do wonder whether the market is going to test

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Speaker 1: the Bank of Japan at some point, Kim, I think

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Speaker 1: you're absolutely right, they will test, in fact, the whole

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Speaker 1: One of the big problems with this approach fixing an

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Speaker 1: exchange rate or fixing a bond yield is that once

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Speaker 1: anybody suspects that you're going to change the policy, um,

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Speaker 1: there will be lots of sales, and so the central

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Speaker 1: bank would have to come in and buy. Look at

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Speaker 1: the b o J last week, they had to come

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Speaker 1: in and buy aggressively just because people feared they might

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Speaker 1: change policy. Well, this has been way interesting. We're gonna

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Speaker 1: do this on podcast Kim Schoen holds and this will

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Speaker 1: go out on Apple Podcasts also added Spotify as well.

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Speaker 1: Professor shown holds of course with New York at University.

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Speaker 1: But it's been the story of the equity market here

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Speaker 1: in the United States over the last three days. Then

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Speaker 1: that's that Thursday, down one percent, down almost one and

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Speaker 1: a half percent Friday, and close to more of the

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Speaker 1: same in the yesterday's session, down by one point three

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Speaker 1: nine percent. Your next trading queue comes from Apple. Can

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Speaker 1: Apple lift some battered sentiment for technology stocks? Will Power

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Speaker 1: joining us now? Bad? Senior research analyst Will as always,

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Speaker 1: how many iPhones have you sold? Seems to be the

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Speaker 1: first question we ask, what's your base case for later on? Well, look,

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Speaker 1: we're looking for a solid quarter and good morning, thanks

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Speaker 1: for having me. We're expecting a company to ship forty

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Speaker 1: two million iPhones and the quarter in your right, that'll

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Speaker 1: be the headline number as always. But I think you know,

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Speaker 1: if even greater focus perhaps could be the services revenue

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Speaker 1: than of course, you know, the next quarter guidance dos

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Speaker 1: we head into this this next dollar fort iPhone cycle.

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Speaker 1: I think that's going to be really important because many

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Speaker 1: people are going to be looking for where the growth

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Speaker 1: comes from. And I noticed that Loop Capital Luke Ventures

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Speaker 1: were pointing out that the growth phase of the iPhone

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Speaker 1: could well be coming to an end. Will do do

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Speaker 1: you see that too? Well, look, there's no question that

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Speaker 1: smartphone sales globally, you know, have half ended a week

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Speaker 1: spot right, We're just not seeing much growth year of

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Speaker 1: the year, um, you know, from a broader market perspective.

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Speaker 1: But where apples don't generate growth, of course, was what

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Speaker 1: that average selling price, which has been very impressive, particularly

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Speaker 1: within you know, consumer electronics generally. So we're working for

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Speaker 1: a close to a seven hundred dollar a SP which

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Speaker 1: is up pretty snifficently year the years to candily, that

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Speaker 1: is the bigger growth driver in terms of driving revenue.

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Speaker 1: So I think it's these astute of the fact that

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Speaker 1: while iPhone units are growing very slowly the new every years,

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Speaker 1: the actual revenue growth is still growing double digits because

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Speaker 1: of that SP. Well, let's be clear, head, the s

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Speaker 1: P in the quarter a year ago the same quarter

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Speaker 1: was six hundred and six dollars. Are you seriously saying

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Speaker 1: we could get a one hundred dollar jump in average

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Speaker 1: selling prices because that's phenomenal? Well, well, that's right, I

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Speaker 1: mean I will just if you look back this past quarter,

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Speaker 1: I think you are seven eight, So we're expecting that,

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Speaker 1: you know, to drop you know, sequential ways we get

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Speaker 1: you know, later into the cycle. But yes, we are

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Speaker 1: looking for you know, significant you know, your your growth

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Speaker 1: of that metric. Well, let's do a reverse some of

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Speaker 1: the parts. Hundred eighty nine dollars per share, hundred and

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Speaker 1: nine dollars per share rounded up, let's make it two

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Speaker 1: hundred dollars a share. How much per share is cash? Uh,

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Speaker 1: well today you've got close to thirty dollars, so two

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Speaker 1: hundred down to one seventy. How much is services? What's

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Speaker 1: the plug in value per share of services? Well, yeah,

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Speaker 1: that's a good question. I mean, you know, what are

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Speaker 1: your COPID against? Do you look at you know, the Facebook,

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Speaker 1: the Netflix, is I mean, this is a business that

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Speaker 1: you know, per perspective, this year will generate thirty five

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Speaker 1: forty billion dollars of revenue. So you put up multiple

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Speaker 1: matt uh, you know you you get to you know,

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Speaker 1: the least perhaps a couple hundred billion dollars. Okay, a

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Speaker 1: couple hundred billion dollars. I can't do the math. Plus

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Speaker 1: it's radio. We don't do math on radio. What I

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Speaker 1: can say, Will, is, if you ex cash and X services,

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Speaker 1: you're basically buying the rest of the company for what

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Speaker 1: Nothing's not the right phrase, but pretty close to nothing. Right, Well, yeah,

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Speaker 1: you're not. You're not saying you know much over you know,

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Speaker 1: doublity multiple for what's still is a very strong, you know,

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Speaker 1: cast cerative. My point John in this exercise is we're

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Speaker 1: all gonna die. Apple's gonna end, and we're all gonna die.

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Speaker 1: Apparently not, you know, we're like and I think John,

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Speaker 1: you and Full Disclosure UBS does some great work on

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Speaker 1: this as well as Will Powers great work a baired

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Speaker 1: The answer is the average selling prices lights out stunning

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Speaker 1: could be guest, all all the gloom people relative to

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Speaker 1: where we were a year ago. Well, the the services business.

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Speaker 1: Are you saying essentially we're already there at target? Because

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Speaker 1: the company wants services to be a fifty billion dollar business,

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Speaker 1: and based on your estimates, will it sounds like we're

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Speaker 1: already there. Well, we're heading the right direction certainly, right, So,

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Speaker 1: I mean just to be to put a point on that,

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Speaker 1: you know, for this year we'll be at seven billion

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Speaker 1: uh in our forecast, you know, going to kind of

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Speaker 1: mid forties and nineteens. Yes, we think we are tracking properly,

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Speaker 1: you know. I do think there are other opportunities and

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Speaker 1: services that they've fairly tapped into. I think one of

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Speaker 1: those content we of course know they haven't rolled out,

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Speaker 1: you know, a traditional live streaming service, and it's not

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Speaker 1: it's less clear they're gonna do that. Do you think

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Speaker 1: there's some opportunities for a Netflix like service perhaps wider

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Speaker 1: to help supplement that as well? As you're move into

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Speaker 1: nineteen and twenty, when you're on the conference call, what's

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Speaker 1: like the McKenzie Boston consulting strategy of these guys. I mean,

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Speaker 1: I get the we've gone through the financials. We all

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Speaker 1: understand their minting money. They're gonna be a trillion dollars

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Speaker 1: this it's them in Amazon and and the New York

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Speaker 1: Stock Exchange Fang Index. John, It's it's Amazon, Apple, and

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Speaker 1: Kitten the other one. Thirty three percent of the index

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Speaker 1: is three stocks out of ten stocks. And that's great.

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Speaker 1: But when you're on the conference call, what's they're McKenzie

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Speaker 1: like big strategy? What's the big strategy of Mr Cook

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Speaker 1: and his team? Well, I think it's increasingly and has been,

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Speaker 1: you know, about the broader ecosystem, right, So it's solidifying

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Speaker 1: your position and ensuring that you don't fall into the

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Speaker 1: traditional consumer electronics trap. And I think they've you know,

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Speaker 1: successfully navigated that today. But but it's on them to

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Speaker 1: continue to you know, push that envelope, you know, further,

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Speaker 1: to drive new ways to keep customers happy, to you know,

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Speaker 1: to maintain that industry leading retention. And so I think

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Speaker 1: it's really capitalizing on that installed base that you have. Well,

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Speaker 1: you also cover Netflix, and Netflix took an absolute beating

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Speaker 1: yesterday un seemingly no news. Well, what do you make

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Speaker 1: of these moves and a magnitude of the moves we're

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Speaker 1: seeing in technology stocks at the moment. Well, it's it's

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Speaker 1: obviously part of a broader you know, down draft for

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Speaker 1: you know, high growth momentum names and when you're seeing

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Speaker 1: that across you know, the fast space two. As you

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Speaker 1: look at some of our software, uh coverage, I think

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Speaker 1: any of the you know the high single they double

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Speaker 1: digit revenue, multiple names. You know we're under pressure. There

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Speaker 1: was there was a high correlation there. But I guess

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Speaker 1: the other thing fundamentally is, yeah, Netflix does have more

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Speaker 1: competition coming. That's not new. But of course you had

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Speaker 1: some rumors here the last couple of days on Walmart

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Speaker 1: rowing outstore for a dreaming service. Tucks know if that

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Speaker 1: had much of an impact or not, but you know

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Speaker 1: those those could be contributors as well. John, you want

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Speaker 1: the real life Netflix. The last three times I've gone

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Speaker 1: to it, they haven't had the movie I want. Now. Granted,

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Speaker 1: I'm looking for secure, stupid bow tie stuff, but but John,

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Speaker 1: the history of It's the face of America exactly. I

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Speaker 1: go to Amazon and often they have the movie. I

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Speaker 1: go with history the audience. What was the movie? It

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Speaker 1: was like a Lawrence of Arabia thing with camels. Okay, no, seriously,

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Speaker 1: it was something there was some totally obscure thing about.

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Speaker 1: Usually when I go to Netflix, they don't have the

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Speaker 1: damn movie. I mean, you know that's lots of my

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Speaker 1: You're right, am I right? What you mean, put an

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Speaker 1: increasing focus on its original content quickly shows right, that's

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Speaker 1: that's really worth leading in and what's drivings craping day?

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Speaker 1: I'd agree that you know the movie some respects are lacking.

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Speaker 1: Although you know, well that was a surveillance breaks it

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Speaker 1: was with a serious please go ahead. If I asked

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Speaker 1: the analyst what's happening with tech, they'll give me a

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Speaker 1: very different answer to what I get from say a

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Speaker 1: cross asset portfolio manager. At the moment where I think

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Speaker 1: people are looking at the potential for a rotation again

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Speaker 1: out of some of these growthy names and perhaps into value.

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Speaker 1: What is that a rotation that you can see happening?

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Speaker 1: Is it's something you have to think about. Well, look,

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Speaker 1: I mean, Candy, yeah, I'm you know, I'm I'm more

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Speaker 1: focused on the names I've been recoverage writer than a

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Speaker 1: broader market call. And it certainly feels like for at

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Speaker 1: least the last couple of days, you've perhaps seen some

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Speaker 1: of that. But I guess I'm not in a position

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Speaker 1: to make a broader uh you know you Marcus It

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Speaker 1: feels like a one of the fundmentals actually for many

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Speaker 1: of these names were still in place. To beat your

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Speaker 1: valuation is another part of that discussion. Well Power, great

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Speaker 1: to catch up with you as wonderful. Can you take

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Speaker 1: it back just say Tom's wrong. We don't please will

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Speaker 1: until we don't have to deal with this for another hour.

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Speaker 1: Good luck to dealing with that. Thanks a lot, will

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Speaker 1: Well Power bets tomorrow. Would you please bring in Mr

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Speaker 1: Dunovan sure, the UBS Wealth Management Global Chief Economist joining

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Speaker 1: us right here right now, Paul. It's greing to catch

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Speaker 1: up with you as always to get your thoughts. We

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Speaker 1: had some policy twigs from the Bank of Japan. Which

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Speaker 1: one stood out most for you? Well, to be honest,

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Speaker 1: something what stood out as the Bank of Japan has

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Speaker 1: done what it always does, which is basically nothing of

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Speaker 1: any real note. They're carrying on. Um, they're carrying on

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Speaker 1: with stimulus, and they're just tweaking it in a way

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Speaker 1: to make sure that they can carry on with stimulus.

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Speaker 1: And it now stands out alone amongst the central banks,

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Speaker 1: particularly in this week. UM in not dialing back on

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Speaker 1: it's it's stimulus at all. But you just continuing with

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Speaker 1: business as usual. So when people say this morning that

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Speaker 1: this looks like a stealth tapering or the beginning somewhat

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Speaker 1: a baby step towards normalization, what do you do, Paul

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Speaker 1: laugh Well, I mean, I think that there is a

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Speaker 1: desire in the market to look now for tightening everywhere.

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Speaker 1: But this wasn't it to be perfectly honest? Um, you know,

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Speaker 1: they're juggling around. They've they've come out with lower inflation

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Speaker 1: forecasts for the next couple of years. With that, you know,

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Speaker 1: this is not really consistent with the idea that somehow

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Speaker 1: secretly the Bank of Japan is trying to taper. Um.

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Speaker 1: You know, they would at least have made a pretense

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Speaker 1: of coming up with higher inflation. It's if this was

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Speaker 1: what they were trying to achieve. I looked, Paul. You know,

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Speaker 1: as I mentioned to Jennifer earlier, it's almost a Route

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Speaker 1: Goldberg construction. What is the downside to this strategy of

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Speaker 1: almost a band aid reflation? Um? I mean, I think

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Speaker 1: that the problems that still need to be addressed in

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Speaker 1: Japan is why does the Japanese consumer not have higher

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Speaker 1: inflation expectations? Why does the Japanese worker not have higher

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Speaker 1: wage expectations? And you can't say it's because we're a

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Speaker 1: deflation spiral because the Japanese consumer doesn't believe so in

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Speaker 1: the United States, is missing something. Okay, In the United

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Speaker 1: States in the nineteen twenties, we came out of the

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Speaker 1: thirties of depression and WED induced a credit bringe and

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Speaker 1: business investment, credit driven binge. And are we just saying

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Speaker 1: that they leverage up. But they can't do that, can they?

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00:24:02,320 --> 00:24:07,560
Speaker 1: Because they haven't cleared their previous debt. Right, That's true,

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00:24:07,680 --> 00:24:09,600
Speaker 1: although we've got to recognize, I mean a lot of

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00:24:09,640 --> 00:24:13,000
Speaker 1: the debt, the public sector debt that now exists in

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00:24:13,119 --> 00:24:16,640
Speaker 1: Japan is held privately. I mean, it's overwhelmingly held privately

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00:24:16,800 --> 00:24:20,119
Speaker 1: in Japan. So this is an intergenerational wealth transfer I

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Speaker 1: mean today isn't. Yeah, but their their debt to GDP

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00:24:24,520 --> 00:24:27,119
Speaker 1: ratio today is nothing compared to what it was in

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Speaker 1: the UK. For example. Um, you know, the UK had

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00:24:31,760 --> 00:24:35,680
Speaker 1: almost two debt to GDP ratio and the economy still

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00:24:35,720 --> 00:24:38,920
Speaker 1: managed to interest along quite nicely throughout the fifties and sixties.

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00:24:39,240 --> 00:24:41,680
Speaker 1: So that I think we focused too much on the debt.

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00:24:42,040 --> 00:24:43,920
Speaker 1: That's less of a problem. Well they need to do

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00:24:44,040 --> 00:24:47,760
Speaker 1: is be more productive in investment. You know, not build

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00:24:47,800 --> 00:24:51,720
Speaker 1: bridges nobody wants, or plaster the coastline with concrete, but

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00:24:51,760 --> 00:24:55,040
Speaker 1: actually use the government spending and use private sphondcause of

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00:24:55,080 --> 00:24:57,760
Speaker 1: spending in a more constructive way to move forward. Well,

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Speaker 1: we talked about this on the program yesterday, and it's

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00:25:00,280 --> 00:25:01,640
Speaker 1: great to have you with us because we can get

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00:25:01,680 --> 00:25:04,399
Speaker 1: your perspective on this topic. Whether you go to Japan

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00:25:04,520 --> 00:25:06,640
Speaker 1: or go to Switzerland for that matter, these are rich

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00:25:06,760 --> 00:25:09,800
Speaker 1: countries and you look around and everything seems to be okay,

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00:25:09,880 --> 00:25:13,720
Speaker 1: yet they have these emergency policy settings. Can you reconcile

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00:25:13,880 --> 00:25:16,320
Speaker 1: that with the sort of wealth of those particular nations

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00:25:16,440 --> 00:25:21,119
Speaker 1: pool Well, I mean there is this this issue generally

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00:25:21,760 --> 00:25:25,040
Speaker 1: in in economics and in financial markets, the focus on

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00:25:25,160 --> 00:25:28,240
Speaker 1: the dynamic, on the growth story, and that's something we

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00:25:28,359 --> 00:25:31,040
Speaker 1: may have to start to reconsider as we move into

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00:25:32,160 --> 00:25:36,080
Speaker 1: periods where populations stopped growing. Um, that's why I call

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00:25:36,160 --> 00:25:38,480
Speaker 1: the ferrari a year problem. You know, you buy a

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00:25:38,520 --> 00:25:40,640
Speaker 1: ferrari one year, you buy a ferrari, the next year,

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00:25:40,680 --> 00:25:43,120
Speaker 1: you buy a ferrari the third year. I'm describing Tom

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00:25:43,280 --> 00:25:50,560
Speaker 1: King's consumption patterns. You've basically got flat consumption of ferraris

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00:25:50,760 --> 00:25:52,760
Speaker 1: but you've still got a fleet of ferraris at the

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00:25:52,840 --> 00:25:55,760
Speaker 1: end of the day. So this distinction between wealth as

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00:25:55,760 --> 00:25:58,280
Speaker 1: the driver of living standards and growth is a problem.

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00:25:58,760 --> 00:26:01,040
Speaker 1: But I think that there isn't in Japan because if

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Speaker 1: you if you venture outside of Tokyo or maybe Osaka,

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00:26:04,200 --> 00:26:09,920
Speaker 1: then you do come across yeah, sign of economic not deprivation.

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00:26:10,000 --> 00:26:12,520
Speaker 1: That's putting it a bit strongly, but certainly a weaker

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00:26:12,600 --> 00:26:17,760
Speaker 1: reconized climate where living stands a problem, where there's papsonic despair.

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00:26:18,000 --> 00:26:19,720
Speaker 1: I'm going to do a chart, Paul off this and

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Speaker 1: it's not going to be in my fer I do

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00:26:21,520 --> 00:26:25,040
Speaker 1: like the ferraris. You know, John, the three car garage

476
00:26:25,119 --> 00:26:30,840
Speaker 1: thing off of Central Park doesn't work. You don't drive

477
00:26:30,960 --> 00:26:35,359
Speaker 1: you driffen. Yeah, but the limos are ferrari. So Paul,

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00:26:35,680 --> 00:26:38,400
Speaker 1: if I run per capita, I am f per capita

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00:26:38,800 --> 00:26:43,479
Speaker 1: nominal versus I am F per capita reel. Those are

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00:26:43,520 --> 00:26:47,080
Speaker 1: two different charts. I would suggest the spirit of a

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00:26:47,200 --> 00:26:51,200
Speaker 1: nation is shown, thank you, man Q in the nominal chart,

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00:26:51,520 --> 00:26:54,600
Speaker 1: which is a per capita GDP that's been flat since

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00:26:54,640 --> 00:27:00,159
Speaker 1: the nines. I mean, you know, going back to what

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00:27:00,640 --> 00:27:03,119
Speaker 1: I think we have to recognize in Japan is and

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00:27:03,760 --> 00:27:06,399
Speaker 1: I was working in Japan in the early nineties, and

486
00:27:07,119 --> 00:27:12,480
Speaker 1: you know, the the economy was massively inefficient in those days. Um.

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00:27:12,680 --> 00:27:14,320
Speaker 1: You know, you used to have to take out a

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00:27:14,359 --> 00:27:17,240
Speaker 1: second mortgage just to buy a plate of sushi in

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00:27:17,240 --> 00:27:20,480
Speaker 1: a restaurant in Tokyo, um. And so what has happened,

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00:27:20,520 --> 00:27:22,320
Speaker 1: I think, and this is a problem with the nominal,

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00:27:22,880 --> 00:27:26,199
Speaker 1: is that you have had an element of what an

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00:27:26,240 --> 00:27:32,000
Speaker 1: economist would call good disinflation or good deflation, where efficiencies

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00:27:32,000 --> 00:27:34,600
Speaker 1: have lowered the cost of things. So I accept that

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00:27:34,720 --> 00:27:38,160
Speaker 1: the nominal GDP is important, particularly for death. Nominal gdpeper

495
00:27:38,200 --> 00:27:40,960
Speaker 1: capital is important for debt, but the real GDP per

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00:27:41,040 --> 00:27:44,359
Speaker 1: capita um, I think, is capturing the fact that Japan

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00:27:44,600 --> 00:27:48,359
Speaker 1: has gone from being a very very inefficient country in

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00:27:48,440 --> 00:27:51,440
Speaker 1: a lot of areas as it affected the consumer back

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00:27:51,520 --> 00:27:54,040
Speaker 1: in the early nineties to one which is certainly more

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00:27:54,119 --> 00:27:57,159
Speaker 1: efficient than needs to be the case in John the

501
00:27:57,320 --> 00:28:00,240
Speaker 1: charter and real per capital Japan as a moon shot, yeah,

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00:28:00,280 --> 00:28:02,399
Speaker 1: I mean, it's a very constructive church, Paul. Before we

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00:28:02,480 --> 00:28:03,720
Speaker 1: lose you in the limited time we have, I do

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00:28:03,800 --> 00:28:05,600
Speaker 1: want to get your thoughts on a federal reserve. For me,

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00:28:05,760 --> 00:28:07,840
Speaker 1: this just sort of underlines how alone the FED is

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00:28:08,200 --> 00:28:10,840
Speaker 1: raising interest rates, with the b r J showing no

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00:28:11,080 --> 00:28:12,840
Speaker 1: sign that is going to hike anytime soon, in the

508
00:28:12,880 --> 00:28:16,120
Speaker 1: ECB doing something quite similar a number of months ago,

509
00:28:16,359 --> 00:28:20,640
Speaker 1: and Paul can carry on go and get alone. Well

510
00:28:20,800 --> 00:28:24,120
Speaker 1: it's not quite alone. There's the Bank of England of course,

511
00:28:24,359 --> 00:28:26,720
Speaker 1: um and you know we shouldn't ignore the Bank of England.

512
00:28:27,440 --> 00:28:31,000
Speaker 1: But I think that we've got some perhaps move away

513
00:28:31,880 --> 00:28:35,960
Speaker 1: from this idea that it's all about interest rates, because

514
00:28:35,960 --> 00:28:40,440
Speaker 1: of course central bank policy has always rested on three pillars. Monetary,

515
00:28:40,600 --> 00:28:43,800
Speaker 1: that's the interest rates, quantitative which is the money printing

516
00:28:43,840 --> 00:28:47,280
Speaker 1: or the bomb buying, and regular prey. And what we're

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00:28:47,360 --> 00:28:50,920
Speaker 1: now seeing is that after a long time where two

518
00:28:51,000 --> 00:28:53,080
Speaker 1: of the pillars were largely in abeyance, I mean, nobody

519
00:28:53,120 --> 00:28:56,400
Speaker 1: paid much attention to the quantitative or the regulatory policy,

520
00:28:56,600 --> 00:28:59,840
Speaker 1: they've now become more vibrant, more important. So I think

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00:29:00,000 --> 00:29:02,320
Speaker 1: you've got to recognize that it's not just about rates.

522
00:29:02,360 --> 00:29:06,280
Speaker 1: It's also about how are you balancing liquidity supply with

523
00:29:06,560 --> 00:29:09,400
Speaker 1: liquidity demand, And that's the other important thing. You know,

524
00:29:09,520 --> 00:29:12,800
Speaker 1: what is happening with liquidity demand as well? A central

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00:29:12,880 --> 00:29:17,320
Speaker 1: bank could keep rates unchanged, could keep quantitative policy unchanged

526
00:29:17,600 --> 00:29:21,560
Speaker 1: and yet still be tightening policy if liquidity demand was

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00:29:21,640 --> 00:29:25,120
Speaker 1: going up. And that's something that you know, It's it's

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00:29:25,160 --> 00:29:27,520
Speaker 1: not so easy to put on a Bloomberg chart, but

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00:29:27,680 --> 00:29:29,960
Speaker 1: that's something which I think is going to be increasingly important.

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00:29:30,080 --> 00:29:31,960
Speaker 1: Paul is so great to get your insight on a

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00:29:32,000 --> 00:29:34,040
Speaker 1: big week for central bank decisions. Pulled down of an

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00:29:34,080 --> 00:29:43,760
Speaker 1: UBS Wealth Management Global chief economists there. Thanks for listening

533
00:29:43,880 --> 00:29:48,400
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

534
00:29:48,440 --> 00:29:53,640
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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00:29:54,240 --> 00:29:57,560
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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00:29:57,600 --> 00:30:00,960
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio