Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah. So,
Speaker 1: the main event as we wake up here in New
Speaker 1: York the Bank of Japan, the Governor Harahiko Corona pushing
Speaker 1: through changes to his radical monetary stimulus program as the
Speaker 1: central bank repairs for a longer struggle to stoke inflation.
Speaker 1: DANAA joining us now JP Morgan Asset Management, fixed income
Speaker 1: portfolio manager joins us to discuss Dana. Great to have
Speaker 1: you with us on the program to get your thoughts
Speaker 1: on the b o J several tweaks to policy. What
Speaker 1: was the one that stood out for you? Um, I
Speaker 1: think without a doubt it's um the widening of the
Speaker 1: range um that they're willing to allow the tenure um
Speaker 1: JGUB fluctuate. So they kept the rate um the target
Speaker 1: for the tenure zero, but they moved the range from
Speaker 1: zero point one to zero point two, so allowing the
Speaker 1: possibility that if conditions allowed ten orbs could trade up
Speaker 1: to zero point two percent. I think that's quite significant
Speaker 1: in the grand scheme of things. Why is that significant
Speaker 1: zero point on a tenure Japanese government bond. Well, of first,
Speaker 1: it's a couple of things. Um. You know the message
Speaker 1: itself that came out of the Central Bank, wasn't that
Speaker 1: a bita message for the Japanese economy? Right? Um they
Speaker 1: talked about they reduced their inflation expectations for this year
Speaker 1: from one point three to one point one, but actually
Speaker 1: for their focus to urizon, they also lowered inflation expectations
Speaker 1: from one point eight to one point six, keeping in
Speaker 1: mind their target is too Um. It actually does raise
Speaker 1: the question of why do they feel they need to
Speaker 1: move this rate higher going forward? And the reason for
Speaker 1: that is because the local banks have been struggling with
Speaker 1: this low rate environment. It's been denting their profitability. So
Speaker 1: we're getting to a point now where quantitative easing and
Speaker 1: the cost of quantitative evening are coming home to roost
Speaker 1: um and that has implications for policymakers, especially a policymaker
Speaker 1: such of the Bunk of Japan where they have a
Speaker 1: price stability Monday, but they also have a financial stability Monday,
Speaker 1: So the Bank of Japan today also introduced this forward
Speaker 1: guidance added to the policy tweaks with a commitment to
Speaker 1: keep the current extremely low levels for short term interest
Speaker 1: right to makes low for an extended period of time.
Speaker 1: And I just wanted Diana whether that was cover. There's
Speaker 1: some people out there this morning questioning whether this is
Speaker 1: just a stealth beginning of a normalization of policy at
Speaker 1: the Bank of Japan. Do you subscribe to their theory
Speaker 1: A's or Diana. They the forward guidance UM mixic clear,
Speaker 1: especially linking it to the v E T hikes that
Speaker 1: are expected in October nine. So we still have a
Speaker 1: long period of time before we're talking at least for
Speaker 1: the next all months before we're discussing hikes, so it's
Speaker 1: not quite UM a hike in that extent um. I
Speaker 1: think they are committed because there are nowhere near the
Speaker 1: inflation target. I think what what this braises is the
Speaker 1: issue of if we're going to be having this slow
Speaker 1: glide higher in the tenure g g B, so if
Speaker 1: as conditions improved, it warrants them to let the tenure
Speaker 1: go higher, or if pressure on these banks remain, what
Speaker 1: are the implications for the rest of the world. I
Speaker 1: think that's the bigger question, right, um, what happens to
Speaker 1: US rates um? And we saw a bit of that
Speaker 1: a mini preview this week on and last week when
Speaker 1: the headlines first came out. Diana, more than anyone we
Speaker 1: speak to, you blend in portfolio management along with your
Speaker 1: wonderful trading experience reents. How what do you see in
Speaker 1: the trading market of foreign exchange that gives you any
Speaker 1: signal that we move from idiosyncratic stories like Turkey Argentina
Speaker 1: over to a more correlated currency e M issue. What
Speaker 1: do you look for from a trading desk that begins
Speaker 1: to show that things are going to coalesce into some
Speaker 1: form of fear um. So there are few things that
Speaker 1: we keep an eye on. Well, look at volatility implied
Speaker 1: volves UM. I think one thing that's been quite um
Speaker 1: interesting in the in the resent period of witness in
Speaker 1: particularly in the margin markets, is just how low volatilting
Speaker 1: other assets have been. So while that remains true, and
Speaker 1: while you know pop markets are able to treat idiosyncratic
Speaker 1: stories as that and volatiles doesn't pick up correlations, remain
Speaker 1: um quite stable. I think we remain in a situation
Speaker 1: where when you do see those sorts of wobbles, you
Speaker 1: should try and look for where the value is and buy.
Speaker 1: I think, you know, the bunk of Japan today was
Speaker 1: important because if we do start to get a sense
Speaker 1: that you're getting more synchronized normalization and that's not what
Speaker 1: we've seen at all. Um. If it's not just the
Speaker 1: FED doing all the work, If the bug is now
Speaker 1: coming out and saying we are looking at normalizing and
Speaker 1: the ECB likewise, um, then I think that could become
Speaker 1: a much bigger, bigger problem forst But you and I
Speaker 1: have studied the chapter and econ four oh two. It's
Speaker 1: called hope and it's still from President Obama, Hope and audacity.
Speaker 1: I'm looking at the chart I put out on Twitter
Speaker 1: for Bloomberg Radio Diana and its nominal g d P
Speaker 1: in Japan, and it is irrefutably in the last two
Speaker 1: and a half years rolled over. They can job bon
Speaker 1: it all they want. Do they see and escape from
Speaker 1: deflation and particular kill early? Do they see an escape
Speaker 1: from disinflation where they turn the vector around? Um? I think,
Speaker 1: and that's why I say the message from the bog
Speaker 1: to day was not a positive economic message. I think
Speaker 1: there is a lot of hope that goes in some
Speaker 1: of these projections, and the inflation numbers today that they
Speaker 1: put out still look extremely unrealistic in our view. Um.
Speaker 1: They released some paper on the inflation and what they're
Speaker 1: saying is UM this was on a separate paper saying
Speaker 1: inflation is low because of the usual suspect global competition. UM.
Speaker 1: You know, low inflation expectations from an aging population, preferring
Speaker 1: low inflation risk covers employees, etcetera. Some of these things
Speaker 1: are structural issues. They're not going to go away. UM.
Speaker 1: So I do agree with you. I think you know,
Speaker 1: Japan's issues are very very entrenched. Or is Europe's issues
Speaker 1: in trench? I mean, I get the idea. You know,
Speaker 1: we can all look at the charts inside Japan's its
Speaker 1: own unique experiment. But I'm taken by the idea on Pharaoh,
Speaker 1: the g d P came in a little light. In
Speaker 1: Europe and core inflation there is all of one point
Speaker 1: one percent. I mean Diana and helped John and I
Speaker 1: is this on the edge of Japan? I mean Europe
Speaker 1: basically on the edge of the challenges that Japan has.
Speaker 1: I don't think Europe is quite where Japan is. Um.
Speaker 1: I think you know, when you look at the ALCU
Speaker 1: cups in Europe, we still have a long way to come,
Speaker 1: um liabor market dynamics, There's still a lot of room
Speaker 1: for improvement there. Um. So I think the European story
Speaker 1: is slightly better in that respect, in terms of the
Speaker 1: long term prospects than what Japan faces. This has been
Speaker 1: wonderful Diana moment, thank you so much with JP. Morgan
Speaker 1: just thrilled to have her with us. Kim shown holds
Speaker 1: with us, then why you New York University? And of
Speaker 1: course he knows of dead meeting when he sees how
Speaker 1: did we get into this or we have dead in
Speaker 1: life meetings? Is this your fault? My fault? I hope not. Um. Look,
Speaker 1: I think that they've they developed this habit of only
Speaker 1: making policy changes when they have press conferences. The good
Speaker 1: news is that they're going to have a press conference
Speaker 1: with every meeting next year. So this this happened to
Speaker 1: get away from the stupidity. I think we're going to
Speaker 1: get away from it pretty quickly. They didn't used to
Speaker 1: have press conferences to begin with. Kim, that's right, So
Speaker 1: that gives you an idea of how much things have changed. Yeah, well,
Speaker 1: they also didn't used to provide their quarterly forecast or
Speaker 1: their quarterly projections. They've become far more transparent. That's all
Speaker 1: good news general. How does the Carne press conference vary
Speaker 1: from a druggy press conference. It's kind of the same.
Speaker 1: It's kind of the same. I don't think it's too different.
Speaker 1: It's quite orchestrated in the same way. They open up
Speaker 1: with a statement. They sort of reveal their forecast, but
Speaker 1: their bank aving that puts everything out all at once,
Speaker 1: so everyone's already got this stuff, so they're laguely repeating
Speaker 1: what we already know. And then the Q and A starts,
Speaker 1: and Q and A is often the interesting bit, kam.
Speaker 1: It does raise a question though they used to be
Speaker 1: able to do stuff without a news conference. They used
Speaker 1: to be able to do stuff without telling the market.
Speaker 1: They've done stuff, um and now in a needle of
Speaker 1: radical transparency, they seem to have a problem. Step in
Speaker 1: a way, How much of a problem is it. Well,
Speaker 1: I think it's pretty small. I think the transparency is
Speaker 1: a big plus. I mean, think of it this way.
Speaker 1: By being transparent, they condition us to anticipate their behavior. Um,
Speaker 1: we know sort of know the things that drive them,
Speaker 1: whether it's strong growth or rising inflation. We know what
Speaker 1: changes their policy. We know that when they're running a
Speaker 1: very accommodative policy, they're going to be uncomfortable with it.
Speaker 1: If the economy is already doing well, that they're going
Speaker 1: to want to get back to something like normal. Because
Speaker 1: we know that we can anticipate it and it shows
Speaker 1: up in market prices long before they act. Well, that's
Speaker 1: the problem when you are tightening, when you're easing, that's
Speaker 1: not a problem. That just amplifies the accommodation you're trying
Speaker 1: to offer to the markets. When you're tightening, the market
Speaker 1: can often run ahead of itself before the Bank of
Speaker 1: Japan has even done it a thin Can we actually
Speaker 1: all that to some extent with this mating? Is it
Speaker 1: not a problem at all? Do you think when they're
Speaker 1: tightening and they're trying to remove accommodation and the market
Speaker 1: just keeps running ahead of it. I think the problem
Speaker 1: is when they're not communicating clearly, and I think what
Speaker 1: you observe the central Bank in Japan is running this
Speaker 1: extraordinary policy of capping the long term bond yield. We
Speaker 1: haven't seen a central bank do that since the FED
Speaker 1: stopped doing it in so there's a reason why that's
Speaker 1: a that's a rare policy. It's extremely aggressive and it's
Speaker 1: difficult to escape. It creates lots of disturbance in markets,
Speaker 1: and you're seeing that. So I don't think it's such
Speaker 1: a bad thing. I think the problem is they need
Speaker 1: to communicate clearly. Would you be willing to say that
Speaker 1: the j GB market is no longer a market? I
Speaker 1: think it's it's heavily influenced by the behavior of the
Speaker 1: central bank. So if you're asking me, would but would
Speaker 1: yields rise if it weren't for central bank behavior? Of yes,
Speaker 1: they would, But I would say and what I mean this,
Speaker 1: I think your question is brilliant. Anybody with a memory
Speaker 1: of July in August has got to ask that question
Speaker 1: about the artificiality of the of the bond market, the
Speaker 1: note in the bill market in Japan. It's a huge deal,
Speaker 1: joone huge deal the way I mean, come on, there's
Speaker 1: no liquid in he there. Let me ask you a
Speaker 1: different question. When the Swiss Center interview the Swiss Central
Speaker 1: Bank captain the exchange rate against the Euro, would you
Speaker 1: say there was no longer a market for for Swiss frames.
Speaker 1: I never said that, but in sense that would be true,
Speaker 1: in the same sense that it's true because they're the
Speaker 1: center gang is fixing an exchange rate in that world, John,
Speaker 1: why do we feel like we're in a class and right, Well, no,
Speaker 1: I'm happy to be in a class. I'm happy to
Speaker 1: be in. But folks, this is what what Professor Showolds
Speaker 1: has done is moved from a class from Here's the
Speaker 1: interesting thing about the euro Swiss example. For a long
Speaker 1: long time people thought that could not be broken, and
Speaker 1: then it was broken, and a tally of the SMB
Speaker 1: try to bring back a euro Swiss floor. That have
Speaker 1: great difficulty doing so because the market wouldn't be can
Speaker 1: vins that it would be kept. Now I do wander
Speaker 1: with j g B S as they've shown that they
Speaker 1: can shift where they cap the yield on a Japanese tenure.
Speaker 1: I do wonder whether the market is going to test
Speaker 1: the Bank of Japan at some point, Kim, I think
Speaker 1: you're absolutely right, they will test, in fact, the whole
Speaker 1: One of the big problems with this approach fixing an
Speaker 1: exchange rate or fixing a bond yield is that once
Speaker 1: anybody suspects that you're going to change the policy, um,
Speaker 1: there will be lots of sales, and so the central
Speaker 1: bank would have to come in and buy. Look at
Speaker 1: the b o J last week, they had to come
Speaker 1: in and buy aggressively just because people feared they might
Speaker 1: change policy. Well, this has been way interesting. We're gonna
Speaker 1: do this on podcast Kim Schoen holds and this will
Speaker 1: go out on Apple Podcasts also added Spotify as well.
Speaker 1: Professor shown holds of course with New York at University.
Speaker 1: But it's been the story of the equity market here
Speaker 1: in the United States over the last three days. Then
Speaker 1: that's that Thursday, down one percent, down almost one and
Speaker 1: a half percent Friday, and close to more of the
Speaker 1: same in the yesterday's session, down by one point three
Speaker 1: nine percent. Your next trading queue comes from Apple. Can
Speaker 1: Apple lift some battered sentiment for technology stocks? Will Power
Speaker 1: joining us now? Bad? Senior research analyst Will as always,
Speaker 1: how many iPhones have you sold? Seems to be the
Speaker 1: first question we ask, what's your base case for later on? Well, look,
Speaker 1: we're looking for a solid quarter and good morning, thanks
Speaker 1: for having me. We're expecting a company to ship forty
Speaker 1: two million iPhones and the quarter in your right, that'll
Speaker 1: be the headline number as always. But I think you know,
Speaker 1: if even greater focus perhaps could be the services revenue
Speaker 1: than of course, you know, the next quarter guidance dos
Speaker 1: we head into this this next dollar fort iPhone cycle.
Speaker 1: I think that's going to be really important because many
Speaker 1: people are going to be looking for where the growth
Speaker 1: comes from. And I noticed that Loop Capital Luke Ventures
Speaker 1: were pointing out that the growth phase of the iPhone
Speaker 1: could well be coming to an end. Will do do
Speaker 1: you see that too? Well, look, there's no question that
Speaker 1: smartphone sales globally, you know, have half ended a week
Speaker 1: spot right, We're just not seeing much growth year of
Speaker 1: the year, um, you know, from a broader market perspective.
Speaker 1: But where apples don't generate growth, of course, was what
Speaker 1: that average selling price, which has been very impressive, particularly
Speaker 1: within you know, consumer electronics generally. So we're working for
Speaker 1: a close to a seven hundred dollar a SP which
Speaker 1: is up pretty snifficently year the years to candily, that
Speaker 1: is the bigger growth driver in terms of driving revenue.
Speaker 1: So I think it's these astute of the fact that
Speaker 1: while iPhone units are growing very slowly the new every years,
Speaker 1: the actual revenue growth is still growing double digits because
Speaker 1: of that SP. Well, let's be clear, head, the s
Speaker 1: P in the quarter a year ago the same quarter
Speaker 1: was six hundred and six dollars. Are you seriously saying
Speaker 1: we could get a one hundred dollar jump in average
Speaker 1: selling prices because that's phenomenal? Well, well, that's right, I
Speaker 1: mean I will just if you look back this past quarter,
Speaker 1: I think you are seven eight, So we're expecting that,
Speaker 1: you know, to drop you know, sequential ways we get
Speaker 1: you know, later into the cycle. But yes, we are
Speaker 1: looking for you know, significant you know, your your growth
Speaker 1: of that metric. Well, let's do a reverse some of
Speaker 1: the parts. Hundred eighty nine dollars per share, hundred and
Speaker 1: nine dollars per share rounded up, let's make it two
Speaker 1: hundred dollars a share. How much per share is cash? Uh,
Speaker 1: well today you've got close to thirty dollars, so two
Speaker 1: hundred down to one seventy. How much is services? What's
Speaker 1: the plug in value per share of services? Well, yeah,
Speaker 1: that's a good question. I mean, you know, what are
Speaker 1: your COPID against? Do you look at you know, the Facebook,
Speaker 1: the Netflix, is I mean, this is a business that
Speaker 1: you know, per perspective, this year will generate thirty five
Speaker 1: forty billion dollars of revenue. So you put up multiple
Speaker 1: matt uh, you know you you get to you know,
Speaker 1: the least perhaps a couple hundred billion dollars. Okay, a
Speaker 1: couple hundred billion dollars. I can't do the math. Plus
Speaker 1: it's radio. We don't do math on radio. What I
Speaker 1: can say, Will, is, if you ex cash and X services,
Speaker 1: you're basically buying the rest of the company for what
Speaker 1: Nothing's not the right phrase, but pretty close to nothing. Right, Well, yeah,
Speaker 1: you're not. You're not saying you know much over you know,
Speaker 1: doublity multiple for what's still is a very strong, you know,
Speaker 1: cast cerative. My point John in this exercise is we're
Speaker 1: all gonna die. Apple's gonna end, and we're all gonna die.
Speaker 1: Apparently not, you know, we're like and I think John,
Speaker 1: you and Full Disclosure UBS does some great work on
Speaker 1: this as well as Will Powers great work a baired
Speaker 1: The answer is the average selling prices lights out stunning
Speaker 1: could be guest, all all the gloom people relative to
Speaker 1: where we were a year ago. Well, the the services business.
Speaker 1: Are you saying essentially we're already there at target? Because
Speaker 1: the company wants services to be a fifty billion dollar business,
Speaker 1: and based on your estimates, will it sounds like we're
Speaker 1: already there. Well, we're heading the right direction certainly, right, So,
Speaker 1: I mean just to be to put a point on that,
Speaker 1: you know, for this year we'll be at seven billion
Speaker 1: uh in our forecast, you know, going to kind of
Speaker 1: mid forties and nineteens. Yes, we think we are tracking properly,
Speaker 1: you know. I do think there are other opportunities and
Speaker 1: services that they've fairly tapped into. I think one of
Speaker 1: those content we of course know they haven't rolled out,
Speaker 1: you know, a traditional live streaming service, and it's not
Speaker 1: it's less clear they're gonna do that. Do you think
Speaker 1: there's some opportunities for a Netflix like service perhaps wider
Speaker 1: to help supplement that as well? As you're move into
Speaker 1: nineteen and twenty, when you're on the conference call, what's
Speaker 1: like the McKenzie Boston consulting strategy of these guys. I mean,
Speaker 1: I get the we've gone through the financials. We all
Speaker 1: understand their minting money. They're gonna be a trillion dollars
Speaker 1: this it's them in Amazon and and the New York
Speaker 1: Stock Exchange Fang Index. John, It's it's Amazon, Apple, and
Speaker 1: Kitten the other one. Thirty three percent of the index
Speaker 1: is three stocks out of ten stocks. And that's great.
Speaker 1: But when you're on the conference call, what's they're McKenzie
Speaker 1: like big strategy? What's the big strategy of Mr Cook
Speaker 1: and his team? Well, I think it's increasingly and has been,
Speaker 1: you know, about the broader ecosystem, right, So it's solidifying
Speaker 1: your position and ensuring that you don't fall into the
Speaker 1: traditional consumer electronics trap. And I think they've you know,
Speaker 1: successfully navigated that today. But but it's on them to
Speaker 1: continue to you know, push that envelope, you know, further,
Speaker 1: to drive new ways to keep customers happy, to you know,
Speaker 1: to maintain that industry leading retention. And so I think
Speaker 1: it's really capitalizing on that installed base that you have. Well,
Speaker 1: you also cover Netflix, and Netflix took an absolute beating
Speaker 1: yesterday un seemingly no news. Well, what do you make
Speaker 1: of these moves and a magnitude of the moves we're
Speaker 1: seeing in technology stocks at the moment. Well, it's it's
Speaker 1: obviously part of a broader you know, down draft for
Speaker 1: you know, high growth momentum names and when you're seeing
Speaker 1: that across you know, the fast space two. As you
Speaker 1: look at some of our software, uh coverage, I think
Speaker 1: any of the you know the high single they double
Speaker 1: digit revenue, multiple names. You know we're under pressure. There
Speaker 1: was there was a high correlation there. But I guess
Speaker 1: the other thing fundamentally is, yeah, Netflix does have more
Speaker 1: competition coming. That's not new. But of course you had
Speaker 1: some rumors here the last couple of days on Walmart
Speaker 1: rowing outstore for a dreaming service. Tucks know if that
Speaker 1: had much of an impact or not, but you know
Speaker 1: those those could be contributors as well. John, you want
Speaker 1: the real life Netflix. The last three times I've gone
Speaker 1: to it, they haven't had the movie I want. Now. Granted,
Speaker 1: I'm looking for secure, stupid bow tie stuff, but but John,
Speaker 1: the history of It's the face of America exactly. I
Speaker 1: go to Amazon and often they have the movie. I
Speaker 1: go with history the audience. What was the movie? It
Speaker 1: was like a Lawrence of Arabia thing with camels. Okay, no, seriously,
Speaker 1: it was something there was some totally obscure thing about.
Speaker 1: Usually when I go to Netflix, they don't have the
Speaker 1: damn movie. I mean, you know that's lots of my
Speaker 1: You're right, am I right? What you mean, put an
Speaker 1: increasing focus on its original content quickly shows right, that's
Speaker 1: that's really worth leading in and what's drivings craping day?
Speaker 1: I'd agree that you know the movie some respects are lacking.
Speaker 1: Although you know, well that was a surveillance breaks it
Speaker 1: was with a serious please go ahead. If I asked
Speaker 1: the analyst what's happening with tech, they'll give me a
Speaker 1: very different answer to what I get from say a
Speaker 1: cross asset portfolio manager. At the moment where I think
Speaker 1: people are looking at the potential for a rotation again
Speaker 1: out of some of these growthy names and perhaps into value.
Speaker 1: What is that a rotation that you can see happening?
Speaker 1: Is it's something you have to think about. Well, look,
Speaker 1: I mean, Candy, yeah, I'm you know, I'm I'm more
Speaker 1: focused on the names I've been recoverage writer than a
Speaker 1: broader market call. And it certainly feels like for at
Speaker 1: least the last couple of days, you've perhaps seen some
Speaker 1: of that. But I guess I'm not in a position
Speaker 1: to make a broader uh you know you Marcus It
Speaker 1: feels like a one of the fundmentals actually for many
Speaker 1: of these names were still in place. To beat your
Speaker 1: valuation is another part of that discussion. Well Power, great
Speaker 1: to catch up with you as wonderful. Can you take
Speaker 1: it back just say Tom's wrong. We don't please will
Speaker 1: until we don't have to deal with this for another hour.
Speaker 1: Good luck to dealing with that. Thanks a lot, will
Speaker 1: Well Power bets tomorrow. Would you please bring in Mr
Speaker 1: Dunovan sure, the UBS Wealth Management Global Chief Economist joining
Speaker 1: us right here right now, Paul. It's greing to catch
Speaker 1: up with you as always to get your thoughts. We
Speaker 1: had some policy twigs from the Bank of Japan. Which
Speaker 1: one stood out most for you? Well, to be honest,
Speaker 1: something what stood out as the Bank of Japan has
Speaker 1: done what it always does, which is basically nothing of
Speaker 1: any real note. They're carrying on. Um, they're carrying on
Speaker 1: with stimulus, and they're just tweaking it in a way
Speaker 1: to make sure that they can carry on with stimulus.
Speaker 1: And it now stands out alone amongst the central banks,
Speaker 1: particularly in this week. UM in not dialing back on
Speaker 1: it's it's stimulus at all. But you just continuing with
Speaker 1: business as usual. So when people say this morning that
Speaker 1: this looks like a stealth tapering or the beginning somewhat
Speaker 1: a baby step towards normalization, what do you do, Paul
Speaker 1: laugh Well, I mean, I think that there is a
Speaker 1: desire in the market to look now for tightening everywhere.
Speaker 1: But this wasn't it to be perfectly honest? Um, you know,
Speaker 1: they're juggling around. They've they've come out with lower inflation
Speaker 1: forecasts for the next couple of years. With that, you know,
Speaker 1: this is not really consistent with the idea that somehow
Speaker 1: secretly the Bank of Japan is trying to taper. Um.
Speaker 1: You know, they would at least have made a pretense
Speaker 1: of coming up with higher inflation. It's if this was
Speaker 1: what they were trying to achieve. I looked, Paul. You know,
Speaker 1: as I mentioned to Jennifer earlier, it's almost a Route
Speaker 1: Goldberg construction. What is the downside to this strategy of
Speaker 1: almost a band aid reflation? Um? I mean, I think
Speaker 1: that the problems that still need to be addressed in
Speaker 1: Japan is why does the Japanese consumer not have higher
Speaker 1: inflation expectations? Why does the Japanese worker not have higher
Speaker 1: wage expectations? And you can't say it's because we're a
Speaker 1: deflation spiral because the Japanese consumer doesn't believe so in
Speaker 1: the United States, is missing something. Okay, In the United
Speaker 1: States in the nineteen twenties, we came out of the
Speaker 1: thirties of depression and WED induced a credit bringe and
Speaker 1: business investment, credit driven binge. And are we just saying
Speaker 1: that they leverage up. But they can't do that, can they?
Speaker 1: Because they haven't cleared their previous debt. Right, That's true,
Speaker 1: although we've got to recognize, I mean a lot of
Speaker 1: the debt, the public sector debt that now exists in
Speaker 1: Japan is held privately. I mean, it's overwhelmingly held privately
Speaker 1: in Japan. So this is an intergenerational wealth transfer I
Speaker 1: mean today isn't. Yeah, but their their debt to GDP
Speaker 1: ratio today is nothing compared to what it was in
Speaker 1: the UK. For example. Um, you know, the UK had
Speaker 1: almost two debt to GDP ratio and the economy still
Speaker 1: managed to interest along quite nicely throughout the fifties and sixties.
Speaker 1: So that I think we focused too much on the debt.
Speaker 1: That's less of a problem. Well they need to do
Speaker 1: is be more productive in investment. You know, not build
Speaker 1: bridges nobody wants, or plaster the coastline with concrete, but
Speaker 1: actually use the government spending and use private sphondcause of
Speaker 1: spending in a more constructive way to move forward. Well,
Speaker 1: we talked about this on the program yesterday, and it's
Speaker 1: great to have you with us because we can get
Speaker 1: your perspective on this topic. Whether you go to Japan
Speaker 1: or go to Switzerland for that matter, these are rich
Speaker 1: countries and you look around and everything seems to be okay,
Speaker 1: yet they have these emergency policy settings. Can you reconcile
Speaker 1: that with the sort of wealth of those particular nations
Speaker 1: pool Well, I mean there is this this issue generally
Speaker 1: in in economics and in financial markets, the focus on
Speaker 1: the dynamic, on the growth story, and that's something we
Speaker 1: may have to start to reconsider as we move into
Speaker 1: periods where populations stopped growing. Um, that's why I call
Speaker 1: the ferrari a year problem. You know, you buy a
Speaker 1: ferrari one year, you buy a ferrari, the next year,
Speaker 1: you buy a ferrari the third year. I'm describing Tom
Speaker 1: King's consumption patterns. You've basically got flat consumption of ferraris
Speaker 1: but you've still got a fleet of ferraris at the
Speaker 1: end of the day. So this distinction between wealth as
Speaker 1: the driver of living standards and growth is a problem.
Speaker 1: But I think that there isn't in Japan because if
Speaker 1: you if you venture outside of Tokyo or maybe Osaka,
Speaker 1: then you do come across yeah, sign of economic not deprivation.
Speaker 1: That's putting it a bit strongly, but certainly a weaker
Speaker 1: reconized climate where living stands a problem, where there's papsonic despair.
Speaker 1: I'm going to do a chart, Paul off this and
Speaker 1: it's not going to be in my fer I do
Speaker 1: like the ferraris. You know, John, the three car garage
Speaker 1: thing off of Central Park doesn't work. You don't drive
Speaker 1: you driffen. Yeah, but the limos are ferrari. So Paul,
Speaker 1: if I run per capita, I am f per capita
Speaker 1: nominal versus I am F per capita reel. Those are
Speaker 1: two different charts. I would suggest the spirit of a
Speaker 1: nation is shown, thank you, man Q in the nominal chart,
Speaker 1: which is a per capita GDP that's been flat since
Speaker 1: the nines. I mean, you know, going back to what
Speaker 1: I think we have to recognize in Japan is and
Speaker 1: I was working in Japan in the early nineties, and
Speaker 1: you know, the the economy was massively inefficient in those days. Um.
Speaker 1: You know, you used to have to take out a
Speaker 1: second mortgage just to buy a plate of sushi in
Speaker 1: a restaurant in Tokyo, um. And so what has happened,
Speaker 1: I think, and this is a problem with the nominal,
Speaker 1: is that you have had an element of what an
Speaker 1: economist would call good disinflation or good deflation, where efficiencies
Speaker 1: have lowered the cost of things. So I accept that
Speaker 1: the nominal GDP is important, particularly for death. Nominal gdpeper
Speaker 1: capital is important for debt, but the real GDP per
Speaker 1: capita um, I think, is capturing the fact that Japan
Speaker 1: has gone from being a very very inefficient country in
Speaker 1: a lot of areas as it affected the consumer back
Speaker 1: in the early nineties to one which is certainly more
Speaker 1: efficient than needs to be the case in John the
Speaker 1: charter and real per capital Japan as a moon shot, yeah,
Speaker 1: I mean, it's a very constructive church, Paul. Before we
Speaker 1: lose you in the limited time we have, I do
Speaker 1: want to get your thoughts on a federal reserve. For me,
Speaker 1: this just sort of underlines how alone the FED is
Speaker 1: raising interest rates, with the b r J showing no
Speaker 1: sign that is going to hike anytime soon, in the
Speaker 1: ECB doing something quite similar a number of months ago,
Speaker 1: and Paul can carry on go and get alone. Well
Speaker 1: it's not quite alone. There's the Bank of England of course,
Speaker 1: um and you know we shouldn't ignore the Bank of England.
Speaker 1: But I think that we've got some perhaps move away
Speaker 1: from this idea that it's all about interest rates, because
Speaker 1: of course central bank policy has always rested on three pillars. Monetary,
Speaker 1: that's the interest rates, quantitative which is the money printing
Speaker 1: or the bomb buying, and regular prey. And what we're
Speaker 1: now seeing is that after a long time where two
Speaker 1: of the pillars were largely in abeyance, I mean, nobody
Speaker 1: paid much attention to the quantitative or the regulatory policy,
Speaker 1: they've now become more vibrant, more important. So I think
Speaker 1: you've got to recognize that it's not just about rates.
Speaker 1: It's also about how are you balancing liquidity supply with
Speaker 1: liquidity demand, And that's the other important thing. You know,
Speaker 1: what is happening with liquidity demand as well? A central
Speaker 1: bank could keep rates unchanged, could keep quantitative policy unchanged
Speaker 1: and yet still be tightening policy if liquidity demand was
Speaker 1: going up. And that's something that you know, It's it's
Speaker 1: not so easy to put on a Bloomberg chart, but
Speaker 1: that's something which I think is going to be increasingly important.
Speaker 1: Paul is so great to get your insight on a
Speaker 1: big week for central bank decisions. Pulled down of an
Speaker 1: UBS Wealth Management Global chief economists there. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio