Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. On
Speaker 2: today's episode, we'll check in on US Japan relations as
Speaker 2: the Biden administration's time and office comes to a close.
Speaker 2: We'll be hearing in a moment from US Ambassador to Japan,
Speaker 2: Rama Manuel. But let's begin with markets in the States.
Speaker 2: On Friday, economist at some of the big banks in
Speaker 2: the States began reducing their forecast on the number of
Speaker 2: FED rate cuts after that blowout jobs report in December,
Speaker 2: the American economy added the most jobs since March, and
Speaker 2: the unemployment rate fell unexpectedly down to four point one percent.
Speaker 2: Joining us now is James Abata. He is managing director
Speaker 2: also the CIO at Center Asset Management. James joins us
Speaker 2: from here in New York. Thank you for taking the
Speaker 2: time to chat with us. Happy New Year to you.
Speaker 3: I've been near it to you, Doug, Thank you.
Speaker 2: I was struck by the fact that Bank of America,
Speaker 2: among the big banks, no longer sees any rate cuts
Speaker 2: this year. Do you think that's overdoing it just a bit?
Speaker 3: I think so. My belief is that the FED has
Speaker 3: been really following the market, and if you look at
Speaker 3: two year Treasury note yields at this point in time,
Speaker 3: there are about twenty five basis points lower than where
Speaker 3: the Fed funds rate is today. So our expectations that
Speaker 3: the Fed will move one more time twenty five basis
Speaker 3: points and then, assuming no other surprises in terms of information,
Speaker 3: see the Fed actually just stay at that four to
Speaker 3: twenty five level for the foreseeable future until they see
Speaker 3: Trump policies come to fruition. And what you really need
Speaker 3: to see is a continuation of the labor market remaining
Speaker 3: stable in this type of environment.
Speaker 2: I think it's fair to say that the equity market
Speaker 2: is looking at the longer end of the curve right now,
Speaker 2: and that tenure was up to four seventy five Friday.
Speaker 2: As we get closer to five percent, is there a
Speaker 2: question in your mind as to whether or not we
Speaker 2: could see maybe some corrective behavior on the part of
Speaker 2: the equity market.
Speaker 3: It's possible, but let's put everything in perspective. I mean,
Speaker 3: just because there's stronger growth in the services side of
Speaker 3: the economy, let's not forget that the ISM manufacturing index
Speaker 3: has been in negative territory for over a year now,
Speaker 3: so we have a dichotomy of fortunes between the manufacturing
Speaker 3: sectors and the services sector. And going back to your
Speaker 3: point with regard to long term bonds, I mean, the
Speaker 3: move that we've had in yields has not been driven
Speaker 3: by inflation per se, but really a normalization of the
Speaker 3: term premium or simply the spread between long and short
Speaker 3: term rates. I mean, eighty percent of the recent increase
Speaker 3: in treasure yield has come from those rising term premium.
Speaker 3: So I think despite the hysteria, I mean, the term
Speaker 3: premium right now is still below the normal one to
Speaker 3: two percent that existed from the nineteen nineties the global
Speaker 3: financial crisis. So I think when you look at other areas,
Speaker 3: you know, credit risk premiums and equity risk premiums are low.
Speaker 3: But at this stage, you know, markets are priced for perfection,
Speaker 3: both in credit and equities. But I don't think the
Speaker 3: long term bond market, treasury market that is, is enough
Speaker 3: yet to basically crystallize any type of significant ramifications on
Speaker 3: the order of, let's say, in nineteen eighty seven crashes.
Speaker 3: Things along those lines.
Speaker 2: We're going to be hearing from some of the big
Speaker 2: banks this week. They'll report earnings. City Group Goldman Sacks
Speaker 2: on the list. How do you think the yield curve
Speaker 2: in the way that it's been adjusted lately is going
Speaker 2: to impact the results of the big banks?
Speaker 3: Well, that's the point. I mean, obviously, it's the big
Speaker 3: move that we've had in this term premium rising has
Speaker 3: only occurred over the last several weeks. But when you
Speaker 3: look out further, I would expect that the net interest
Speaker 3: margin expectations of forecasts many of these major banks is
Speaker 3: actually going to be quite healthy, and that's going to
Speaker 3: go long way to type, let's say, offsetting the continuing
Speaker 3: credit problems that we're seeing in the commercial real estate
Speaker 3: and some of the emerging issues which are starting to
Speaker 3: bubble up in certain segments of the consumers. So overall,
Speaker 3: when you look at where we are this I think
Speaker 3: Chairman Powell has done and to be fair to Chairman Powell,
Speaker 3: I think he's done a reasonably good job, and he's
Speaker 3: targeting back to getting monetary policy to the levels where
Speaker 3: it was back in the nineteen nineties with stable inflation,
Speaker 3: stable term premiums. And you know, more importantly, you know
Speaker 3: with regard to you know, the unknowns with regard to
Speaker 3: tariffs and other Trump policies. You know, the way the
Speaker 3: executive branch is now, I mean, the executive branch has
Speaker 3: unilateral authority to implement tariffs. This is not something that
Speaker 3: needs to go to Congress. So he has to be
Speaker 3: aware of, you know, shifting policies that can come out
Speaker 3: of the Trump administration in any day.
Speaker 2: So if they come to fruition, is it more likely
Speaker 2: that the net impact is inflationary.
Speaker 3: We have to get out of the mindset where growth
Speaker 3: automatically equals inflation. And you know, the argument about whether
Speaker 3: or not, you know, tariffs are inflationary, you know, is
Speaker 3: not yet rooted in economic science to a certain degree.
Speaker 3: And I think, you know, one of the key things
Speaker 3: that we have to look at is potentially the contradictions
Speaker 3: that we're going to see. You know, I think one
Speaker 3: of the things that we always have to be aware
Speaker 3: of is, you know, if Trump is genuine in the
Speaker 3: sense that he wants to have labor reclaim a share
Speaker 3: of economic wealth like he did with just siding with
Speaker 3: the recent Long Shorman's union strike because of automation, Obviously
Speaker 3: that's bad for corporate profits and it has a negative
Speaker 3: impact on inflation. And you know, from that perspective. You
Speaker 3: know what we have to really look at, I would
Speaker 3: say in terms of a guidepost in terms of inflation
Speaker 3: and markets and other things. I think the key thing
Speaker 3: to watch is Trump's relationship with the nominated Treasury Secretary
Speaker 3: Scott Bessen. He's a very thoughtful conservative and not impulsey,
Speaker 3: and if that's a phrase, I think that's bad news
Speaker 3: for financial assets and stock markets in general.
Speaker 2: So we had some news over the weekend. The deadline
Speaker 2: for Nipon Steel to abandon its bid for usteal has
Speaker 2: been extended scifius. The Committee on Foreign Investment in the
Speaker 2: US has given the companies now until June eighteenth. And
Speaker 2: then I saw a report in the NIKE indicating that
Speaker 2: Prime Minister Ishiba is planning to visit the US in
Speaker 2: the first half of February to meet with then President
Speaker 2: Trump and they may end up discussing this Nipon bid
Speaker 2: for US steal. Is it too soon to talk about
Speaker 2: the possibility that this dal may get done?
Speaker 3: I actually, after I saw that news, crystallized in my
Speaker 3: mind that the deal indeed will get done. Japan is
Speaker 3: just too important of an ally of the United States. Furthermore,
Speaker 3: the deal makes a lot of sense. The only other
Speaker 3: alternative is either to just let us Steal continue to
Speaker 3: operate and don't have the capacity to modernize many of
Speaker 3: their last furnace mills. The other is in'saction with Cleveland Cliffs,
Speaker 3: with would basically give in essence and monopoly to old
Speaker 3: school steelmaking in the United States to one company who
Speaker 3: doesn't really have the same financial resources and the commitment
Speaker 3: to capital investment that Nipon does. So I think at
Speaker 3: some point we're going to see this deal get done.
Speaker 3: It's obviously been enmeshed in the political fight that we've
Speaker 3: seen between President Biden and President elect Trump, both of
Speaker 3: them wanting to obviously side with Union against the foreign purchaser.
Speaker 3: But at the end of the day, the deal makes sense,
Speaker 3: and Japan is too important of an ally, and I
Speaker 3: think the deal will get done.
Speaker 2: We were talking a moment ago about tariffs, obviously many
Speaker 2: targeting China, and then there's this issue with TikTok. The
Speaker 2: app as we know, is said to be shut down
Speaker 2: in the US next week. Last Friday, the Supreme Court
Speaker 2: seemed to signal it is unlikely to grant a reprieve
Speaker 2: to TikTok from that US law banning the app unless
Speaker 2: it is divested on the part of its Chinese owner
Speaker 2: Bike Dance. What do you think the road ahead is
Speaker 2: for US China relations?
Speaker 3: You know, I'm not sure, and you know, the reality
Speaker 3: is the majority owner of the controlling owner of TikTok
Speaker 3: is not a Communist Party member. I don't really have
Speaker 3: a strong opinion on how this is going to shake out.
Speaker 3: I think, you know, if it was up to me,
Speaker 3: and I'm an old person, maybe just put a simple
Speaker 3: warning that if you want to become an imbecile watching
Speaker 3: TikTok videos all day, God bless you. And that's enough
Speaker 3: of a warning for people to, you know, to avoid
Speaker 3: TikTok in itself.
Speaker 2: What about in terms of the impact on US China relations.
Speaker 2: I mean, obviously we were talking about the tear of
Speaker 2: some moment ago. Do you think that this is going
Speaker 2: to be four years now, as Trump comes into office
Speaker 2: of further decoupling between these two powerhouses.
Speaker 3: It's it's going to be interesting because what we have
Speaker 3: to think about, right is that with regard to the
Speaker 3: point that we've raised before, with regard to labor reclaiming
Speaker 3: greater share in investment back into the United States, I mean,
Speaker 3: the reason why we've had you always have to go
Speaker 3: back to this. The reason why we've had an unprecedented
Speaker 3: bull market, you know, since the nineteen nineties, and you know, really,
Speaker 3: you know significantly since China's ascension into the WTO is
Speaker 3: the fact that labor share of income in the United
Speaker 3: States has declined significantly, as have tax rates as well
Speaker 3: as interest costs. So you know, this is the real
Speaker 3: key with regard to contradictions that we'll see you out
Speaker 3: of President Trump because you know it's wealth no. I mean,
Speaker 3: he measures the stock market as his barometer of success
Speaker 3: and to the extent that you know inbound investment, higher
Speaker 3: labor costs are not good for stock prices per se.
Speaker 3: I think that's going to basically be a governor on
Speaker 3: how aggressive he will be with regard to tariffs in
Speaker 3: China and recognition that again, you know, he needs also
Speaker 3: inbound investment. I think will likely see some type of
Speaker 3: middle akin to what happened with Japan in the mid
Speaker 3: nineteen eighties, whereby you'll see more inbound investment in the
Speaker 3: United States by Chinese companies to compliment not the substitute,
Speaker 3: but to compliment some of their own export activities.
Speaker 2: Great insights. James, thank you so much for being with us.
Speaker 2: James Abonte, Managing Director ce IO at Center Asset Management,
Speaker 2: joining us here on the Daybreak Asia Podcast. Welcome back
Speaker 2: to the Daybreak Asia Podcast. I'm Doug Prisner, the US
Speaker 2: Ambassador to Japan. Ram Emanuel will be stepping down from
Speaker 2: his post and he will return to the US January fourteenth,
Speaker 2: as his time in Japan comes to a close. He
Speaker 2: joined Bloomberg to reflect on the current state of relations
Speaker 2: between Washington and Tokyo. Here's Emmanuel in conversation with Bloombergh,
Speaker 2: sherry On and Heidi Stroud Watts.
Speaker 1: So, how are you feeling?
Speaker 4: A sense of accomplishment also a sense of kind of
Speaker 4: you know, it's been three years almost to the day.
Speaker 4: We've got a tremendous amount of setting what I believe
Speaker 4: that the relationship has been reinvigorated, re energized and reformed
Speaker 4: and better prepared for the future. And you hand your
Speaker 4: paton off. But at the same as I jokingly say, well,
Speaker 4: it's been three years for the Japanese, it's felt like thirty.
Speaker 1: And you've actually said that, you said at the start
Speaker 1: of your tenure that the next three years would be
Speaker 1: very consequential for the next thirty. Right, how much has
Speaker 1: been achieved and how much more could have been achieved?
Speaker 1: Are there any areas that you would have lied to
Speaker 1: have done more well?
Speaker 4: I mean you hand off the baton. It's not like
Speaker 4: you run a race and you hit an equilimbrium and
Speaker 4: there's a finish line. The question is where was the
Speaker 4: relationship beforehand? Where is it when you walk off exit
Speaker 4: to the stage. And I think as a totality, whether
Speaker 4: you look at diplomatic front the two trilts that we've
Speaker 4: created with Japan, the United States, Korea, Japan, the United
Speaker 4: States and the Philippines, you look at the security arrangement,
Speaker 4: the cooperation, the type of exercises we do, and integration
Speaker 4: in our forces. Everything has been re energized and reinmigrated
Speaker 4: and better prepared to reflect a credibility of deterrence to
Speaker 4: China and to North Korea. Taking one example, last week,
Speaker 4: when North Korea shot off another ICBM, both the Republic
Speaker 4: of Korea, the United States, and Japan were sharing intel
Speaker 4: in real time, just one manifestation of a reflection of
Speaker 4: that didn't exist three years ago. In the same way
Speaker 4: that the President of the United States and the Philippine
Speaker 4: president and the Japanese Prime Minister had a conference call
Speaker 4: and discussing maritime issues in the South China. See, that
Speaker 4: kind of coordination didn't exist. And one of the things
Speaker 4: I think also changed in a subtle point. A lot
Speaker 4: of times when you think of the terms, you think
Speaker 4: about battleships planes having a trilateral with Korea, the United States,
Speaker 4: and Japan, or one with the Philippines, Japan and the
Speaker 4: United States. That also is de terms because China's whole
Speaker 4: strategy is to isolate X country through our multilateral strategy
Speaker 4: and our lattice work. China is the isolated party in
Speaker 4: their own backyard.
Speaker 1: We have seen the first administration of President Trump though,
Speaker 1: how he engaged with these rogue nations, including North Koreas
Speaker 1: King Youngman, is that going to be a threat to
Speaker 1: everything that's been built so far?
Speaker 4: Well, you know, I try to I hate using sports menaphors,
Speaker 4: but as what I let me try this one is
Speaker 4: that the Indo Pacific is a home game for China,
Speaker 4: it's an away game for the United States. You want
Speaker 4: to level the playing field a little of the competition
Speaker 4: you have allies. The one thing China doesn't have anywhere
Speaker 4: in the world, and specifically in their own backyard Australia, Japan, Singapore, Korea, Philippines, India.
Speaker 4: They do not want to untether China. They want the
Speaker 4: United States anchored here. That's a huge strategic advantage for
Speaker 4: the United States. We can project our deterrens to credibility,
Speaker 4: so China doesn't try to do something either through economic coercion,
Speaker 4: political coercion, or military coercion.
Speaker 5: Ambassora, you mentioned a number of countries that have vested
Speaker 5: interests in this right. Do you think for countries like
Speaker 5: Australia and some of the other I guess middle nations
Speaker 5: around the region, is the alliance a sort of counter
Speaker 5: alliance strong enough or do you think there needs to
Speaker 5: be sort of more of an effort to work cohesively.
Speaker 4: Well, you know, let me say this on the question
Speaker 4: is you don't hit an equilibrium and that's it. It's
Speaker 4: a work in project. You're always improving, you're always strengthening.
Speaker 4: You have reciprocal agreements now between Japan and Australia that
Speaker 4: didn't exist before. You have twelve coastcardships from Japan with
Speaker 4: the Philippines another five. I think or six are on delivery.
Speaker 4: You also have radar. You're constantly moving and improving your
Speaker 4: deterrence and the credibility behind your deterrence and the effectiveness
Speaker 4: on there. I do think when China began its wolf
Speaker 4: warrior strategy on the diplomatic front and it's economic coercion
Speaker 4: on the economic framework, all the countries in the region
Speaker 4: realized and woke up to the fact that this was
Speaker 4: not a benign China. This was a China that was
Speaker 4: determined to crush their own sovereignty. That has helped in
Speaker 4: the United States under President Biden, has effectively used that
Speaker 4: threat to organize the region of like minded countries that
Speaker 4: believe in the same set of principles to coordinate both
Speaker 4: their security front, economic front, and their diplomatic slash political front.
Speaker 4: And that's been done at an enhanced level and now
Speaker 4: in China's own backyard, and they realize this. They are
Speaker 4: the isolated party because of the mistakes they have made
Speaker 4: in the policies they've adopted that have woken everybody up.
Speaker 4: This is not a China that talks about win win.
Speaker 4: The only thing they know is they win, you lose.
Speaker 1: The Yui Shiba Cabinet we have a whole different political
Speaker 1: landscape here in Japan as well. They're going to be
Speaker 1: meeting with the new president, incoming President Trump. How do
Speaker 1: you expect that relationship to shape up?
Speaker 4: I mean the last person to ask that question.
Speaker 1: I mean, I'm really curious about what sort of chemistry
Speaker 1: we can expect. We saw the whole chemistry with a
Speaker 1: former Prime Minister Abbe and President Trump, and you have
Speaker 1: seen how governments here officials interacting Japan. Do you expect that?
Speaker 1: And I guess a follow up to that is would
Speaker 1: that have positive outcomes for the now delayed US seal
Speaker 1: NIP and steel business relationship.
Speaker 4: Here's what I think is it's not wrong to face
Speaker 4: look at the two heads of state. As I saw firsthand,
Speaker 4: President Biden and Prime Minister Kaushida have an incredibly warm
Speaker 4: relationship that helped push both leaders farther than were their
Speaker 4: comfort zones. That said, one of the things that people
Speaker 4: lose sight of in the question, Japan has huge support
Speaker 4: on the Hill Democrats and Republicans. That and having been
Speaker 4: a congressman, haven't been a chief of staff that has
Speaker 4: an impact on the construction of a national security visa
Speaker 4: via country has a state too, but do not lose sight.
Speaker 4: There's two countries that have huge bipartisan consensus, China on
Speaker 4: one side, Japan on the other, and that will have
Speaker 4: a big impact because by just one reference, in our
Speaker 4: last three years, there have been one hun and eighty
Speaker 4: plus members of Congress, two speakers have come through Japan.
Speaker 4: And then second, you've had thirty governors. You've had an immense,
Speaker 4: immense direct investment from Japan into the United States as
Speaker 4: well as the United States in here. So you have
Speaker 4: thirty governors who have a vested economic interest in good
Speaker 4: relationship with Japan, and you have one hundred and eighty
Speaker 4: members both Housing Seidate D and R who also want
Speaker 4: to see our ally fully integrated into our strategy.
Speaker 1: We're very more encouraging towards the Niplancio used still deal.
Speaker 4: Well, look, here's the one thing I remarked to everybody,
Speaker 4: and I think it's really kind of important. One is
Speaker 4: the relationship is much deeper than a single business transaction.
Speaker 4: Five years ago, Japan had the same words around to Shiba. Second,
Speaker 4: the United States four months ago awarded a Japanese company
Speaker 4: twenty billion dollar contract to replace all the cranes at
Speaker 4: our ports. And get the Chinese cranes out. Second. Japan
Speaker 4: is the only country that produces also a co production
Speaker 4: on the Patriot Pac three. They've also a series of
Speaker 4: other weapons systems. Nothing speaks more to trusted ally than
Speaker 4: those examples. So is there a single economic transaction Tshiba
Speaker 4: five years ago? Relationship is still strong. You look at
Speaker 4: the nip on US deal today. The relationship is more
Speaker 4: complex and deeper in the roots and friendship than just
Speaker 4: a single economic transaction.
Speaker 1: Ambassador, it was really great speaking to you, and thank
Speaker 1: you very much for always joining us and always being
Speaker 1: open to conversations with us. US Ambassador to Japan Ram Amamo.
Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 2: Asia Edition podcast. Each weekday we look at the story
Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 2: or anywhere else you listen. Join us again tomorrow for
Speaker 2: insight on the market moves from Hong Kong to Singapore
Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg