WEBVTT - Surveillance: BOJ Jolt with BNY Mellon's Yu 0:00:05.080 --> 0:00:07.200 This is the Bloomberg Surveillance Podcast. 0:00:07.680 --> 0:00:08.280 I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Brahmwoid's along with Tom Keen and Jonathan Ferrell. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:19.480 finance and investment. Subscribe to Bloomberg Surveillance un demand on Apple, 0:00:19.600 --> 0:00:22.840 Spotify and anywhere you get your podcasts, and always on 0:00:22.880 --> 0:00:26.440 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App. 0:00:26.880 --> 0:00:29.320 Joining us now Jeff you Seney, market strategist at bm 0:00:29.400 --> 0:00:31.040 Y Mellon to kick off the program with us. 0:00:31.120 --> 0:00:32.320 Jeff, great to have you with us, Sir. 0:00:32.640 --> 0:00:34.479 Your reaction, I guess, first of all, to what we 0:00:34.520 --> 0:00:36.680 saw from the BOJ what is the new line in 0:00:36.720 --> 0:00:39.440 the sand for a Japanese ten year government bond yield? 0:00:40.479 --> 0:00:43.960 Well, if you look at that slide that the BOJ announced, 0:00:43.960 --> 0:00:46.600 you know there's this hazy part between a point five 0:00:47.360 --> 0:00:50.040 point and a one percent, right, So I think that's 0:00:50.040 --> 0:00:52.880 a boj to telling you there is no actual line 0:00:52.880 --> 0:00:55.160 in the sand. The strategic ambiguity, I guess you know, 0:00:55.200 --> 0:00:57.600 there's some components of that, but taking a step back, 0:00:57.600 --> 0:01:00.280 you know, if it's tidying and financial gage and in 0:01:00.280 --> 0:01:03.320 financial conditions that you're trying to achieve, then generating volatility 0:01:03.320 --> 0:01:05.680 and FX markets which Governor Rada talked about, and in 0:01:05.720 --> 0:01:06.920 fixed income markets. 0:01:07.080 --> 0:01:07.840 Then job done. 0:01:07.959 --> 0:01:09.920 Every BOJ meeting is probably going to be live upp 0:01:09.920 --> 0:01:12.559 ahead and that marks a change compared to the previous decade. 0:01:12.680 --> 0:01:14.720 So Jeff, you actually believe that maybe this opens the 0:01:14.720 --> 0:01:17.640 door to taking a step towards raising interest rates next year. 0:01:18.840 --> 0:01:22.000 I think everything is on the table. So Governor Raider 0:01:22.160 --> 0:01:26.640 himself admitted April the outlook and perhaps a bit too 0:01:26.720 --> 0:01:29.040 much on the benign side, and there's a sementy basis 0:01:29.080 --> 0:01:33.120 point increase and this year's inflation outlook hence a tweak. 0:01:33.400 --> 0:01:37.200 Now you cannot phrase or you cannot really characterize such 0:01:37.200 --> 0:01:40.200 a tweak in response to a higher inflation print or 0:01:40.280 --> 0:01:43.560 inflation forecast as an easing step, right, So I think 0:01:43.560 --> 0:01:45.760 the market can see that. But again it's about the 0:01:45.800 --> 0:01:49.080 next step that we know. The trajectory is towards tightening 0:01:49.120 --> 0:01:53.480 and comprehensive conditions. The phrase that they're using and markets 0:01:53.640 --> 0:01:57.040 yen next three markets and in particular jgb's global fixed 0:01:57.080 --> 0:01:58.560 income will need to react accordingly. 0:01:58.800 --> 0:02:01.440 Has the reaction in global markets we did see a 0:02:01.520 --> 0:02:04.800 sell off in sovereign developed market bonds. We also saw 0:02:04.920 --> 0:02:08.200 sell off and risk assets. Is that indicative of what 0:02:08.240 --> 0:02:11.040 could potentially happen that it will be orderly but it 0:02:11.080 --> 0:02:13.959 will be disruptive or do we not have any sense 0:02:14.000 --> 0:02:15.639 at all of what the response will be to true 0:02:15.720 --> 0:02:18.800 yield curve control abandonment given that we've just heard whispers 0:02:18.840 --> 0:02:21.919 and unclear guidance all of the above. 0:02:22.240 --> 0:02:24.480 Really, but what we do know is you know those 0:02:24.520 --> 0:02:26.880 and figures out you mentioned earlier, So US ten years, 0:02:26.880 --> 0:02:30.440 and you're moving much more than what the JGB has done. 0:02:30.639 --> 0:02:34.160 One basis point in the US in bunds is not 0:02:34.320 --> 0:02:37.160 equivalent to one basis point in JGB ten years. 0:02:37.200 --> 0:02:38.040 Let's make that clear. 0:02:38.320 --> 0:02:41.200 So the more that it's going to move, then if 0:02:41.240 --> 0:02:43.639 you assume the process is going to be linear, then 0:02:43.639 --> 0:02:46.320 the stronger the reaction is going to be. Having said that, 0:02:46.440 --> 0:02:49.360 Japanese investors they've been retreating from Europe for some time now, 0:02:49.360 --> 0:02:51.919 they've been retreating from the US on a relative basis. 0:02:52.000 --> 0:02:55.919 China has been retreating as well. So looking for new purchasers, 0:02:56.040 --> 0:02:58.600 you know, for the Europe, for the Eurozone bond market, 0:02:58.600 --> 0:03:01.359 and for the US treasury market. I think that has 0:03:01.400 --> 0:03:03.680 been going on for some time now, So in that 0:03:03.720 --> 0:03:06.920 context shouldn't generate too much volatility of Japan steps back 0:03:06.960 --> 0:03:07.399 a bit more. 0:03:07.480 --> 0:03:09.480 Okay. So in other words, even if we do get 0:03:09.480 --> 0:03:12.519 full normalization, you could see it happen in an orderly 0:03:12.560 --> 0:03:16.080 fashion that won't necessarily present a tail risk or some 0:03:16.120 --> 0:03:19.160 sort of headwind to sovereign binds globally. 0:03:20.160 --> 0:03:23.440 I think as long as the normalization itself from Japan 0:03:23.480 --> 0:03:26.640 from Tokyo is going to be more orderly than the 0:03:26.720 --> 0:03:29.959 answer is yes. If it's going to be sudden, stepwise changes, 0:03:30.040 --> 0:03:32.440 large discrete changes of twenty five to fifty basis points 0:03:32.440 --> 0:03:34.480 something like that, then it's a different story. So it 0:03:34.480 --> 0:03:35.320 takes two to tango. 0:03:35.480 --> 0:03:37.080 We have to go beyond wrapping up the last twenty 0:03:37.120 --> 0:03:39.200 four hours. We've got to wrap up the last twelve months. 0:03:39.680 --> 0:03:42.240 For the last decade, we've had two anchors around the 0:03:42.280 --> 0:03:46.080 neck of the global bond market, the ECB the BOJ 0:03:46.800 --> 0:03:50.120 byan government bond yields. Seeing what's been happening in Germany 0:03:50.120 --> 0:03:53.160 for a long long time, Jeff, those anchors, those anchors 0:03:53.160 --> 0:03:56.040 are away slowly being lifted over in Japan. So I 0:03:56.080 --> 0:03:58.320 need to think about a new flaw in a global 0:03:58.360 --> 0:03:59.840 bond market when it comes to yields. 0:04:00.040 --> 0:04:01.080 Yeah, how are you thinking about that? 0:04:01.160 --> 0:04:01.320 Now? 0:04:02.360 --> 0:04:04.760 Well, two things there. Firstly, you said the word yourself. 0:04:04.760 --> 0:04:07.080 It's going to be slowly lifted, right, So they'll make 0:04:07.120 --> 0:04:09.400 sure that it's not going to be volatile process, you know, 0:04:09.480 --> 0:04:13.560 as excess reserves that aspect of the central banks balance 0:04:13.600 --> 0:04:16.000 sheet and continues them to come off. They'll be monitoring 0:04:16.040 --> 0:04:18.120 that very very quickly. But the second part of it 0:04:18.160 --> 0:04:19.640 is going to be data. And here I think the 0:04:19.640 --> 0:04:22.560 emphasis is more on the ECB or anything. Imagine previous environments. 0:04:22.560 --> 0:04:24.920 If we are general manufacturing pmis, you're on the thirty 0:04:24.960 --> 0:04:27.719 handle DCB, we'd be talking about easing, right. So now 0:04:27.720 --> 0:04:30.760 that's where the direction of travel is. So I think 0:04:30.760 --> 0:04:32.200 we have to think about, you know, who's going to 0:04:32.200 --> 0:04:34.680 stop this ban sheet online process. I think that will 0:04:34.680 --> 0:04:37.360 help to serve them as an offset. But overall, at 0:04:37.360 --> 0:04:39.479 this point look in all the central banks. I think 0:04:39.680 --> 0:04:41.440 that markets can absorb this for now. 0:04:41.600 --> 0:04:43.479 Well, but Jeff, just to push us a little further 0:04:43.720 --> 0:04:46.200 as we look here, question whether we're seeing the end 0:04:46.200 --> 0:04:48.200 of the rate hiking cycles for both the FED and 0:04:48.240 --> 0:04:51.360 the ECB, which some people believe is the case. We're 0:04:51.400 --> 0:04:54.800 talking about the potential abandonment of yield curve control. Where 0:04:54.839 --> 0:04:57.400 are we going to head if yields do come down? 0:04:57.720 --> 0:05:00.560 What is to John's point, the floor that we hit 0:05:00.640 --> 0:05:02.920 that seems like the new normal at a time when 0:05:02.960 --> 0:05:06.400 some of the more unconventional policies are no longer in effect. 0:05:07.120 --> 0:05:09.240 Well, if you really want a normal number, my rule 0:05:09.279 --> 0:05:12.880 of thumb is always whereas potential growth on a nominal basis. 0:05:13.000 --> 0:05:14.520 So in the US, is it on the four handle, 0:05:14.560 --> 0:05:16.960 five handle? In the Eurozone, if growth isn't close to 0:05:17.000 --> 0:05:19.279 flat your inflation target term two percent? Is it on 0:05:19.320 --> 0:05:21.560 the two in the two to three range? Japan probably 0:05:21.600 --> 0:05:24.520 slightly lower. So that's where longer term, the Wiselian rate, 0:05:24.600 --> 0:05:26.760 you know, so to speak, that really starts to come in. 0:05:26.920 --> 0:05:29.000 But to get there, we need to get inflation back 0:05:29.000 --> 0:05:30.839 to target first, and I think that is the risk 0:05:30.880 --> 0:05:33.200 that means a lot more unwinding, more QT first. Before 0:05:33.200 --> 0:05:34.880 we can even start that discussion. 0:05:34.520 --> 0:05:37.000 Let's get to favorite trade in FX right now, Jeff, 0:05:37.120 --> 0:05:37.599 Which one? 0:05:38.800 --> 0:05:42.599 So you want to own a pack funders against the 0:05:42.680 --> 0:05:44.920 dollar right now? So what I mean by that your 0:05:45.000 --> 0:05:47.800 Korean ones, your tai one, dollars even women be in 0:05:47.839 --> 0:05:49.880 the short term in this respect right because now that 0:05:49.960 --> 0:05:52.320 Japan has moved the yen can strengthen a bit. Then 0:05:52.440 --> 0:05:56.400 that gives more room for Asian central banks to tighten things, 0:05:56.480 --> 0:05:58.920 or at least a shift towards a more assertive stance. 0:05:59.160 --> 0:06:02.000 Because you have China Japan put together, the youngerman be 0:06:02.080 --> 0:06:04.559 forty percent and your trade weighted basket. You can't afford 0:06:04.600 --> 0:06:07.480 to let your currency strengthen. Now they are allowing a 0:06:07.520 --> 0:06:09.880 bit more tolerance for strength, so can you. And given 0:06:10.000 --> 0:06:13.560 in our iflow data, our custodial positioning data, these currencies 0:06:13.560 --> 0:06:14.880 are quite underheld right now. 0:06:15.000 --> 0:06:16.680 Good risk of water to stop buying them back, Jeff. 0:06:16.680 --> 0:06:19.320 Just to be clear, that's apak versus the US dollar. 0:06:19.960 --> 0:06:22.680 Yes, and euros and versus g ten as well. 0:06:22.760 --> 0:06:24.400 Okay, Jeff Wander for the catch up. 0:06:24.440 --> 0:06:26.800 As always, buddy, Jeff, you there if bin Y Mellon 0:06:26.839 --> 0:06:28.320 wrapping up the Central Bank and trilogy. 0:06:28.320 --> 0:06:39.680 This week, we have. 0:06:39.680 --> 0:06:41.480 With us someone who has been at the FED who 0:06:41.560 --> 0:06:44.280 might tell us about happy hour after getting good economic 0:06:44.320 --> 0:06:47.960 reas Jonathan Pingle, chief US economist at UBS, who is 0:06:48.120 --> 0:06:50.719 not at happy hour currently sitting at his office. I'm 0:06:50.720 --> 0:06:53.960 curious from your vantage point, Jonathan, how much conviction you 0:06:54.000 --> 0:06:56.320 can have in this soft landing narrative when we keep 0:06:56.320 --> 0:07:00.680 getting data print after data print showing you know, this inflation, 0:07:01.480 --> 0:07:06.000 robust growth, this feeling that maybe we will just immaculately 0:07:06.240 --> 0:07:07.200 get price stability. 0:07:08.360 --> 0:07:10.680 Yeah, I mean this, you know, this is certainly good news, 0:07:10.840 --> 0:07:14.040 but we're still actually a long way from price stability. 0:07:14.080 --> 0:07:17.679 And I think, you know, looking at today's employment cost 0:07:17.680 --> 0:07:19.840 index data, as you know, some sort of Mike was saying, 0:07:19.840 --> 0:07:23.040 as well as the core PC deflator, you know, the 0:07:23.120 --> 0:07:25.120 year over a year change following to four point one 0:07:25.160 --> 0:07:29.560 percent puts the FED actually within striking distance two tens 0:07:29.560 --> 0:07:32.680 if there's sort of full year projection for later this year. 0:07:32.680 --> 0:07:34.960 But even at four percent of the fed's three to 0:07:35.080 --> 0:07:38.800 nine in Q four, you're still a ways away from 0:07:38.840 --> 0:07:43.240 what you would call price stability. So everything looks looks 0:07:43.240 --> 0:07:45.200 great now, I mean, looking at you know, Mike was 0:07:45.200 --> 0:07:48.200 mentioning real spending coming in a little stronger. You know, 0:07:48.360 --> 0:07:50.920 we'd actually sort of expected the four tenths increase, and 0:07:50.960 --> 0:07:52.920 he's right. I mean, we ended up revising up our 0:07:53.000 --> 0:07:57.120 Q three consumption estimates after retail sales as a result, 0:07:57.440 --> 0:08:00.680 so this is all good news and the economy has 0:08:00.720 --> 0:08:05.240 certainly proved resilient, but they do have this problem that 0:08:05.280 --> 0:08:08.120 they know we're making progress on inflation it looks like, 0:08:08.760 --> 0:08:12.559 but we're not actually at two yet, and there's actually 0:08:12.560 --> 0:08:15.040 a pretty big gap between now and how we're going 0:08:15.120 --> 0:08:17.680 to get there and a lot of uncertainty. But you know, 0:08:17.920 --> 0:08:20.840 at the moment, Lisa, yeah, the data looks good. 0:08:21.080 --> 0:08:23.800 What's the bigger risk right now that we're wrong about 0:08:23.840 --> 0:08:27.600 inflation just steadily coming down and we see a reignition 0:08:28.200 --> 0:08:31.120 of some of the price increase is or that the 0:08:31.200 --> 0:08:34.280 economy slows down more dramatically, and that the strength that 0:08:34.280 --> 0:08:37.520 we've seen recently perhaps is an indicative of the longer 0:08:37.600 --> 0:08:38.160 term trend. 0:08:39.880 --> 0:08:42.560 Well, I am pretty worried that this economy is going 0:08:42.600 --> 0:08:46.360 to slow meaningfully in the coming quarters. You know, there 0:08:46.360 --> 0:08:49.480 are a lot of positives right now, but they're also headwinds. 0:08:49.480 --> 0:08:52.000 And I still kind of agree with share Powell that 0:08:52.040 --> 0:08:55.720 there's still follow through from the monetary policy tightening. I 0:08:55.720 --> 0:08:59.040 think there's you know, there's still excess savings that's percolating 0:08:59.080 --> 0:09:02.400 through and supporting you know, and some of these forces 0:09:02.400 --> 0:09:04.839 could diminish. We also have things like student loan repayments 0:09:04.880 --> 0:09:07.600 coming up. I mean, there's a number of headwinds and 0:09:07.720 --> 0:09:10.439 challenges that we're still going to have to face as 0:09:10.480 --> 0:09:13.960 an economy. But I think you've you've nailed the sort 0:09:13.960 --> 0:09:17.920 of risks on the head right because you know, everybody, 0:09:17.960 --> 0:09:20.160 of course would like to have a soft landing and 0:09:20.200 --> 0:09:24.119 not have job loss and have this this this continue. 0:09:24.440 --> 0:09:26.400 But the initial conditions are a little tough. And by 0:09:26.400 --> 0:09:28.120 initial conditions, I mean, you know, we're starting with a 0:09:28.160 --> 0:09:31.400 low unemployment rate, you know, even with the e c 0:09:31.559 --> 0:09:34.080 I at one percent. I mean, I think that's going 0:09:34.160 --> 0:09:37.520 to be great news at the FED. Take a little 0:09:37.559 --> 0:09:40.959 bit of the wind out of the you know, sales 0:09:41.080 --> 0:09:44.760 of the more work to do component of the committee, 0:09:45.280 --> 0:09:47.079 but that's still you know, a little over it's you know, 0:09:47.120 --> 0:09:50.640 four percent annualized, and that kind of needs it to 0:09:50.640 --> 0:09:52.319 get it down closer to three and a half. So 0:09:52.360 --> 0:09:54.720 you get a low and employment rate, nominal wage inflation 0:09:54.760 --> 0:09:57.520 that's still a little brisk. If the economy stays strong, 0:09:57.720 --> 0:09:59.120 you know, there is the risk that the FED might 0:09:59.160 --> 0:10:01.600 have to hike more and do more work to get 0:10:01.600 --> 0:10:03.120 the slowing that they need in the economy. 0:10:03.160 --> 0:10:05.040 A lot of people Jonathan, have been talking about how 0:10:05.040 --> 0:10:08.240 it's been easier to get a disinflationary trend just simply 0:10:08.320 --> 0:10:11.079 on the year of your comparison numbers, at least over 0:10:11.120 --> 0:10:15.360 the past few months. What changes what areas of the 0:10:15.440 --> 0:10:17.800 inflation overview are you looking at? 0:10:17.960 --> 0:10:18.720 Is it housing? 0:10:18.960 --> 0:10:21.959 Is it car prices? Is it something else that could 0:10:22.000 --> 0:10:26.040 fuel some sort of strengthening in the inflation reads? 0:10:27.040 --> 0:10:28.840 Well, I mean it's all of that. I mean, I 0:10:28.840 --> 0:10:32.480 don't think the details of the inflation data in my 0:10:32.600 --> 0:10:34.720 career have ever been as looked at as they are 0:10:34.760 --> 0:10:36.280 today because of how crucial it's. 0:10:36.080 --> 0:10:37.400 Been for monetary policy. 0:10:37.800 --> 0:10:39.560 But when we think about, you know, sort of what's 0:10:39.600 --> 0:10:41.760 unfolding in the various chunks of the basket, I mean, 0:10:41.840 --> 0:10:45.080 I think, you know, you know, there's people have talked about, 0:10:45.120 --> 0:10:48.040 you know, supercre and sort of these measures. I mean, 0:10:48.040 --> 0:10:49.600 I don't want to put a label on it. But 0:10:50.000 --> 0:10:52.720 when we look at some of the services components that 0:10:52.800 --> 0:10:57.720 are most linked to waged inflation, many of them also 0:10:57.760 --> 0:11:01.080 have relatively persistent components. You know, I think we can 0:11:01.120 --> 0:11:03.440 get comfortable with the goods disinflation and we can see 0:11:03.440 --> 0:11:05.040 it and I think, you know, we're watching sort of 0:11:05.320 --> 0:11:08.280 you know oere and rents slow and the CPI data, 0:11:08.600 --> 0:11:11.920 but you know, these other services, you know, are really 0:11:11.920 --> 0:11:13.800 sort of what what what I think is worth watching 0:11:13.800 --> 0:11:16.280 for where the improvement could come or you know, what 0:11:16.440 --> 0:11:20.280 might re accelerate because of the low unemployment rate. That's 0:11:20.280 --> 0:11:21.920 one of the reasons I think, you know, Chair Powell 0:11:21.920 --> 0:11:24.240 and his press conference, you know when went ahead and 0:11:24.280 --> 0:11:26.760 mentioned the e c I a sort of one important 0:11:26.840 --> 0:11:29.600 data point they would get between the July and September 0:11:29.640 --> 0:11:30.400 FOMC meetings. 0:11:30.400 --> 0:11:32.080 And if you're just joining us now, we did see 0:11:32.080 --> 0:11:34.319 the e c I, the Employment cost Index come in 0:11:34.679 --> 0:11:38.160 at one percent for the second quarter. The expectation had 0:11:38.200 --> 0:11:40.400 been one point one percent. It was down from one 0:11:40.440 --> 0:11:44.240 point two percent. Personal spending coming in stronger than expected 0:11:44.240 --> 0:11:47.959 at zero point five percent, personal income coming in softer, 0:11:48.080 --> 0:11:50.880 so people making less and spending more. Michael McKee, you've 0:11:50.880 --> 0:11:51.760 been digging under the numbers. 0:11:51.800 --> 0:11:52.199 What do you see? 0:11:52.360 --> 0:11:53.719 Yeah, Le's look un to the hood. A couple of 0:11:53.760 --> 0:11:57.000 things that Jonathan was talking about. The ECI for wages 0:11:57.160 --> 0:12:00.280 goes down to a one percent gain from a one 0:12:00.320 --> 0:12:04.760 point two percent gain in the first quarter, and that 0:12:04.800 --> 0:12:07.719 would be considered reasonably good news. But when you look 0:12:07.760 --> 0:12:11.520 under the personal income figures, wages went up six tenths 0:12:11.520 --> 0:12:15.120 of eight percent in the month of June, and that 0:12:15.280 --> 0:12:20.080 is up from half percent. It is actually the highest 0:12:20.559 --> 0:12:25.640 increase since January. So we have two sort of contrasting 0:12:25.760 --> 0:12:29.160 views of what wage pressures are doing at the moment. 0:12:29.480 --> 0:12:32.240 And John mentioned, as we do every time we get 0:12:32.280 --> 0:12:36.840 an inflation figure, the supercore, which is J. Powell's favorite thing, 0:12:37.120 --> 0:12:41.600 core services x housing comes in at a two tenths 0:12:41.679 --> 0:12:45.320 gain to point two two if you want to round 0:12:45.320 --> 0:12:48.040 it out to three figures, and that puts it at 0:12:48.080 --> 0:12:53.200 a four point four point one percent increase for the year, 0:12:53.520 --> 0:12:57.480 which is going to be your lowest since basically last August. 0:12:57.520 --> 0:13:00.720 So things moving in the supercore direction take out housing 0:13:00.760 --> 0:13:05.160 out of the equation, and services for the PCE like 0:13:05.240 --> 0:13:10.720 the CPI are down, but the wage numbers still healthy, 0:13:11.080 --> 0:13:14.959 and that suggests consumers can still keep spending. The question 0:13:15.120 --> 0:13:17.760 is will the fancy that as inflationary? 0:13:18.080 --> 0:13:20.880 Jonathan, As we talk about these numbers four point one 0:13:20.920 --> 0:13:23.760 percent down significantly from what it had been from four 0:13:23.760 --> 0:13:27.520 point six percent the previous reading, what's it enough? Are 0:13:27.520 --> 0:13:30.800 we heading back toward two percent or to the conversation 0:13:30.880 --> 0:13:33.040 we had with Richard Clarita. Are we looking at a 0:13:33.040 --> 0:13:35.840 two and a half or something somewhat above the target 0:13:35.840 --> 0:13:36.960 that the FED is just going to live with? 0:13:38.920 --> 0:13:41.920 Well, I mean, so this is a this is probably 0:13:41.960 --> 0:13:43.280 I mean, this is a question they're going to have 0:13:43.320 --> 0:13:46.280 to answer at some point I think next year. At 0:13:46.280 --> 0:13:48.280 the moment, you know, obviously the four point one is 0:13:48.320 --> 0:13:52.120 not enough. I do think it's pretty relevant though, for 0:13:52.640 --> 0:13:54.880 sort of the meeting by meeting decisions they're going to 0:13:54.960 --> 0:13:57.520 make going forward. I mean this, I mean, at four 0:13:57.520 --> 0:14:00.360 point one percent, they're only zero point two percent points 0:14:00.400 --> 0:14:05.640 away from their full year core inflation projection already in 0:14:05.679 --> 0:14:09.280 the June data, so they're clearly making some progress. The 0:14:09.320 --> 0:14:12.720 other thing they're making progress on is real rates. You know, 0:14:12.800 --> 0:14:15.760 this is going to widen the gap between the funds 0:14:15.840 --> 0:14:21.040 rate after the rate hike on Wednesday, to a level 0:14:21.160 --> 0:14:25.000 you know that hasn't been around since two thousand and seven, 0:14:25.120 --> 0:14:28.000 So they are. So they're they're making progress in terms 0:14:28.000 --> 0:14:30.280 of restrictiveness, not just because of the rate hikes now, 0:14:30.280 --> 0:14:34.480 but also because they're making progress on inflation now. A 0:14:34.560 --> 0:14:37.000 year from now, you know, let's say inflation is moving 0:14:37.040 --> 0:14:39.800 down to two and a half percent. They're going to 0:14:39.880 --> 0:14:43.120 have to make a decision about how hard they push 0:14:43.160 --> 0:14:45.280 to get it back down to two point oh. I mean, 0:14:45.320 --> 0:14:47.720 I do think that monetary policy makers would like to 0:14:47.760 --> 0:14:51.680 actually get it back to two point zher for their 0:14:51.680 --> 0:14:54.640 credibility to show that they can do it. Are they 0:14:54.680 --> 0:14:59.120 going to really work very hard to run it at 0:14:59.320 --> 0:15:01.400 you know, one point eight so that they can show 0:15:01.400 --> 0:15:03.920 that they're on both sides. I don't know that that's 0:15:03.960 --> 0:15:06.840 worth really costing a lot of people their jobs, but 0:15:07.880 --> 0:15:10.320 I do think they're gonna leave, you know, if they're 0:15:10.360 --> 0:15:12.640 struggling to get back to their target. I think they 0:15:12.640 --> 0:15:15.200 probably would leave restrictive policy in place for a while. 0:15:15.400 --> 0:15:18.240 Jonathan Peingle of UBS, thank you so much for taking 0:15:18.400 --> 0:15:18.960 the time. 0:15:24.040 --> 0:15:27.320 Jane Fully of Rabberbanks saying this that the BOJ tweeked 0:15:27.400 --> 0:15:30.680 YCC in quote a very cautious way. As expected, the 0:15:30.680 --> 0:15:33.680 BOJ raise this twenty twenty three inflation forecast, but there 0:15:33.720 --> 0:15:36.560 was no upward revision to course CPI in twenty four 0:15:36.680 --> 0:15:40.240 or twenty five. Therein lies the reason for continued caution 0:15:40.320 --> 0:15:43.160 from the Bank of Japan. If further progress is made 0:15:43.320 --> 0:15:46.960 in reviving domestically driven inflation. The BOJ will act again, 0:15:47.320 --> 0:15:49.680 but they are clearly in no rush. So Jane, we've 0:15:49.680 --> 0:15:51.920 got to start with that question. Lisa has asked it 0:15:51.920 --> 0:15:54.720 a few times and Danny Berger asked it again this morning, 0:15:54.720 --> 0:15:56.920 and Jane, thanks for being with us. Is this the 0:15:56.960 --> 0:16:00.120 starting gun on timing or just sending up policy to 0:16:00.200 --> 0:16:03.000 keep things a little bit more sustainable and easier for longer. 0:16:04.200 --> 0:16:07.320 You know, the starting gun really reminds me of that 0:16:07.360 --> 0:16:10.200 the tortoise and the hair, and I think the Bankerjapan 0:16:10.240 --> 0:16:12.520 really is the tortoise in this race. It is going 0:16:12.600 --> 0:16:14.600 to be in no rush. And this is you know, 0:16:14.680 --> 0:16:18.080 backing away from your curve control because it can be 0:16:18.200 --> 0:16:22.240 a nuisance sort of policy. It can push policymakers into corners. 0:16:22.240 --> 0:16:24.320 And we have this in December when when the Bank 0:16:24.320 --> 0:16:27.720 of Japan you know, made an adjustment to the range 0:16:27.720 --> 0:16:30.480 for the ten year yield and said it was an adjustment. Now, 0:16:30.520 --> 0:16:33.000 clearly we can see those distortions. You know, you have 0:16:33.600 --> 0:16:36.400 the possibility where you have maybe five year years seven 0:16:36.480 --> 0:16:38.720 year eels rising above the ten year old. That's not 0:16:38.760 --> 0:16:41.320 what they want to signal, so they had to raise 0:16:41.360 --> 0:16:45.160 the parameters. And really, I think there's something about what's 0:16:45.200 --> 0:16:47.840 happened today, which is the same you know, they want 0:16:47.920 --> 0:16:50.800 to take themselves away from being pushed into a corner 0:16:50.800 --> 0:16:53.640 by market conditions and hence the loosening. But on the 0:16:53.680 --> 0:16:55.960 other hand, you know, if you read through a lot 0:16:56.040 --> 0:16:58.080 of the rhetoric from some of the Bank of Japan 0:16:58.400 --> 0:17:01.920 policy makers, some of them are clearly seeing these signs 0:17:01.920 --> 0:17:06.240 that inflation conditions are just beginning to normalize. And I 0:17:06.240 --> 0:17:08.719 would say, perhaps, you know, the real piece of juicy 0:17:08.760 --> 0:17:11.520 news from Japan, you know this week, is that the 0:17:11.560 --> 0:17:16.199 government it looks likely to be recommending another hike in 0:17:16.240 --> 0:17:19.040 the minimum wages. That would be a four percent hike. 0:17:19.320 --> 0:17:21.960 There was already, you know, a really big rise this year. 0:17:22.160 --> 0:17:25.520 So if that four percent goes through, that is your 0:17:25.760 --> 0:17:30.120 wheels and motion of domestically generated inflation. That's what they 0:17:30.160 --> 0:17:31.879 want to see. That's the sort of news that we 0:17:31.960 --> 0:17:33.600 really ought to be reacting to. 0:17:33.960 --> 0:17:36.360 So Jane, that long term forecast for inflation that comes 0:17:36.359 --> 0:17:38.800 from the Bank of Japan. Should I view that as 0:17:38.840 --> 0:17:41.679 an honest view on where they think inflation will be 0:17:42.160 --> 0:17:44.919 or just a signal to the market for where they 0:17:44.960 --> 0:17:46.600 want the market to believe policy will be. 0:17:47.600 --> 0:17:50.200 Well, the government came out with a pretty similar forecast 0:17:50.200 --> 0:17:52.680 for cour CPI. I think it was one point five 0:17:52.680 --> 0:17:56.240 percent for the next fiscal year, stripping out in some 0:17:56.280 --> 0:17:58.560 of the base effects because there have been some energy 0:17:58.600 --> 0:18:01.399 related subsidies, for instance. So again in the government of 0:18:01.400 --> 0:18:03.720 the Bank of Japan, lots of economists are on the 0:18:03.760 --> 0:18:06.800 same page here. They think inflation next year will be 0:18:06.880 --> 0:18:10.440 lower than this year, and that is why they've got 0:18:10.440 --> 0:18:12.800 to be cautious, because they've got to remember a lot 0:18:12.800 --> 0:18:14.720 of the inflation that we are seeing. You know, people 0:18:14.760 --> 0:18:17.560 are saying, oh, you know, Bank of Japan or Japanese 0:18:17.760 --> 0:18:21.080 inflation on the headline is firmer than in the US. 0:18:21.200 --> 0:18:23.800 Maybe they should be tidy, but that is really misleading 0:18:23.800 --> 0:18:26.560 because a lot of the inflation in that particular print 0:18:26.840 --> 0:18:31.080 is imported prices. Now, imported prices are not domestically driven. 0:18:31.280 --> 0:18:33.680 That's what they want to see. It's the opposite really 0:18:33.760 --> 0:18:36.600 to Europe, to the Bank of England, to the US. 0:18:36.640 --> 0:18:40.240 They want to see this wage price spiral getting themselves 0:18:40.280 --> 0:18:43.719 up to sustained inflation around about two percent. We're on 0:18:43.760 --> 0:18:46.160 that road, but they're not quite there yet. 0:18:46.440 --> 0:18:48.920 Is it a coincidence, Jane that the Bank of Japan's 0:18:49.160 --> 0:18:52.560 tweak I should say comes after a real shift from 0:18:52.560 --> 0:18:55.280 both the FED and the ECB moving away from forward 0:18:55.280 --> 0:18:58.040 guidance and away from committing to further rate hikes. 0:18:58.920 --> 0:19:00.479 Well, you know, I think the movie Been Away from 0:19:00.520 --> 0:19:03.480 Forward Guidance sort of reflects the fact that the committees 0:19:03.480 --> 0:19:07.399 within those central banks and perhaps there's bigger gaps between 0:19:07.840 --> 0:19:10.119 the doves and the hawks, because if everyone was on 0:19:10.160 --> 0:19:12.320 the same page, it's obviously easy to give forward guidance, 0:19:12.520 --> 0:19:15.000 but when you have this more diverse range of opinions, 0:19:15.080 --> 0:19:17.640 you can't really do that. And I think that's probably 0:19:17.640 --> 0:19:19.720 true of the Bank of Japan as well. I think 0:19:19.720 --> 0:19:21.560 there is a range of opinions within the Bank of 0:19:21.640 --> 0:19:24.239 Japan if you read through some of their rhetoric, some 0:19:24.320 --> 0:19:26.880 of those policy makers are perhaps more ready to act 0:19:26.920 --> 0:19:30.479 on policy than others. But you know, a caution has 0:19:30.520 --> 0:19:33.720