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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the Apec region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Sayuri Shirai, who is professor of economics at Koe University, Professor,

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Speaker 2: thank you very much for joining us. So to that question,

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Speaker 2: are conditions following into place for another rate hike this

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Speaker 2: year and perhaps not today but coming.

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Speaker 3: Well, that's very uncertain because if you look at the

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Speaker 3: Japanese economy, the domestic demand is not boring, but it's

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Speaker 3: very sluggish. You know, the LEO GDP level just recovered

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Speaker 3: the path quote twenty nineteen pre COVID nineteen pounds, so

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Speaker 3: you can see how, you know, slowly the Japanese economy

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Speaker 3: is growing and you may very is sluggish. So I

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Speaker 3: don't really see why Banko Japan is able to, you know,

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Speaker 3: have another rate hike because in July, you know, there

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Speaker 3: was an issue of the excessively cheap Japanese yen.

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Speaker 4: You know, yan was moving around one.

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Speaker 3: Sixty until second week of July, but now yasund one

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Speaker 3: forty two. It's much better, but still very depreciated. So

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Speaker 3: but at the same time, because japanesetock price is associated

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Speaker 3: with yans depreciations, so now Japanese stock prices are much

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Speaker 3: lower than before, so I think bog would be a

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Speaker 3: bit careful in terms of raising interest rates this year.

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Speaker 1: So the question is whether that sluggish demand is in

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Speaker 1: any way connected to higher prices. I mean, Japan has

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Speaker 1: been in a deflate or rather inflationary period for some

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Speaker 1: time now. And today we got the reading on core

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Speaker 1: consumer prices for the month of August. Yes, it's in

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Speaker 1: line with estimates, but that rate annual rate is two

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Speaker 1: point eight percent.

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Speaker 3: Yes, so if we look at the so this morning August,

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Speaker 3: the inflation rate head i is three point zero percent,

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Speaker 3: and actually sixty percent of this inflation comes from food

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Speaker 3: and energy, so you see this is really cast push.

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Speaker 4: So it's kind of hurting consumer's budget.

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Speaker 3: So that's why real consumption remain very sluggish in Machiloa

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Speaker 3: than I say, one two years before. So you know,

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Speaker 3: it's really caught push so you know in that sense,

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Speaker 3: you know, just raising domestic demand, I don't really see

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Speaker 3: a BOJ will be rushed to raise interest rate.

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Speaker 2: So professor, in terms of that balance in the mindset

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Speaker 2: of policymakers and in the mindset of the public, is

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Speaker 2: it still deflation you know that that worries them? Or

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Speaker 2: is it starting to be inflation now?

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Speaker 4: Okay?

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Speaker 3: So consumer's point of view, public point of view, everybody

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Speaker 3: is thinking who there much higher?

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Speaker 4: You know, so people feel information.

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Speaker 3: I think nobody is thinking that we are deferation, but

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Speaker 3: the government is still not decreared that Japanese economy is

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Speaker 3: out of differation because I think it's basically because push

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Speaker 3: and if we look at a week domestic demand, we

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Speaker 3: don't really see a demand to driven information yet. And

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Speaker 3: a BOJ also want to have a more bade you

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Speaker 3: a price income cycle, so that hasn't been materialized yet.

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Speaker 4: So it's a for.

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Speaker 3: Consumers, it's an information inforation, but policy makers it's not

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Speaker 3: really information. They want the desirable information they want want

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Speaker 3: to achieve.

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Speaker 1: So if there is no change in policy, what should

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Speaker 1: the communication be from Governor Huaida?

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Speaker 4: Yeah?

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Speaker 3: One difficulty is that all yea also yet appreciated to

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Speaker 3: one forty two, much better than one sixty. But there

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Speaker 3: are still chances that he may depress it again depending

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Speaker 3: on what will happen to US presidency. You know, possible

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Speaker 3: US great cut. There's a lottob uncertainty, so he ain't

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Speaker 3: can deprise it again. So in that sense, I think

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Speaker 3: Governor whether will be very very careful. Uh, maybe he

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Speaker 3: will still hint the possibility of raising interesting. I think, uh,

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Speaker 3: he may be concerned about resurgence of excess rechipm.

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Speaker 2: Are we in the midst of a positive wage price cycle?

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Speaker 4: Okay, so this year.

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Speaker 3: It was very good, you know, very high successful wage

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Speaker 3: negotiation settlement, so we actually see a wage he started

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Speaker 3: to pick up. So it's much higher than uh, you

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Speaker 3: know information. So there are wages actually growing, but at

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Speaker 3: this moment, most of these are in wage hike come

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Speaker 3: from bonuses, so it's a temporarity. So it's not really

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Speaker 3: like a permanent based wage growth yet. So a lot

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Speaker 3: of consumer have not felt that their income and wages

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Speaker 3: are growing. So I think we still have to see

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Speaker 3: where the companies are able to continue to pay more

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Speaker 3: type of wages U.

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Speaker 4: Next year and two years after.

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Speaker 3: But the Japanese economy is quite strategy, so they really

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Speaker 3: have to make efforts to improve their productivity growth.

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Speaker 1: I know you're a professor of economics, but I'm going

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Speaker 1: to ask you to weigh in on politics just a

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Speaker 1: bit here because we have the elections approaching for the

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Speaker 1: leadership of the Democratic or the Liberal Democratic Party. How

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Speaker 1: do you think the economy is going to factor into

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Speaker 1: the election so LDP?

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Speaker 3: You know, there are some differences. Some people are paying

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Speaker 3: more attention to the you know, physical consolidation. We have

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Speaker 3: a huge debt, but you know, people I think, but

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Speaker 3: most of the people, they still want to support Japanese

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Speaker 3: economy and so, you know, if possible, occasionally they want

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Speaker 3: to do some income support for low income people, but

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Speaker 3: because of the budgetary constraint, they cannot really do extremely

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Speaker 3: expansionary fiscal you know policy. So I think in terms

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Speaker 3: of a monetary policy, they will support current or policy.

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Speaker 3: So I don't really see a big changes, you know,

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Speaker 3: and I don't really see a big you know, Ti

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Speaker 3: Budgant bill in terms of where Japanese the economy should

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Speaker 3: head among this potential nine candidate.

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Speaker 2: Well, and I suppose we should ask you whether or

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Speaker 2: not it's very it's possible if Sanai Takaichi, a woman,

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Speaker 2: can can somehow rest the position of prime minister, is

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Speaker 2: it time for Japan?

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Speaker 3: You know, she did very very successfully last time, and

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Speaker 3: you know she's quite wealthy a figure, you know, but

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Speaker 3: she I think my understanding is she's a person who

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Speaker 3: like to really you know, energize Japanese economy. So I

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Speaker 3: think he support. She support like a great physical stimulus.

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Speaker 3: And so if she's selected, maybe she would continue to

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Speaker 3: provide more physical support and maybe monetary easing. I think

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Speaker 3: she will stress, but I don't know. They are as

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Speaker 3: a more independent type of you know, candidate who are

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Speaker 3: also very popular, and then they may have a much

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Speaker 3: different view.

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Speaker 1: One of the things that we look at when we

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Speaker 1: talk about the infrast rates in Japan or how well

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Speaker 1: the banks are functioning right now? Do you have a

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Speaker 1: view on that, professor, How well are the big banks

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Speaker 1: in Japan performing these days?

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Speaker 3: I think big banks are doing well and it's not

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Speaker 3: a lot but credit you know, loan loans growing at

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Speaker 3: two to three percent, you know, pace so and Japanese

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Speaker 3: banks are doing well, especially Big one, because they are

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Speaker 3: you know, have a lot of you know, businesses globary

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Speaker 3: and also Asian in the United States, so there I'm

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Speaker 3: very diversified. So I think, you know, megabanks doing quite well.

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Speaker 2: All right, thanks so much, professor for joining us here

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Speaker 2: live on the program. It's always fun to talk to you,

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Speaker 2: Sayuri Shila, who is professor of economics at Ko University.

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Speaker 2: Joining us on the program is Garfield Reynolds, Bluemberg's chief

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Speaker 2: rates correspondent here in Asia. Garfield, great to have you

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Speaker 2: with us. So historically we know that equity markets have

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Speaker 2: done pretty well when you have periods with a FED

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Speaker 2: is cutting interest rates as long as the economy is

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Speaker 2: not in recession. So that's the big point. Does it

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Speaker 2: look like the US economy, or indeed the global economy

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Speaker 2: is anywhere near recession.

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Speaker 5: Well, the US economy still looks to be pretty strong.

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Speaker 5: We had initial jobs claims coming in low then expected.

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Speaker 6: That's a good sign.

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Speaker 5: And in fact, the Atlanta Fed's GDP now four GDP

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Speaker 5: now Caster as it's called, that's seeing GDP coming in

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Speaker 5: at just hunder three percent. So none of that says

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Speaker 5: that the US economy is in troublate. All gels with

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Speaker 5: Powell's comments that the economy is doing just fine, and

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Speaker 5: that helps to explain why equities, after an initial wobble

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Speaker 5: on the actual day of the decision, they've ultimately climbed to,

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Speaker 5: you know, yet another record that seems to make sense

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Speaker 5: until and none less, you know, we get a downturn.

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Speaker 5: Non farm payrolls would be the next strong data point

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Speaker 5: risk that you would have on that front. On the

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Speaker 5: broader front, you know, the US lowering interest rates does

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Speaker 5: help the outlook for the world economy. There are some

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Speaker 5: concerns in a number of areas that growth is slowing down.

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Speaker 5: The biggest worry is China. The Chinese economy, which is

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Speaker 5: the world's second largest, and it's in a very serious

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Speaker 5: and sustained funk. There's a lot of hope when you

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Speaker 5: look at what went on with the ure and yesterday,

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Speaker 5: when you look at what with Chinese stocks, that the

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Speaker 5: FED cutting by fifty basis points will clear the way

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Speaker 5: for China to finally take some more decisive action to

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Speaker 5: try and get that economy turning around, which is something

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Speaker 5: that arguably is in the global economy's interest.

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Speaker 1: That's an interesting way of characterizing the Chinese economy sustained funk.

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Speaker 1: I haven't heard that before, maybe we can talk about

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Speaker 1: the BOJ. Brian mentioned the fact that no one really

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Speaker 1: is expecting a move today, maybe next month at the

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Speaker 1: October meeting. It's interesting that the October Core consumer price

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Speaker 1: index reading for Japan. This is for the month of August,

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Speaker 1: I'm sorry, up at an annual rate of two point

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Speaker 1: eight percent. That seems pretty hot. I know it's in

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Speaker 1: line with estimates. Could you make the case that the

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Speaker 1: BOJ really could make a move and get away with it.

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Speaker 5: I think they would try. They would struggle to get

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Speaker 5: away with it, you know, as in that would set

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Speaker 5: off some fairly serious market turmol that I'm not sure

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Speaker 5: they have the appetite for.

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Speaker 6: It.

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Speaker 5: Also wouldn't really deal with, you know, the waiter's playbook.

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Speaker 5: Now he's only been you know, BOJ governor for a while,

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Speaker 5: so we're all feeling our way there with it. But

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Speaker 5: he is tending to try and be methodical, you know.

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Speaker 5: His indications when they raise rates back in July was

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Speaker 5: that they do expect to raise rates again if the

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Speaker 5: economy develops as they as they've been forecasting it has

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Speaker 5: done so. But the main risk that most people are

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Speaker 5: seeing going into this BOJ meeting is that he opens

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Speaker 5: the door to a rate hike you know, next month, yeah,

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Speaker 5: in October, rather than he would actually hike at this one.

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Speaker 6: Now, the one caveat.

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Speaker 5: There is that the BOJ both under Uweita and under

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Speaker 5: his predecessor Kuroda, has shown a capacity to surprise markets,

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Speaker 5: so you wouldn't rule it out. The bigger risk that

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Speaker 5: people are seeing though, going into this meeting is that

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Speaker 5: he takes a more hawkish stance even as rates are

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Speaker 5: left alone this time around.

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Speaker 2: One of the interesting aspects of the FED move this

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Speaker 2: week is that long end rates have actually risen two

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Speaker 2: days in a row. Now, mortgage rates ticked up a

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Speaker 2: little bit, and that has some implications for both Japan

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Speaker 2: and China. But let's take a closer look at that.

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Speaker 2: I know you watch rates pretty closely. Is that tied

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Speaker 2: to a stronger economy or maybe inflation fears.

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Speaker 5: It's far more tied to a stronger economy. There are

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Speaker 5: some lingering inflation concerns, but it's about that economic resilience.

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Speaker 5: It's being shown and tied to. That is the way

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Speaker 5: that the Fed. Although they cut fifty basis points, which

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Speaker 5: was more than was priced in, it was seen as

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Speaker 5: being a good chance, but it wasn't fully priced in,

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Speaker 5: so it was a bigger than expected rate cuts Supposedly, however,

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Speaker 5: they pushed back pretty strongly against what the market is

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Speaker 5: pricing for the coming meetings. So markets are pricing for

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Speaker 5: seventy five basis points over the last two innings of

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Speaker 5: this year and then another fifty basis points in the

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Speaker 5: first meeting of next year. The Fed's making it pretty

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Speaker 5: clear it thinks two twenty five basis point cuts this

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Speaker 5: year is what should be on the table, and then

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Speaker 5: that they would take a look at it and that

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Speaker 5: they would take a fairly measured pace going through twenty

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Speaker 5: twenty five. So that puts the Fed and the bond

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Speaker 5: markets at odds.

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Speaker 6: That helps to explain.

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Speaker 5: Why yields climbing on treasuries, and in particular at the

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Speaker 5: long end. There is this lingering concern that once we

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Speaker 5: get past the elections and into next year, whoever is

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Speaker 5: in the White House is going to keep on boosting spending.

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Speaker 5: There's concerns about the long term sustainability of the US's

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Speaker 5: debt path, and that's the sort of thing that shows

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Speaker 5: up in higher long end yields.

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Speaker 1: Okay, so do you think that Paula can stick a

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Speaker 1: soft landing, and maybe that's what the bond market is

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Speaker 1: telling us a little bit at the long end.

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Speaker 5: Well, yeah, the long end, the bond market is also

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Speaker 5: buying into the potential for a soft landing, and you know,

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Speaker 5: it'll be interesting to see how it goes. There's been

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Speaker 5: a lot of bullishness in the bond market on the

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Speaker 5: idea that they won't be able to stick a soft landing,

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Speaker 5: and the FED actually has very very rarely stuck a

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Speaker 5: soft landing. It's far more often the case, in fact,

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Speaker 5: that it starts out with you know, with that aim

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Speaker 5: and with a measured rate, measured pace of rate cuts.

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Speaker 5: But then things go very badly south, as they did

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Speaker 5: in the early two thousands, and this they did in

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Speaker 5: two thousand and seven, two thousand and night, and the

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Speaker 5: quantum of rate cuts in those events you ended up

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Speaker 5: being very steep at you know, after you know, so

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Speaker 5: a couple of cuts, a couple of cuts.

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Speaker 6: And then bang the bazookas had to come out.

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Speaker 2: Yeah, yeah, okay. Final note, Mercedes Benz in China a

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Speaker 2: little bit surprised at the lines that they've delivered here

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Speaker 2: talking about rapid deterioration of business in China. What are

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Speaker 2: the implications of that.

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Speaker 5: Well, yeah, we're talking at the opening of the program

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Speaker 5: about how, you know, the China's economy really needs some

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Speaker 5: serious help from the authorities, and this is another you know,

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Speaker 5: it's it's showing the intractable nature of the consumer downturn there.

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Speaker 2: Yeah, it certainly is, and it really does kind of

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Speaker 2: elevate the pressure on some of these foreign car makers there. Anyway, Garfield,

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Speaker 2: thank you very much for joining us. Garfield Reynolds Bloomberg

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Speaker 2: Chief Rates correspondent. Joining us now in our studios is

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Speaker 2: John Lieber, Managing director of Eurasia Groups US Practice, to

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Speaker 2: talk a little bit more about US China relations and

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Speaker 2: the US elections coming up. John, thank you for coming in.

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Speaker 2: So China is pretty absorbed with its stumbling economy here

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Speaker 2: at the moment, the US is pretty well absorbed with

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Speaker 2: the run up to the elections, and the Middle East

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Speaker 2: is semi on fire. Have US China relations kind of

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Speaker 2: taken a back seat at the moment.

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Speaker 7: They're taking a back seat, but it's probably only a

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Speaker 7: temporary reprieve. This is a huge issue in the election.

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Speaker 7: I mean, it's not really a political issue that the

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Speaker 7: two candidates are trying to define themselves around. But after

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Speaker 7: the election, there's a potential for a big shift in

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Speaker 7: US policy because of Trump wins. What you're going to

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Speaker 7: get is are probably disruptive levels of tariffs along with

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Speaker 7: expanding export controls and more pressure on US allies around

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Speaker 7: the region to continue to squeeze the Chinese economy. So

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Speaker 7: that's a bad outlook that probably slows growth across the

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Speaker 7: Asia Pacific and is a top concern for a lot

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Speaker 7: of the US trading partners in the region.

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Speaker 1: So John, take it from the other side. Now, what

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Speaker 1: if Kamala Harris were to win the presidency.

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Speaker 7: The outlook's not great for US China relations no matter

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Speaker 7: who the president is. But Harris is probably we think

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Speaker 7: she continues the Biden policy of managed decline in this relationship.

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Speaker 7: But it's still decline. It's still the fact that there's

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Speaker 7: probably going to be less US China trade going forward,

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Speaker 7: more efforts to get Chinese goods out of US supply chains,

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Speaker 7: and further efforts to prevent US investors from getting into China,

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Speaker 7: especially in sensitive technology areas like semiconductor and AI.

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Speaker 2: It's kind of dark picture that you paint no matter

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Speaker 2: who wins the presidency, Are you expecting that this will

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Speaker 2: be very disruptive to the global economy, not just the

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Speaker 2: regional economy in China?

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Speaker 6: It could be.

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Speaker 7: It probably depends on the level of restrictions that you

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Speaker 7: see coming from the US going forward. And of course

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Speaker 7: the choice is made by non aligned countries who are

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Speaker 7: kind of caught in the middle here, and those are

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Speaker 7: countries that continue to want to do business with both

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Speaker 7: the United States and China, and we'll probably find a

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Speaker 7: way to do so no matter what the US does.

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Speaker 1: So how do you assess the situation right now? That

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Speaker 1: President she finds himself in a stagnant economy, deflation that's

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Speaker 1: been going on persistently, and you've got to imagine that

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Speaker 1: people are not happy with the performance of the overall economy.

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Speaker 1: What's at stake for She?

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Speaker 7: Yeah, that's exactly right. And I think that what you're

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Speaker 7: hearing from people who have recently left China is sort

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Speaker 7: of a deep dissatisfaction both among the population but also

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Speaker 7: at the elite level, who see that President She's policies

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Speaker 7: have somewhat reversed the outsized economic gains that China has

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Speaker 7: made over the last two decades, and it's a real challenge.

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Speaker 7: And we think that probably stimulus is coming, but maybe

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Speaker 7: not till next year because China's got big concerns about

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Speaker 7: its depth bubbles and moral hazard associated with the additional stimulus.

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Speaker 7: But at some point that you know, on the current trajectory,

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Speaker 7: they're going to have no choice but to bail out

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Speaker 7: the Chinese economy.

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Speaker 2: On the US elections themselves, how do you see this

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Speaker 2: moving over the next couple of months, getting down to

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Speaker 2: the crunch period here, it seemed like former President Trump

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Speaker 2: was in the pole position for a while. Now it

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Speaker 2: almost seems like Kamala Harris has taken that pole position.

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Speaker 2: What's key in the next two months to make two

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Speaker 2: for the public to decide.

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Speaker 7: Yeah, it's remarkable that this is such a close competitive election.

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Speaker 7: You know, there's really only seven states and probably only

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Speaker 7: tens of thousands of voters in those seven states that

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Speaker 7: are going to end up deciding this election. And in

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Speaker 7: each one of those seven states, the campaigns within the

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Speaker 7: margin of error of the polls. Interestingly, Harris is kind

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Speaker 7: of doing all the normal things you'd expect out of

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Speaker 7: a high quality campaign. They're raising a lot of money,

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Speaker 7: they're spending a lot of money. They're trying to turn

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Speaker 7: out the vote. The Trump team is very focused on

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Speaker 7: its immigration message, but also focused on preempting what they

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Speaker 7: say is election fraud that they're anticipating. And you know,

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Speaker 7: the US runs really clean elections. Anybody, any objective observer,

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Speaker 7: knows that Trump lost in twenty twenty and knows and

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Speaker 7: is pretty confident that the election is going to be

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Speaker 7: well run this cycle. But Trump's trying to confuse the issue,

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Speaker 7: hoping to perhaps make it so that there are disputes

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Speaker 7: over certain states ballots that would deny Harris a two

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Speaker 7: hundred and seventy electoral Book College victory and kick the

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Speaker 7: race over to the House of Representatives where he will

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Speaker 7: probably win.

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Speaker 1: Sounds messy, John. Before we let you go, let's talk

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Speaker 1: EU China because a short while ago we were talking

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Speaker 1: about how the E European Union and China are trying

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Speaker 1: to avoid looming tariffs on Chinese evs. Is this going

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Speaker 1: to be a lot worse before it gets better?

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Speaker 6: Do you think?

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Speaker 7: Absolutely? And I think the EU theme is an interesting

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Speaker 7: one because what you're starting to see is a global

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Speaker 7: backlash against the excess capacity that China's pumping out in

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Speaker 7: the world because they're just not consuming enough at home.

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Speaker 7: The EU is doing it, Brazil is doing it. It's

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Speaker 7: happened at the US is of course doing and it's

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Speaker 7: happening all over the world. And that's yet another challenge

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Speaker 7: that China is going to have to manage in the

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Speaker 7: coming years.

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Speaker 2: Are you seeing any policies come out of China that

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Speaker 2: gives us insights into how they feel about that? Because

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Speaker 2: they are now slightly getting ostracized by a number of regions,

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Speaker 2: it's not just the United States.

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Speaker 7: I think the Chinese are trying to figure out kind

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Speaker 7: of where they fit in the world here and how

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Speaker 7: I think they're probably a little taken back by the

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Speaker 7: backlash that they're experiencing. And you know, in terms of

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Speaker 7: the US, they kind of have to wait and see

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Speaker 7: what happens after the election. If Harris wins, they know

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Speaker 7: the players on the field, there'll probably be a little

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Speaker 7: bit of change in terms of the Biden to Harris's cabinet.

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Speaker 7: But if Trump wins, you're going to get a radically

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Speaker 7: different group that the Chinese don't necessarily trust and who

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Speaker 7: they think the Americans in the Trump administration have it

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Speaker 7: out for.

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Speaker 1: Them very quickly, John, twenty seconds or so. In terms

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Speaker 1: of China Russia, do you see this relationship shifting in.

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Speaker 6: The new year.

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Speaker 7: Probably not. China has been pretty supportive of Russia in

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Speaker 7: terms of dual use goods that the Russias have been using.

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Speaker 7: And another kind of vector of risk for the US

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Speaker 7: has been the Chinese relationship with Iran, where they continue

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Speaker 7: to buy Iranian oil. That could change in a Trump administration.

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Speaker 2: All right, John, thanks very much for taking out the

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Speaker 2: time to come into our studios who do appreciate it.

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Speaker 2: John Lieber, Managing Director of Eurasia Groups US Practice, chatting

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Speaker 2: here about US China relations primarily and a little on

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Speaker 2: the US elections which are fast arriving.

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Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

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