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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. The Japanese yen is trading

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Speaker 1: at a five month high today against the US dollar.

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Speaker 1: It was earlier on Sunday that we heard from Prime

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Speaker 1: Minister taka Ichi sending a fresh warning to markets with

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Speaker 1: the assertion that the government is ready to take action

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Speaker 1: in the face of a weaker yen and surging Japanese

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Speaker 1: bond yields. Now. Last Friday in the States, traders reported

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Speaker 1: that the New York Fed had contact at financial institutions

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Speaker 1: to ask about the yen's exchange rate. Now, the reason

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Speaker 1: behind that rate check was unclear, However, the possibilities do

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Speaker 1: include that Japan's Ministry of Finance did ask the US

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Speaker 1: Department of Treasury to request a rad check to stabilize

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Speaker 1: the end without any direct intervention. Let's take a closer

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Speaker 1: look at what this means for market action. I'm joined

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Speaker 1: by k Mura. Kay is, portfolio manager and managing director

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Speaker 1: for Japanese equities at Newburger Berman. K joins from Tokyo.

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Speaker 1: Thank you so much for being here. We heard over

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Speaker 1: the weekend from Prime Minister Takei ICHI's sending a fresh

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Speaker 1: warning to markets, perhaps signaling the potential for some sort

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Speaker 1: of intervention. I'm curious, K, when you listen to some

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Speaker 1: of the chatter on trading floors in Tokyo, what are

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Speaker 1: you hearing right now?

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Speaker 2: Me personally sitting here, we haven't heard anything directly, just

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Speaker 2: because our trading has actually done in Hong Kong. But

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Speaker 2: what I can say, though, is based on our internal communication,

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Speaker 2: is that we have been hearing over the last several

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Speaker 2: weeks that the government has been more keen to put

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Speaker 2: some kind of a floor for the Japanese yend. That

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Speaker 2: rhetoric has sharply increased since Friday, and that was following

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Speaker 2: the boj governor's press conference started off with rate checks

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Speaker 2: from the central Bank, and I think what caught people

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Speaker 2: off guard was what happened on the state side, with

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Speaker 2: speculation about the FED New York Office also intervening, which

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Speaker 2: I think would be quite a rare event if it

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Speaker 2: actually did happen. I think at the moment there is

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Speaker 2: also some speculation that the government in Japan has intervened

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Speaker 2: in the markets, just given the way the yen has moved.

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Speaker 2: And so we are currently watching at the moment, if

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Speaker 2: the yen would appreciate any further. On the other hand,

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Speaker 2: if the moves that we've been seeing on the end

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Speaker 2: is driven partly on speculation that the US government has

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Speaker 2: also intervened in the market, which we haven't yet heard of,

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Speaker 2: that is something that I think we need to pay

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Speaker 2: attention to more carefully because that's sort of coordinated action

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Speaker 2: by the two central banks. It's something that we haven't

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Speaker 2: seen since what March of twenty eleven, and that would

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Speaker 2: be quite a very very rare move.

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Speaker 1: So we're seeing big moves in the for X today

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Speaker 1: dollar weakness, with the Bloomberg Dollars spot index down about

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Speaker 1: a third of one percent right now, the end much stronger.

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Speaker 1: Some of this may be tied to a bit of

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Speaker 1: short covering. Do you have a sense of how much

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Speaker 1: time will need to elapse before we can kind of

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Speaker 1: conclude that this is perhaps a durable move that we're

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Speaker 1: not going to see a resumption of en weakness.

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Speaker 2: It's hard to say, because at the moment, what is

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Speaker 2: driving the dollar yen is speculation about intervention, which historically

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Speaker 2: has helped for very near term movements. By that said,

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Speaker 2: the weakness that we're seeing for the end where we

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Speaker 2: have been seeing has been driven by more economic fundamentals

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Speaker 2: structural issues with the Japanese economy. We are of the

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Speaker 2: view though, that the moves have been somewhat excessive, especially

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Speaker 2: given the fact that government finances in Japan have been

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Speaker 2: improving over the last several years, and so we're of

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Speaker 2: the view that once there's some normalcy coming back to

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Speaker 2: the markets, yet would appreciate gradually against the US dollar,

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Speaker 2: albeit this would also be dependent on what the FED

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Speaker 2: does over the next or six to twelve months.

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Speaker 1: We recently saw in the Japanese bond market a little

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Speaker 1: bit of anxiety tied to the Prime Minister's plan for

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Speaker 1: a tax cut on food, and that put the spotlight

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Speaker 1: clearly on the fiscal situation that Japan has been struggling

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Speaker 1: with for quite some time. Now. Do you think that

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Speaker 1: that is also something that is pretty much a short

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Speaker 1: term blip that we shouldn't be too overly concerned about,

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Speaker 1: or is there a potential for some type of return

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Speaker 1: to that type of volatility in the Japanese bond market.

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Speaker 2: It's hard to say at the moment, but what I

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Speaker 2: can say is that most investors have already priced in

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Speaker 2: the prospect of some kind of tax cut involving food

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Speaker 2: stuffs in Japan, and this has to do with the

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Speaker 2: fact that most of the political parties in this potential

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Speaker 2: upcoming election have also looked to make similar policy statements. However,

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Speaker 2: I think what investors are keenly focused on is how

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Speaker 2: the election would help Prime Miaster tak push through other

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Speaker 2: economic fiscal stimulus measures, potentially increase defense spending down the line.

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Speaker 2: We're of the view that if the Liberal Democratic Party

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Speaker 2: wins more seats in the parliament, if Miss Takaichi Solidus

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Speaker 2: bias her power even further, then she will likely push

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Speaker 2: through more measures that will further support to domestic economy,

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Speaker 2: especially on private spending, and then of course on defense

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Speaker 2: spending as well. And our portfolios are well positioned to

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Speaker 2: try to capture some of those gains down the line.

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Speaker 2: And of course, I think we're of the view that

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Speaker 2: if this helps the prop up the economy further, that

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Speaker 2: could be especially helpful for regional banks as well as

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Speaker 2: also some of the big lenders as well that could

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Speaker 2: benefit from a healthier economy.

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Speaker 1: So we're seeing a pullback in Japanese equities that seems

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Speaker 1: to be directly correlated to the end strengthening today. Longer term,

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Speaker 1: what is your outlook for stocks in Japan.

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Speaker 2: Yeah, no, that's a that's a very good point. You know,

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Speaker 2: this sort of temporary pullback is something that you know,

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Speaker 2: we think is actually quite healthy. It gives us an

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Speaker 2: opportunity to dive into some really good names. Our view

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Speaker 2: of the mid to long term is that there are

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Speaker 2: companies out there in Japan that are very much discounted

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Speaker 2: versus global peers, but have really good economic fundamentals and

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Speaker 2: macro fundamentals underneath it, but also good growth stories over

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Speaker 2: the mental long term. So we own a company like

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Speaker 2: say Nitara, which used to be a company called JC Spark,

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Speaker 2: Plug and Doug. You know, if you're a driver, you'll

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Speaker 2: probably know what that is. It's it's a key device

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Speaker 2: that goes into an internal internal combustion engine vehicle. This

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Speaker 2: company owns seventy percent of the global market share, and

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Speaker 2: as we've all been seeing internal combustion engines, hybrid vehicles,

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Speaker 2: plug and hirrins are all coming back. And our view

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Speaker 2: is that as this market continues to do quite well,

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Speaker 2: this company with this type of global market share will

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Speaker 2: be able to not only maintain good margins but also

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Speaker 2: be able to pass on increasing costs and further improve

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Speaker 2: profitability down the line. These are the types of companies

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Speaker 2: that we think have really good potential over the mental

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Speaker 2: interm and they're still you know, training at low teams,

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Speaker 2: which is a really nice discount compared to some of

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Speaker 2: the really high cyclic goal high valuation names out there today.

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Speaker 1: So kay and the week ahead here in the States,

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Speaker 1: we're going to be getting earnings from four of the

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Speaker 1: mag seven companies, and a portion of what we will

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Speaker 1: be hearing will be reflective of the environment around artificial intelligence.

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Speaker 1: Give me a sense of what's happening in Japan right

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Speaker 1: now in AI and how this is being played out

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Speaker 1: in the equity market.

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Speaker 2: We also have exposure to this play, but more from

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Speaker 2: a cautious valuation standpoint. So what I mean by that is,

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Speaker 2: you know the likes of say Advan Tests or took Electron.

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Speaker 2: These are hardware semiconductor production equipment type plays. They've seen

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Speaker 2: a huge run up in their share price in evaluations

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Speaker 2: with a little stretch. But actually if you go down

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Speaker 2: the value chain, you'll find that there are companies like

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Speaker 2: Kinden which are very focused in terms of the building

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Speaker 2: in construction of the semiconductor plants and the data centers.

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Speaker 2: And actually these are the companies that have actually done

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Speaker 2: very very well, and we continue to see them doing

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Speaker 2: very well because up until now they haven't been able

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Speaker 2: to make much money in construction projects. But with the

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Speaker 2: last sort of three to four years Japan coming back

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Speaker 2: with inflation sticking real interest rates higher, these companies can

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Speaker 2: now pick and choose really profitable projects and voila. They

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Speaker 2: tend to be the AI related investment place. And so

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Speaker 2: that has done tremendously well for us. More, from a

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Speaker 2: macroeconomic standpoint, AI is going to have a really big

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Speaker 2: boost to productivity and you know, Doug, as you know,

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Speaker 2: in Japan we have a shrinking population, so any incremental

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Speaker 2: improvements that we could see in productivity for the labor

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Speaker 2: market would bode well, very well for Japanese companies. And

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Speaker 2: these are types of companies that you'll find exposure to

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Speaker 2: in our portfolios.

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Speaker 1: Okay, before I let you go, I have to ask

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Speaker 1: about inflation, because at the end of the week we're

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Speaker 1: going to get the data on Tokyo CPI. We're speaking,

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Speaker 1: you're in the Japanese capital. Give me a sense of

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Speaker 1: what's happening on the inflation story, particularly at the retail level.

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Speaker 2: Yeah, Doug, I think we are seeing the inflation and

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Speaker 2: take a bite out of people's wallets. And you know,

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Speaker 2: when we're looking at some of the numbers from retail

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Speaker 2: sales figures, we did notice some weakness, especially among SI

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Speaker 2: apparel and some of the you know, basic items. I

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Speaker 2: think you know you can you can get a sense

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Speaker 2: that some people are starting to trade down towards some

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Speaker 2: of the cheaper goods. However, it is important to note

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Speaker 2: that in the upcomings next several months, we're going to

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Speaker 2: see wage negotiations from laboring unions. They're going to be

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Speaker 2: very keen on seeing higher wages continue for the foreseeable future.

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Speaker 2: But that's why it is very important that as equity investors,

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Speaker 2: you're invested in these companies that have good, solid fundamentals,

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Speaker 2: that have high market share, that can pass on rising

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Speaker 2: costs such as labor. Those are the ones that will

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Speaker 2: continue to survive. And I think you know, our view

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Speaker 2: is is as economy gets better and better, we will

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Speaker 2: see the consumption pick up. It might take a little

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Speaker 2: bit of time, but it will pick up. And that's

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Speaker 2: I think what makes us market burber interesting.

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Speaker 1: Okay, we'll leave it on that optimistic note. Kay, thank

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Speaker 1: you so much. Kaya Kimura is portfolio manager also managing

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Speaker 1: director for Japanese equities at Newberger Berman. Joining from Tokyo

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Speaker 1: here on the Daybreak Asia podcast. Welcome back to the

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Speaker 1: Daybreak Asia Podcast. I'm Doug Krisner. We are seeing a

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Speaker 1: rally in the precious metals market. Earlier today, spot gold

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Speaker 1: rose above five thousand dollars in ounce for the very

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Speaker 1: first time, and silver also hit a record high on Monday.

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Speaker 1: For a closer look at market action, I'm joined by

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Speaker 1: Katie Kaminski. Katie is chief for Search strategist at Alpha Simplex.

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Speaker 1: She's on the line from Boston, a very cold and

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Speaker 1: snowy Boston. Katie, thank you so much for being here.

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Speaker 1: What do you make of what we're seeing right now

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Speaker 1: in the precious metal space.

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Speaker 3: Well, I mean, I think the precious metals market is

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Speaker 3: a little bit of a shock for us that we've

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Speaker 3: seen so much movement there.

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Speaker 4: It's almost like you have supply and.

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Speaker 3: Demand and balance and so much demand for precious metals

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Speaker 3: that prices have just really surged drastically. I mean, I

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Speaker 3: think gold spot prices broke five thousand today future is

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Speaker 3: even higher than that, of course, so you're really seeing

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Speaker 3: precious metals as the safety trade, and it continues.

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Speaker 1: To go safety against I think.

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Speaker 3: Against potential weakness for the US dollar, geopolitical uncertainty, just

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Speaker 3: so many variables looking for something that has clear value,

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Speaker 3: tangible value, and in some senses a hedge on the

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Speaker 3: potential for challenging environments for equities at some point.

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Speaker 1: So you mentioned the dollar weakness. Flip side of that

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Speaker 1: today is a great deal of strength that we're seeing

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Speaker 1: right now in the Japanese yen. Earlier on Sunday, Prime

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Speaker 1: Minister Takich she sent a fresh warning to the currency market.

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Speaker 1: She was saying that the government's going to be ready

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Speaker 1: to take action in the face of a lot of

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Speaker 1: the weakness that we have seen. In the end, now

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Speaker 1: we know that last week the boj did not adjust policy.

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Speaker 1: Whether or not that contributed to a lot of the

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Speaker 1: recent weakness that we're seeing in the end, I'll let

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Speaker 1: you answer that question, but first talk to me about

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Speaker 1: what you're seeing in the dollar and what accounts for

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Speaker 1: the dollar weakness.

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Speaker 3: Well, the dollar has a lot of things going against

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Speaker 3: it right now, obviously US rates are higher, and potentially

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Speaker 3: we're one of the few economies that might still cut

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Speaker 3: rates at some point.

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Speaker 4: So I think that's very negative for the dollar.

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Speaker 3: You've also seen strong growth rally that has also been

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Speaker 3: somewhat non dollar, and then there's been a lot of

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Speaker 3: concern about sort of the anti dollar trade as well,

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Speaker 3: so sort of you know, moving out of US assets.

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Speaker 3: So you've definitely seen that for the last year, and

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Speaker 3: you continue to see that this month. So that's been

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Speaker 3: really occurring for the last couple of days as well.

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Speaker 1: So we have a FED rate decision this week. In

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Speaker 1: our survey, policymakers are widely expected to keep rates steady.

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Speaker 1: But there's another idea here is that we'll probably have

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Speaker 1: to wait until June before we get another rate cut

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Speaker 1: from the Fed. Is that consistent with your thinking.

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Speaker 3: That's consistent with what most people are thinking right now.

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Speaker 3: I think bonds have been the hardest asset class to trade.

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Speaker 3: We have seen YU fields up quite a bit, and

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Speaker 3: you're seeing sort of this short views on fixed income.

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Speaker 3: That being said, these are not really strong signals.

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Speaker 4: You're still sort of it feels like.

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Speaker 3: Fixed income is in limbo, and that's consistent with the

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Speaker 3: idea that we're not probably going to have some big

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Speaker 3: moves or changes in the short term.

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Speaker 1: We get PPI at the end of the week. Are

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Speaker 1: you satisfied with the level of inflation right now? I mean,

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Speaker 1: if you had to put money to work in the

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Speaker 1: bond market, that inflation is not a pain point for you.

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Speaker 3: So I think the challenge here is the short term

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Speaker 3: versus the long term view. The short term view seems

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Speaker 3: to be relatively mild on inflation, and bonds have been

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Speaker 3: trading sort of not too concerned about inflation. But I

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Speaker 3: think if we really did have a shift in policy

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Speaker 3: where in some sense you have rates go lower because

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Speaker 3: there's a lot of pressure for that, and you have

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Speaker 3: a lot of growth accelerated and overstimulation, that's where longer

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Speaker 3: term you might see some potential for inflation.

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Speaker 4: We don't see that.

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Speaker 3: Now, but I think over longer horizons it's definitely a concern.

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Speaker 1: We have a lot of key earnings reports in the week.

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Speaker 1: I had four of the mag seven are reporting, and

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Speaker 1: this is very much part of the AI story and

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Speaker 1: the build out of the infrastructure that has helped to

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Speaker 1: drive a lot of economic growth in the US. What

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Speaker 1: will you be listening for as we hear from four

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Speaker 1: of the mag seven this week.

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Speaker 3: Well, this is an important point because if you look

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Speaker 3: at the market will be very focused on the strength

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Speaker 3: of these earnings. But if you look at market moves

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Speaker 3: this month, actually the Russell and some other sectors have

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Speaker 3: been outperforming, so we've seen somewhat of a rotation, and

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Speaker 3: I think it could be a trigger point if you

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Speaker 3: did see some concerning news in something that has been

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Speaker 3: the main support of the market recently.

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Speaker 4: But it has been interesting that the market.

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Speaker 3: Has been kind of pivoting and rotating a little bit

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Speaker 3: out of sort of tech and more in favor of

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Speaker 3: small cap this month. Maybe that's something that could continue

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Speaker 3: depending on how this news and how earnings come out.

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Speaker 1: So is the move into small cap that we've been

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Speaker 1: seeing recently, is that just based on the attractiveness of

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Speaker 1: valuation or is it a bet on the fact that

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Speaker 1: we're going to see a resurgence and economic growth.

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Speaker 3: That is a good question. I mean you have to

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Speaker 3: ask the question of is this a real rally or

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Speaker 3: is this a broadening rally where you're kind of seeing,

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Speaker 3: you know, equities have gone up so much growth is strong,

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Speaker 3: does that mean that sort of undervalued areas of the

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Speaker 3: market might actually have opportunity for expansion as well. It

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Speaker 3: could be one or it could be the other, and

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Speaker 3: it really depends on if this is a fundamentally based

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Speaker 3: and we're actually going to see that growth in those companies,

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Speaker 3: and maybe that people are just looking for other places

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Speaker 3: to diversify, and that means that it may not be

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Speaker 3: growth related but sort of diversification.

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Speaker 1: Take that a step further. If you're looking for diversification,

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Speaker 1: do you want to be exposed offshore right now? Is

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Speaker 1: that a safer bet?

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Speaker 3: Definitely, I would say, because if you've looked at things

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Speaker 3: that have really worked this month, it's things like em

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Speaker 3: Those markets are really benefiting from some of the big

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Speaker 3: moves in the metal space, et cetera. So you're seeing

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Speaker 3: opportunities outside of just US. Japan, despite today, has been

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Speaker 3: up quite a.

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Speaker 4: Bit as well.

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Speaker 3: And it has been interesting because you've seen China and

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Speaker 3: India have been down, but you've seen really positive returns

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Speaker 3: in other places like Hong Kong and Japan and et cetera.

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Speaker 1: Is it surprising to you that we haven't seen, let's

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Speaker 1: call it a meaningful pullback in the US equity market

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Speaker 1: something substantial to the tune of around ten percent or more.

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Speaker 1: Does that surprise you?

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Speaker 3: It's not that surprising to me, given the level of

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Speaker 3: growth that we've seen and sort of growth numbers. So

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Speaker 3: I think looking back at last year when we were

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Speaker 3: sort of in the height of this tariff discussion, I

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Speaker 3: think everybody thought, there's no way that we're going to

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Speaker 3: see what we've seen over the last year months. But

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Speaker 3: as long as we continue to see growth strong, then

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Speaker 3: sort of there's something for this market to lean on.

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Speaker 4: And I think that's why you're seeing that.

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Speaker 1: So you're fully invested right now. You're not holding any

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Speaker 1: dry powder, so to speak.

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Speaker 4: Well, i'd see.

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Speaker 3: I mean, for us, we were really following the trends

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Speaker 3: and themes that you're seeing, and you're seeing not full

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Speaker 3: like signal strength in terms of equities, but you have

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Speaker 3: seen pretty consistent and strong views that equities are continuing

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Speaker 3: to rally and for now, there's really little that goes

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Speaker 3: against us at this point.

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Speaker 1: So what is the one thing then that potentially could

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Speaker 1: alter your thesis here that may prove to be a

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Speaker 1: good warning signal or something that may indicate that a

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Speaker 1: reversal is on the horizon.

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Speaker 3: I think the places a look right now are sort

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Speaker 3: of I am a little concerned about the massive moves

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Speaker 3: in the metals markets. So if you see that and

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Speaker 3: then you start to see energy join that particular theme,

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Speaker 3: then the sort of eventual inflation concern comes in. I

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Speaker 3: think the fact that you're seeing yields up and the

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Speaker 3: potential for sort of a weakening in the bond market

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Speaker 3: is also another precursor to potentially pullback in the equity market.

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Speaker 3: So I think we have to look outside of the

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Speaker 3: equity markets for areas where there might be some concern.

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Speaker 1: Okay, Katie, well leave it there. Thank you so much.

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Speaker 1: I hope the week ahead is a productive one for you.

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Speaker 1: Katie Kaminski is chief for search strategist at Alpha Simplex,

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Speaker 1: joining from Boston here on the Daybreak Asia Podcast. Thanks

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Speaker 1: for listening to today's episode of the Bloomberg Daybreak Asia

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Speaker 1: Edition podcast. Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. If you can find

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Speaker 1: us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or

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Speaker 1: anywhere else you listen, join us again tomorrow for insight

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Speaker 1: on the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner and this is Bloomberg.

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Speaker 3: Hmm