Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak
Speaker 1: Asia podcast. I'm Doug Chrisner. The Japanese yen is trading
Speaker 1: at a five month high today against the US dollar.
Speaker 1: It was earlier on Sunday that we heard from Prime
Speaker 1: Minister taka Ichi sending a fresh warning to markets with
Speaker 1: the assertion that the government is ready to take action
Speaker 1: in the face of a weaker yen and surging Japanese
Speaker 1: bond yields. Now. Last Friday in the States, traders reported
Speaker 1: that the New York Fed had contact at financial institutions
Speaker 1: to ask about the yen's exchange rate. Now, the reason
Speaker 1: behind that rate check was unclear, However, the possibilities do
Speaker 1: include that Japan's Ministry of Finance did ask the US
Speaker 1: Department of Treasury to request a rad check to stabilize
Speaker 1: the end without any direct intervention. Let's take a closer
Speaker 1: look at what this means for market action. I'm joined
Speaker 1: by k Mura. Kay is, portfolio manager and managing director
Speaker 1: for Japanese equities at Newburger Berman. K joins from Tokyo.
Speaker 1: Thank you so much for being here. We heard over
Speaker 1: the weekend from Prime Minister Takei ICHI's sending a fresh
Speaker 1: warning to markets, perhaps signaling the potential for some sort
Speaker 1: of intervention. I'm curious, K, when you listen to some
Speaker 1: of the chatter on trading floors in Tokyo, what are
Speaker 1: you hearing right now?
Speaker 2: Me personally sitting here, we haven't heard anything directly, just
Speaker 2: because our trading has actually done in Hong Kong. But
Speaker 2: what I can say, though, is based on our internal communication,
Speaker 2: is that we have been hearing over the last several
Speaker 2: weeks that the government has been more keen to put
Speaker 2: some kind of a floor for the Japanese yend. That
Speaker 2: rhetoric has sharply increased since Friday, and that was following
Speaker 2: the boj governor's press conference started off with rate checks
Speaker 2: from the central Bank, and I think what caught people
Speaker 2: off guard was what happened on the state side, with
Speaker 2: speculation about the FED New York Office also intervening, which
Speaker 2: I think would be quite a rare event if it
Speaker 2: actually did happen. I think at the moment there is
Speaker 2: also some speculation that the government in Japan has intervened
Speaker 2: in the markets, just given the way the yen has moved.
Speaker 2: And so we are currently watching at the moment, if
Speaker 2: the yen would appreciate any further. On the other hand,
Speaker 2: if the moves that we've been seeing on the end
Speaker 2: is driven partly on speculation that the US government has
Speaker 2: also intervened in the market, which we haven't yet heard of,
Speaker 2: that is something that I think we need to pay
Speaker 2: attention to more carefully because that's sort of coordinated action
Speaker 2: by the two central banks. It's something that we haven't
Speaker 2: seen since what March of twenty eleven, and that would
Speaker 2: be quite a very very rare move.
Speaker 1: So we're seeing big moves in the for X today
Speaker 1: dollar weakness, with the Bloomberg Dollars spot index down about
Speaker 1: a third of one percent right now, the end much stronger.
Speaker 1: Some of this may be tied to a bit of
Speaker 1: short covering. Do you have a sense of how much
Speaker 1: time will need to elapse before we can kind of
Speaker 1: conclude that this is perhaps a durable move that we're
Speaker 1: not going to see a resumption of en weakness.
Speaker 2: It's hard to say, because at the moment, what is
Speaker 2: driving the dollar yen is speculation about intervention, which historically
Speaker 2: has helped for very near term movements. By that said,
Speaker 2: the weakness that we're seeing for the end where we
Speaker 2: have been seeing has been driven by more economic fundamentals
Speaker 2: structural issues with the Japanese economy. We are of the
Speaker 2: view though, that the moves have been somewhat excessive, especially
Speaker 2: given the fact that government finances in Japan have been
Speaker 2: improving over the last several years, and so we're of
Speaker 2: the view that once there's some normalcy coming back to
Speaker 2: the markets, yet would appreciate gradually against the US dollar,
Speaker 2: albeit this would also be dependent on what the FED
Speaker 2: does over the next or six to twelve months.
Speaker 1: We recently saw in the Japanese bond market a little
Speaker 1: bit of anxiety tied to the Prime Minister's plan for
Speaker 1: a tax cut on food, and that put the spotlight
Speaker 1: clearly on the fiscal situation that Japan has been struggling
Speaker 1: with for quite some time. Now. Do you think that
Speaker 1: that is also something that is pretty much a short
Speaker 1: term blip that we shouldn't be too overly concerned about,
Speaker 1: or is there a potential for some type of return
Speaker 1: to that type of volatility in the Japanese bond market.
Speaker 2: It's hard to say at the moment, but what I
Speaker 2: can say is that most investors have already priced in
Speaker 2: the prospect of some kind of tax cut involving food
Speaker 2: stuffs in Japan, and this has to do with the
Speaker 2: fact that most of the political parties in this potential
Speaker 2: upcoming election have also looked to make similar policy statements. However,
Speaker 2: I think what investors are keenly focused on is how
Speaker 2: the election would help Prime Miaster tak push through other
Speaker 2: economic fiscal stimulus measures, potentially increase defense spending down the line.
Speaker 2: We're of the view that if the Liberal Democratic Party
Speaker 2: wins more seats in the parliament, if Miss Takaichi Solidus
Speaker 2: bias her power even further, then she will likely push
Speaker 2: through more measures that will further support to domestic economy,
Speaker 2: especially on private spending, and then of course on defense
Speaker 2: spending as well. And our portfolios are well positioned to
Speaker 2: try to capture some of those gains down the line.
Speaker 2: And of course, I think we're of the view that
Speaker 2: if this helps the prop up the economy further, that
Speaker 2: could be especially helpful for regional banks as well as
Speaker 2: also some of the big lenders as well that could
Speaker 2: benefit from a healthier economy.
Speaker 1: So we're seeing a pullback in Japanese equities that seems
Speaker 1: to be directly correlated to the end strengthening today. Longer term,
Speaker 1: what is your outlook for stocks in Japan.
Speaker 2: Yeah, no, that's a that's a very good point. You know,
Speaker 2: this sort of temporary pullback is something that you know,
Speaker 2: we think is actually quite healthy. It gives us an
Speaker 2: opportunity to dive into some really good names. Our view
Speaker 2: of the mid to long term is that there are
Speaker 2: companies out there in Japan that are very much discounted
Speaker 2: versus global peers, but have really good economic fundamentals and
Speaker 2: macro fundamentals underneath it, but also good growth stories over
Speaker 2: the mental long term. So we own a company like
Speaker 2: say Nitara, which used to be a company called JC Spark,
Speaker 2: Plug and Doug. You know, if you're a driver, you'll
Speaker 2: probably know what that is. It's it's a key device
Speaker 2: that goes into an internal internal combustion engine vehicle. This
Speaker 2: company owns seventy percent of the global market share, and
Speaker 2: as we've all been seeing internal combustion engines, hybrid vehicles,
Speaker 2: plug and hirrins are all coming back. And our view
Speaker 2: is that as this market continues to do quite well,
Speaker 2: this company with this type of global market share will
Speaker 2: be able to not only maintain good margins but also
Speaker 2: be able to pass on increasing costs and further improve
Speaker 2: profitability down the line. These are the types of companies
Speaker 2: that we think have really good potential over the mental
Speaker 2: interm and they're still you know, training at low teams,
Speaker 2: which is a really nice discount compared to some of
Speaker 2: the really high cyclic goal high valuation names out there today.
Speaker 1: So kay and the week ahead here in the States,
Speaker 1: we're going to be getting earnings from four of the
Speaker 1: mag seven companies, and a portion of what we will
Speaker 1: be hearing will be reflective of the environment around artificial intelligence.
Speaker 1: Give me a sense of what's happening in Japan right
Speaker 1: now in AI and how this is being played out
Speaker 1: in the equity market.
Speaker 2: We also have exposure to this play, but more from
Speaker 2: a cautious valuation standpoint. So what I mean by that is,
Speaker 2: you know the likes of say Advan Tests or took Electron.
Speaker 2: These are hardware semiconductor production equipment type plays. They've seen
Speaker 2: a huge run up in their share price in evaluations
Speaker 2: with a little stretch. But actually if you go down
Speaker 2: the value chain, you'll find that there are companies like
Speaker 2: Kinden which are very focused in terms of the building
Speaker 2: in construction of the semiconductor plants and the data centers.
Speaker 2: And actually these are the companies that have actually done
Speaker 2: very very well, and we continue to see them doing
Speaker 2: very well because up until now they haven't been able
Speaker 2: to make much money in construction projects. But with the
Speaker 2: last sort of three to four years Japan coming back
Speaker 2: with inflation sticking real interest rates higher, these companies can
Speaker 2: now pick and choose really profitable projects and voila. They
Speaker 2: tend to be the AI related investment place. And so
Speaker 2: that has done tremendously well for us. More, from a
Speaker 2: macroeconomic standpoint, AI is going to have a really big
Speaker 2: boost to productivity and you know, Doug, as you know,
Speaker 2: in Japan we have a shrinking population, so any incremental
Speaker 2: improvements that we could see in productivity for the labor
Speaker 2: market would bode well, very well for Japanese companies. And
Speaker 2: these are types of companies that you'll find exposure to
Speaker 2: in our portfolios.
Speaker 1: Okay, before I let you go, I have to ask
Speaker 1: about inflation, because at the end of the week we're
Speaker 1: going to get the data on Tokyo CPI. We're speaking,
Speaker 1: you're in the Japanese capital. Give me a sense of
Speaker 1: what's happening on the inflation story, particularly at the retail level.
Speaker 2: Yeah, Doug, I think we are seeing the inflation and
Speaker 2: take a bite out of people's wallets. And you know,
Speaker 2: when we're looking at some of the numbers from retail
Speaker 2: sales figures, we did notice some weakness, especially among SI
Speaker 2: apparel and some of the you know, basic items. I
Speaker 2: think you know you can you can get a sense
Speaker 2: that some people are starting to trade down towards some
Speaker 2: of the cheaper goods. However, it is important to note
Speaker 2: that in the upcomings next several months, we're going to
Speaker 2: see wage negotiations from laboring unions. They're going to be
Speaker 2: very keen on seeing higher wages continue for the foreseeable future.
Speaker 2: But that's why it is very important that as equity investors,
Speaker 2: you're invested in these companies that have good, solid fundamentals,
Speaker 2: that have high market share, that can pass on rising
Speaker 2: costs such as labor. Those are the ones that will
Speaker 2: continue to survive. And I think you know, our view
Speaker 2: is is as economy gets better and better, we will
Speaker 2: see the consumption pick up. It might take a little
Speaker 2: bit of time, but it will pick up. And that's
Speaker 2: I think what makes us market burber interesting.
Speaker 1: Okay, we'll leave it on that optimistic note. Kay, thank
Speaker 1: you so much. Kaya Kimura is portfolio manager also managing
Speaker 1: director for Japanese equities at Newberger Berman. Joining from Tokyo
Speaker 1: here on the Daybreak Asia podcast. Welcome back to the
Speaker 1: Daybreak Asia Podcast. I'm Doug Krisner. We are seeing a
Speaker 1: rally in the precious metals market. Earlier today, spot gold
Speaker 1: rose above five thousand dollars in ounce for the very
Speaker 1: first time, and silver also hit a record high on Monday.
Speaker 1: For a closer look at market action, I'm joined by
Speaker 1: Katie Kaminski. Katie is chief for Search strategist at Alpha Simplex.
Speaker 1: She's on the line from Boston, a very cold and
Speaker 1: snowy Boston. Katie, thank you so much for being here.
Speaker 1: What do you make of what we're seeing right now
Speaker 1: in the precious metal space.
Speaker 3: Well, I mean, I think the precious metals market is
Speaker 3: a little bit of a shock for us that we've
Speaker 3: seen so much movement there.
Speaker 4: It's almost like you have supply and.
Speaker 3: Demand and balance and so much demand for precious metals
Speaker 3: that prices have just really surged drastically. I mean, I
Speaker 3: think gold spot prices broke five thousand today future is
Speaker 3: even higher than that, of course, so you're really seeing
Speaker 3: precious metals as the safety trade, and it continues.
Speaker 1: To go safety against I think.
Speaker 3: Against potential weakness for the US dollar, geopolitical uncertainty, just
Speaker 3: so many variables looking for something that has clear value,
Speaker 3: tangible value, and in some senses a hedge on the
Speaker 3: potential for challenging environments for equities at some point.
Speaker 1: So you mentioned the dollar weakness. Flip side of that
Speaker 1: today is a great deal of strength that we're seeing
Speaker 1: right now in the Japanese yen. Earlier on Sunday, Prime
Speaker 1: Minister Takich she sent a fresh warning to the currency market.
Speaker 1: She was saying that the government's going to be ready
Speaker 1: to take action in the face of a lot of
Speaker 1: the weakness that we have seen. In the end, now
Speaker 1: we know that last week the boj did not adjust policy.
Speaker 1: Whether or not that contributed to a lot of the
Speaker 1: recent weakness that we're seeing in the end, I'll let
Speaker 1: you answer that question, but first talk to me about
Speaker 1: what you're seeing in the dollar and what accounts for
Speaker 1: the dollar weakness.
Speaker 3: Well, the dollar has a lot of things going against
Speaker 3: it right now, obviously US rates are higher, and potentially
Speaker 3: we're one of the few economies that might still cut
Speaker 3: rates at some point.
Speaker 4: So I think that's very negative for the dollar.
Speaker 3: You've also seen strong growth rally that has also been
Speaker 3: somewhat non dollar, and then there's been a lot of
Speaker 3: concern about sort of the anti dollar trade as well,
Speaker 3: so sort of you know, moving out of US assets.
Speaker 3: So you've definitely seen that for the last year, and
Speaker 3: you continue to see that this month. So that's been
Speaker 3: really occurring for the last couple of days as well.
Speaker 1: So we have a FED rate decision this week. In
Speaker 1: our survey, policymakers are widely expected to keep rates steady.
Speaker 1: But there's another idea here is that we'll probably have
Speaker 1: to wait until June before we get another rate cut
Speaker 1: from the Fed. Is that consistent with your thinking.
Speaker 3: That's consistent with what most people are thinking right now.
Speaker 3: I think bonds have been the hardest asset class to trade.
Speaker 3: We have seen YU fields up quite a bit, and
Speaker 3: you're seeing sort of this short views on fixed income.
Speaker 3: That being said, these are not really strong signals.
Speaker 4: You're still sort of it feels like.
Speaker 3: Fixed income is in limbo, and that's consistent with the
Speaker 3: idea that we're not probably going to have some big
Speaker 3: moves or changes in the short term.
Speaker 1: We get PPI at the end of the week. Are
Speaker 1: you satisfied with the level of inflation right now? I mean,
Speaker 1: if you had to put money to work in the
Speaker 1: bond market, that inflation is not a pain point for you.
Speaker 3: So I think the challenge here is the short term
Speaker 3: versus the long term view. The short term view seems
Speaker 3: to be relatively mild on inflation, and bonds have been
Speaker 3: trading sort of not too concerned about inflation. But I
Speaker 3: think if we really did have a shift in policy
Speaker 3: where in some sense you have rates go lower because
Speaker 3: there's a lot of pressure for that, and you have
Speaker 3: a lot of growth accelerated and overstimulation, that's where longer
Speaker 3: term you might see some potential for inflation.
Speaker 4: We don't see that.
Speaker 3: Now, but I think over longer horizons it's definitely a concern.
Speaker 1: We have a lot of key earnings reports in the week.
Speaker 1: I had four of the mag seven are reporting, and
Speaker 1: this is very much part of the AI story and
Speaker 1: the build out of the infrastructure that has helped to
Speaker 1: drive a lot of economic growth in the US. What
Speaker 1: will you be listening for as we hear from four
Speaker 1: of the mag seven this week.
Speaker 3: Well, this is an important point because if you look
Speaker 3: at the market will be very focused on the strength
Speaker 3: of these earnings. But if you look at market moves
Speaker 3: this month, actually the Russell and some other sectors have
Speaker 3: been outperforming, so we've seen somewhat of a rotation, and
Speaker 3: I think it could be a trigger point if you
Speaker 3: did see some concerning news in something that has been
Speaker 3: the main support of the market recently.
Speaker 4: But it has been interesting that the market.
Speaker 3: Has been kind of pivoting and rotating a little bit
Speaker 3: out of sort of tech and more in favor of
Speaker 3: small cap this month. Maybe that's something that could continue
Speaker 3: depending on how this news and how earnings come out.
Speaker 1: So is the move into small cap that we've been
Speaker 1: seeing recently, is that just based on the attractiveness of
Speaker 1: valuation or is it a bet on the fact that
Speaker 1: we're going to see a resurgence and economic growth.
Speaker 3: That is a good question. I mean you have to
Speaker 3: ask the question of is this a real rally or
Speaker 3: is this a broadening rally where you're kind of seeing,
Speaker 3: you know, equities have gone up so much growth is strong,
Speaker 3: does that mean that sort of undervalued areas of the
Speaker 3: market might actually have opportunity for expansion as well. It
Speaker 3: could be one or it could be the other, and
Speaker 3: it really depends on if this is a fundamentally based
Speaker 3: and we're actually going to see that growth in those companies,
Speaker 3: and maybe that people are just looking for other places
Speaker 3: to diversify, and that means that it may not be
Speaker 3: growth related but sort of diversification.
Speaker 1: Take that a step further. If you're looking for diversification,
Speaker 1: do you want to be exposed offshore right now? Is
Speaker 1: that a safer bet?
Speaker 3: Definitely, I would say, because if you've looked at things
Speaker 3: that have really worked this month, it's things like em
Speaker 3: Those markets are really benefiting from some of the big
Speaker 3: moves in the metal space, et cetera. So you're seeing
Speaker 3: opportunities outside of just US. Japan, despite today, has been
Speaker 3: up quite a.
Speaker 4: Bit as well.
Speaker 3: And it has been interesting because you've seen China and
Speaker 3: India have been down, but you've seen really positive returns
Speaker 3: in other places like Hong Kong and Japan and et cetera.
Speaker 1: Is it surprising to you that we haven't seen, let's
Speaker 1: call it a meaningful pullback in the US equity market
Speaker 1: something substantial to the tune of around ten percent or more.
Speaker 1: Does that surprise you?
Speaker 3: It's not that surprising to me, given the level of
Speaker 3: growth that we've seen and sort of growth numbers. So
Speaker 3: I think looking back at last year when we were
Speaker 3: sort of in the height of this tariff discussion, I
Speaker 3: think everybody thought, there's no way that we're going to
Speaker 3: see what we've seen over the last year months. But
Speaker 3: as long as we continue to see growth strong, then
Speaker 3: sort of there's something for this market to lean on.
Speaker 4: And I think that's why you're seeing that.
Speaker 1: So you're fully invested right now. You're not holding any
Speaker 1: dry powder, so to speak.
Speaker 4: Well, i'd see.
Speaker 3: I mean, for us, we were really following the trends
Speaker 3: and themes that you're seeing, and you're seeing not full
Speaker 3: like signal strength in terms of equities, but you have
Speaker 3: seen pretty consistent and strong views that equities are continuing
Speaker 3: to rally and for now, there's really little that goes
Speaker 3: against us at this point.
Speaker 1: So what is the one thing then that potentially could
Speaker 1: alter your thesis here that may prove to be a
Speaker 1: good warning signal or something that may indicate that a
Speaker 1: reversal is on the horizon.
Speaker 3: I think the places a look right now are sort
Speaker 3: of I am a little concerned about the massive moves
Speaker 3: in the metals markets. So if you see that and
Speaker 3: then you start to see energy join that particular theme,
Speaker 3: then the sort of eventual inflation concern comes in. I
Speaker 3: think the fact that you're seeing yields up and the
Speaker 3: potential for sort of a weakening in the bond market
Speaker 3: is also another precursor to potentially pullback in the equity market.
Speaker 3: So I think we have to look outside of the
Speaker 3: equity markets for areas where there might be some concern.
Speaker 1: Okay, Katie, well leave it there. Thank you so much.
Speaker 1: I hope the week ahead is a productive one for you.
Speaker 1: Katie Kaminski is chief for search strategist at Alpha Simplex,
Speaker 1: joining from Boston here on the Daybreak Asia Podcast. Thanks
Speaker 1: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 1: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 1: and geopolitics in the Asia Pacific. If you can find
Speaker 1: us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or
Speaker 1: anywhere else you listen, join us again tomorrow for insight
Speaker 1: on the market moves from Hong Kong to Singapore and Australia.
Speaker 1: I'm Doug Chrisner and this is Bloomberg.
Speaker 3: Hmm