WEBVTT - Has Japan Really Escaped the 'Lost Decades'? 0:00:02.560 --> 0:00:06.640 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.680 --> 0:00:09.360 that pulls back the curtain on global business so you 0:00:09.360 --> 0:00:12.680 can invest better across the Asia Pacific rim. I'm John 0:00:12.760 --> 0:00:17.160 Lee in Hong Kong. Global investors continue to pile into Japan, 0:00:17.600 --> 0:00:20.160 betting that the economy has finally broken out of its 0:00:20.200 --> 0:00:24.000 economic stagnation. The nik A two to five stock index 0:00:24.120 --> 0:00:27.080 has hit record highs and is up twenty five percent 0:00:27.160 --> 0:00:30.800 this year, making it the world's best performing major market 0:00:30.920 --> 0:00:34.280 in local currency terms. The Bank of Japan has also 0:00:34.360 --> 0:00:36.800 raised interest rates for the first time since two thousand 0:00:36.840 --> 0:00:41.360 and seven. How will the return of inflation transform Japan's 0:00:41.400 --> 0:00:46.280 economy and how sustainable is the recovery? Can Japan's efforts 0:00:46.280 --> 0:00:50.760 to improve its corporate governance meet high investor expectations? And 0:00:50.840 --> 0:00:53.880 what are the key strategic industries investors should watch out 0:00:53.880 --> 0:00:58.680 for Here to discuss Japan is Tarro Kimura, Bloomberg senior 0:00:58.760 --> 0:01:02.480 Japan economist and former Bank of Japan veteran. He joins 0:01:02.520 --> 0:01:06.959 Asia Centric for the second time, and Takeshi Katawa, senior 0:01:07.000 --> 0:01:11.800 industrials analysts or Bloomberg Intelligence, both joined from Tokyo. Welcome 0:01:11.880 --> 0:01:14.120 Taro and Takeshi thanks for having us. 0:01:14.160 --> 0:01:16.360 Thank you, John Taro. 0:01:16.560 --> 0:01:19.520 The Bank of Japan finally raised interest rates in March 0:01:19.600 --> 0:01:23.000 this year, the first time in seventeen years. Wages are 0:01:23.000 --> 0:01:27.160 also rising in Japan. Is Japan finally breaking out of 0:01:27.200 --> 0:01:28.360 its economic stagnation? 0:01:29.720 --> 0:01:32.959 Yes, I think Japan's economy is making a sort of 0:01:33.120 --> 0:01:36.560 tectonic shift. I wasn't really expecting that kind of thing 0:01:36.600 --> 0:01:39.200 would happen last year. So the thing is that the 0:01:39.200 --> 0:01:45.479 bottleneck of Japanese economist stagnation is a tape it private consumption, 0:01:46.000 --> 0:01:49.320 and this is because of the very stagnant waste growth, 0:01:49.560 --> 0:01:54.240 mainly so having achieved five point one percent wage growth 0:01:54.400 --> 0:01:57.840 obtained by the labor union in this year's spring wage 0:01:57.920 --> 0:02:01.000 negotiation we call it Shunto in Japanese, is a big 0:02:01.040 --> 0:02:05.240 step for the Japan's economy to recover its healthy shape, 0:02:05.600 --> 0:02:09.280 and the expectation for households and workers that their income 0:02:09.360 --> 0:02:12.720 could actually rise would be providing a big support for 0:02:12.840 --> 0:02:15.520 Japanese consumption, not only in the short term but in 0:02:15.560 --> 0:02:19.120 the long run. So that's why basically I think Japan's 0:02:19.160 --> 0:02:23.320 economy is cleared with the fundamental bottlemet that has been 0:02:23.480 --> 0:02:26.840 dragged down Japan's growth for a long time, and. 0:02:26.880 --> 0:02:29.680 Tarak, can you explain to the listener why the return 0:02:29.760 --> 0:02:33.640 of rising wages and also the return of inflation is 0:02:33.680 --> 0:02:37.560 so important to Japanese corporates and ultimately the Japanese economy. 0:02:38.120 --> 0:02:41.880 Right, So, usually the inflation is bad for the economy, 0:02:41.919 --> 0:02:46.079 but it's also important to have modest inflation. There are 0:02:46.120 --> 0:02:49.520 several ways to think of it. For example, if we 0:02:49.600 --> 0:02:53.000 live in the world where prices have to be very rigid, 0:02:53.480 --> 0:02:57.919 that means corporates cannot adjust prices even they are facing 0:02:58.160 --> 0:03:02.079 cost push pressure for example the high old prices, energy prices, 0:03:02.160 --> 0:03:06.000 food prices, whatsoever. And if they cannot pass onto those 0:03:06.040 --> 0:03:11.160 cost increases to their prices, the workers' wages are also subdued. Therefore, 0:03:11.360 --> 0:03:14.200 having mild inflation to keep the norm that the price 0:03:14.240 --> 0:03:18.400 can rise anytime is important. In Japan experienced deflation and 0:03:18.440 --> 0:03:21.320 this inflation for three decades. That norm that wages and 0:03:21.400 --> 0:03:25.640 prices aren't something that could be changed is dragging down 0:03:25.800 --> 0:03:29.800 the inflation expectations and corporate profits. But finally, the push 0:03:29.840 --> 0:03:33.959 from global inflation triggered by war in Ukraine became the 0:03:34.000 --> 0:03:37.680 big push in catalyst for Japan's corporates to break down 0:03:37.720 --> 0:03:41.640 from that rigid wages and prices setting behaviors, and also 0:03:42.040 --> 0:03:46.200 having no inflation or even deflation means it's sometimes optimal 0:03:46.320 --> 0:03:49.440 for corporates and households to keep their money as cash 0:03:49.480 --> 0:03:52.680 in their bank accounts instead of investing those money into 0:03:52.680 --> 0:03:56.680 more risky new areas. So I think probably this inflation 0:03:56.720 --> 0:04:00.840 and deflation in Japan had hindered the long term positive 0:04:00.840 --> 0:04:03.960 investments in the economy, and that will change if the 0:04:04.120 --> 0:04:05.640 inflation is finally secured. 0:04:06.280 --> 0:04:10.360 And you mentioned modest inflation in the US. There's too 0:04:10.440 --> 0:04:13.600 much inflation in Japan. In the past there was not enough, 0:04:13.680 --> 0:04:18.080 and now China is also suffering from deflationary concerns. Is 0:04:18.120 --> 0:04:20.440 the Bank of Japan also looking at a two percent 0:04:20.520 --> 0:04:21.839 target like the US Fed? 0:04:23.040 --> 0:04:26.120 Yes, the official inflation target for the Bank of Japan 0:04:26.400 --> 0:04:29.760 is the two percent core inflation. Having said that two 0:04:29.800 --> 0:04:32.640 percent is just the kind of global myth, I would say, 0:04:32.760 --> 0:04:36.480 there's no solid academic background why two percent is important. 0:04:36.800 --> 0:04:39.800 So in my reading, it's enough for Japan's economy to 0:04:39.880 --> 0:04:42.840 have one percent or one point five percent of inflation 0:04:43.320 --> 0:04:46.760 because on others in the past thirty years before COVID, 0:04:46.920 --> 0:04:51.280 Japan's core inflation gains are averaged around zero point two percent. 0:04:51.520 --> 0:04:54.040 So as long as the Bank of Japan thinks inflation 0:04:54.240 --> 0:04:56.600 hasn't been anchored around two percent yet, I think they 0:04:56.600 --> 0:04:59.320 will keep their accommodative monetari policies. 0:05:00.400 --> 0:05:04.360 Asia Centric is produced by Bloomberg Intelligence, where more than 0:05:04.360 --> 0:05:08.479 five hundred experienced analysts and strategists work around the clock 0:05:08.520 --> 0:05:12.560 to bring you timely, world class research. Our coverage spans 0:05:12.600 --> 0:05:17.400 two hundred market indices, currencies, commodities, and industries, as well 0:05:17.400 --> 0:05:20.680 as over two thousand equities and credits. If you like 0:05:20.720 --> 0:05:25.000 what you hear, don't forget to subscribe and cham what's 0:05:25.040 --> 0:05:28.720 your expectation of interest rates going forward? There was a 0:05:28.760 --> 0:05:32.279 lot of excitement when the Bank of Japan finally raised 0:05:32.320 --> 0:05:34.920 interest rates, but in reality it was only like a 0:05:34.960 --> 0:05:38.440 ten basis point rise basically from zero percent to zero 0:05:38.520 --> 0:05:42.040 point one percent. What's your expectation? Is there a risk 0:05:42.120 --> 0:05:44.800 that maybe investors are expecting too much from Japan and 0:05:44.839 --> 0:05:46.880 the BOJ I. 0:05:46.839 --> 0:05:50.440 Think generally speaking, the Bank of Japan is taking the 0:05:50.520 --> 0:05:53.680 balance in a way that on one side, Japan's inflation 0:05:53.880 --> 0:05:57.200 is just started to kindle, So the boj really has 0:05:57.240 --> 0:06:01.880 to be careful in jip kindle. The inflation fires so 0:06:01.920 --> 0:06:06.200 that the Japan's economy eventually secure a modest inflation around 0:06:06.200 --> 0:06:09.440 two percent. That said, current policy interest rate is kept 0:06:09.480 --> 0:06:12.440 around zero to zero point one percent given the recent 0:06:12.600 --> 0:06:16.640 inflation expectations around one point five percent to two percent. 0:06:16.839 --> 0:06:19.920 Generally this is too low. So therefore at the Bank 0:06:19.960 --> 0:06:25.120 of Japan is expected to start the adjustment process for 0:06:25.240 --> 0:06:29.080 that too low policy rates. So that's what the market 0:06:29.120 --> 0:06:31.760 and I am expecting. I am expecting the Bank of 0:06:31.839 --> 0:06:35.360 Japan will proceed with another rate hike in July. This month, 0:06:35.800 --> 0:06:39.839 they have the meeting at July thirtieth and thirty first, 0:06:40.160 --> 0:06:43.240 and also my expectation is they will also do another 0:06:43.279 --> 0:06:46.320 rate higher again in October, up to zero point five percent. 0:06:46.600 --> 0:06:49.760 That said, again, let's say if the long term inflation 0:06:49.839 --> 0:06:52.560 expectation is now somewhere in between one point five to 0:06:52.600 --> 0:06:56.640 two percent, they're really interested. It's still negative, so BOJA 0:06:56.800 --> 0:07:00.760 raising rates doesn't mean the monetary condition suddenly gets restrictive. 0:07:01.320 --> 0:07:03.839 Okay, to case I might bring you into the conversation, 0:07:04.279 --> 0:07:08.120 Taro did mention that low inflation kept a lot of 0:07:08.240 --> 0:07:13.200 Japanese households wealth in savings deposits. Now we have wages 0:07:13.240 --> 0:07:16.760 and inflation coming up, are we starting to see Japanese 0:07:16.760 --> 0:07:22.600 households finally reallocate money into say equities or other risk assets. 0:07:23.000 --> 0:07:26.160 Thanks John. I think there's two components to this, and 0:07:26.400 --> 0:07:30.160 one is an easy one. The government from this year 0:07:30.280 --> 0:07:35.120 started a program called new NISA, which is the Nepon 0:07:35.280 --> 0:07:39.840 Individual Saving Account, which allows us about eighteen million yen 0:07:40.080 --> 0:07:45.600 tax free investments on a multiple year basis. So this 0:07:45.680 --> 0:07:48.360 actually allows a lot of the normal day to day 0:07:48.520 --> 0:07:52.560 Japanese households to start to invest, and that's definitely how 0:07:52.680 --> 0:07:56.240 pushed a lot of the households to reallocate some of 0:07:56.240 --> 0:07:59.760 the cash. But also another thing is that we've been 0:07:59.880 --> 0:08:03.080 in a sort of stagnant situation for thirty years, so 0:08:03.640 --> 0:08:07.600 that's a little bit more difficult to change. And as 0:08:07.720 --> 0:08:11.640 Parosan mentioned, we did have the Shunto wage hike above 0:08:11.680 --> 0:08:15.280 five percent this year, but all that continue is still 0:08:15.760 --> 0:08:19.680 likely on Japanese household minds. So I think we need 0:08:19.720 --> 0:08:24.560 to have consistent wage hikes which in the end sort 0:08:24.560 --> 0:08:28.600 of lead to households being comfortable the spend cash instead 0:08:28.600 --> 0:08:33.800 of saving or investing. That really should drive the consumption side, 0:08:33.840 --> 0:08:36.880 which in the end leads to another sort of basis 0:08:36.920 --> 0:08:37.840 for inflation as. 0:08:37.760 --> 0:08:41.440 Well, and do we have any figures like how conservative 0:08:41.480 --> 0:08:45.000 Japanese households are versus say, the US in terms of 0:08:45.040 --> 0:08:47.760 how much they allocate towards savings, deposits and equities. 0:08:48.480 --> 0:08:51.439 If I remember correctly, the share of the equity and 0:08:51.480 --> 0:08:55.120 its Japanese households asset is around ten percent. It's increasing 0:08:55.160 --> 0:08:58.679 because of the NISA effects, but still I guess very 0:08:58.720 --> 0:09:03.120 much lower compared to the US or even other countries. 0:09:04.720 --> 0:09:08.760 To Keshy, you recently co authored a major report entitled 0:09:08.800 --> 0:09:12.120 Emerging from the Lost Decades, and one of the reasons 0:09:12.160 --> 0:09:16.080 why global investors are piling into Japanese equities is this 0:09:16.200 --> 0:09:20.880 optimism over its corporate governance reform, this belief that corporations 0:09:20.920 --> 0:09:25.760 will finally start acting or behaving in the interests of shareholders. Now, 0:09:25.800 --> 0:09:29.319 you've been covering Japanese equities for quite a while, over 0:09:29.360 --> 0:09:32.120 a decade. What's your view. Are we seeing a major 0:09:32.200 --> 0:09:34.319 c change or is it more baby steps? 0:09:34.920 --> 0:09:38.680 Yeah? Thanks for the question. So we are seeing quite 0:09:38.720 --> 0:09:42.920 a drastic sort of proposal out of the Japan Stock 0:09:43.000 --> 0:09:47.240 Exchange on corporate governance, and they have clearly mentioned to 0:09:48.160 --> 0:09:52.720 target above PBR of one times and to do that 0:09:53.120 --> 0:09:58.600 raise the ROE, which in a component also means raise 0:09:58.720 --> 0:10:02.040 the profit margin in the business. At the same time, 0:10:02.520 --> 0:10:06.760 it can also be raised through shareholder returns. So those 0:10:06.800 --> 0:10:10.320 two are some of the corporates are talking and companies 0:10:10.360 --> 0:10:14.400 that I sort of talked to. Industrial companies definitely have 0:10:14.840 --> 0:10:18.240 started to talk about how to raise their corporate value 0:10:18.520 --> 0:10:22.440 more aggressively compared to the past decade or two. For example, 0:10:22.559 --> 0:10:25.360 one of the bigger changes that we've seen with the 0:10:25.480 --> 0:10:28.120 valuation as well as the change in the company has 0:10:28.160 --> 0:10:33.760 been Hitachi. They have predominantly been manufacturing oriented in the past, 0:10:34.160 --> 0:10:36.200 but they have shifted a lot of their sort of 0:10:36.240 --> 0:10:41.320 hardware oriented assets and sold them and invested more into 0:10:41.360 --> 0:10:45.880 the digital side of product portfolio and their IoT platform. 0:10:45.920 --> 0:10:49.079 Loumada is expected to make up about twenty nine percent 0:10:49.080 --> 0:10:52.560 of total sales this fiscal year with a sixteen percent 0:10:52.600 --> 0:10:56.720 adjusted EBITA margin, which is above the company's average target 0:10:56.760 --> 0:11:00.720 of eleven point five and they have I've pointed to 0:11:00.960 --> 0:11:04.600 twenty percent margin eventually for this platform as well. So 0:11:04.920 --> 0:11:08.240 we are in the steps of improving the margins there 0:11:08.280 --> 0:11:12.560 as well, and that's also going to be through training 0:11:12.800 --> 0:11:17.280 GENAI specialists. Fifty thousand of them and to lead that 0:11:17.440 --> 0:11:21.560 to efficiency in their own operation but also clients through 0:11:21.600 --> 0:11:25.440 better solutions. And also there was a report recently on 0:11:25.720 --> 0:11:32.000 Hitachi potentially rewarding external directors with company shares to further 0:11:32.120 --> 0:11:36.840 that initiative. So this is one company example, but as 0:11:36.880 --> 0:11:40.880 you mentioned, baby steps maybe, but we are seeing actual 0:11:41.000 --> 0:11:43.760 change coming from some of the leaders in this area, 0:11:43.960 --> 0:11:47.760 So it'll be an equity market that everyone should continue 0:11:47.800 --> 0:11:48.440 to be focused on. 0:11:49.559 --> 0:11:53.800 Are we seeing more female composition in boards, more female executives? 0:11:54.240 --> 0:11:57.400 I do know the irony of having three miles on 0:11:57.440 --> 0:12:01.319 this podcast, but are there more females getting involved in japan. 0:12:01.160 --> 0:12:05.440 In Basically that's the target and the government has stated 0:12:06.320 --> 0:12:08.880 at least same for thirty percent over the next couple 0:12:08.920 --> 0:12:12.120 of years, and a lot of the companies have real 0:12:12.160 --> 0:12:16.280 targets towards that in terms of having enough sort of 0:12:16.320 --> 0:12:19.840 candidates to fill these positions. A lot of these female 0:12:19.840 --> 0:12:24.280 executives already have positioned in various posts and different companies 0:12:24.280 --> 0:12:27.560 as well, so it'll be a you know, difficulty of 0:12:28.080 --> 0:12:32.959 both filling these spots going forward, but also internally training 0:12:33.000 --> 0:12:36.440 a lot of their current employees to these positions as well. 0:12:37.440 --> 0:12:39.839 Okay, let's get back into some of the industries now. 0:12:39.880 --> 0:12:44.439 Earlier you mentioned AI. What is Japan's role in AI. 0:12:45.280 --> 0:12:48.440 So that's a pretty difficult question. I would say, I 0:12:48.480 --> 0:12:53.880 think Japan's currently not the superb leader in AI technology 0:12:53.920 --> 0:12:56.360 at this point. One thing I can say in the 0:12:56.440 --> 0:12:59.920 area of industrials, for example, is that AI could have 0:13:00.000 --> 0:13:03.800 help with the declining population, which is another megatren that 0:13:03.840 --> 0:13:06.360 we are seeing in Japan ahead of a lot of 0:13:06.360 --> 0:13:09.439 the other countries. So a lot of tasks that currently 0:13:09.640 --> 0:13:12.720 people do need to be done more efficiently so it 0:13:12.720 --> 0:13:16.679 doesn't require as many people. This can come from, for example, 0:13:16.760 --> 0:13:20.360 factory automation equipment, but there is a limitation to applying 0:13:20.480 --> 0:13:25.800 automation to unrepetitive tasks formerly used in the auto industry, 0:13:25.880 --> 0:13:29.760 for example in the welding line. So if we manage 0:13:29.800 --> 0:13:35.240 to utilize AI, it'll allow for broader tasks and non 0:13:35.320 --> 0:13:39.000 repetitive tasks to be automated, and that's a pretty big 0:13:39.040 --> 0:13:42.600 win for Japan as well. And so I think AI 0:13:42.840 --> 0:13:47.400 and actually putting them into application, having the technology and 0:13:47.440 --> 0:13:51.080 actually putting it into works, that putting into the works 0:13:51.120 --> 0:13:54.280 is one area that Japan can continue to be at 0:13:54.280 --> 0:13:55.040 the forefront of. 0:13:56.200 --> 0:13:59.680 Okay, So you mentioned AI factory automation. Is there any 0:13:59.720 --> 0:14:03.520 other key strategic industries that investments should be focused on 0:14:03.679 --> 0:14:04.200 in Japan? 0:14:05.080 --> 0:14:07.520 We mentioned a lot of that in the Japan briefing 0:14:07.679 --> 0:14:11.560 LEEP dive that we did. One was factory automation. For example, 0:14:11.920 --> 0:14:16.120 One area is Jascala's robot using AI technology can do 0:14:16.400 --> 0:14:19.880 a lot of tasks without as much programming that you 0:14:20.040 --> 0:14:23.240 used to need, So that's one area. Other areas will 0:14:23.280 --> 0:14:27.920 be similar efficiency through AI as well, and to do 0:14:28.040 --> 0:14:32.280 these AIS. Semiconductor supply chain is one definite area where 0:14:32.680 --> 0:14:37.280 the base materials of these wafers, production equipment are some 0:14:37.400 --> 0:14:41.000 of the areas that Japan continues to have strong technology 0:14:41.040 --> 0:14:43.640 and so these will continue to be key areas to 0:14:43.720 --> 0:14:47.120 look into for Japan. Another that I would highlight from 0:14:47.120 --> 0:14:51.680 the geopolitical risks rising would be the defense industry. And 0:14:51.720 --> 0:14:53.680 we are seeing a lot of news flow these days, 0:14:53.720 --> 0:14:57.800 but we are seeing the Japan potentially spending up to 0:14:57.880 --> 0:15:00.360 two percent of GDP or the course of the next 0:15:00.360 --> 0:15:03.440 five years or so in their new defense plan, and 0:15:03.480 --> 0:15:06.560 we are already seeing forty two percent of their sort 0:15:06.600 --> 0:15:10.600 of promised budget being deployed on a contract term and 0:15:10.880 --> 0:15:14.200 these will flow into the revenue and also there will 0:15:14.240 --> 0:15:18.400 be a margin boost potential as well, because in the 0:15:18.440 --> 0:15:21.640 past they used to be a mid single digit margin business. 0:15:21.920 --> 0:15:24.840 The government is trying to help to bring that closer 0:15:24.880 --> 0:15:29.440 to double digits, so the supply chain remains strong in 0:15:29.560 --> 0:15:33.880 Japan to manage these defense needs. I'll just mention that 0:15:34.000 --> 0:15:37.400 the next generation jet fighters, which will be co developed 0:15:37.400 --> 0:15:40.600 with global partners like Italy and UK, will be one 0:15:40.640 --> 0:15:43.680 area of highlight in the industry on a global basis. 0:15:44.400 --> 0:15:46.960 And some of these Japanese defense stocks have done really well. 0:15:47.160 --> 0:15:49.680 But you mentioned Japan's going to be spending two percent 0:15:50.000 --> 0:15:52.120 of GDP on defense, but that's also coming from a 0:15:52.160 --> 0:15:55.320 very low base, right, it's almost doubling from one percent currently. 0:15:54.920 --> 0:15:59.480 Correct, Yeah, so it's doubling from one percent, and basically 0:15:59.520 --> 0:16:04.520 I Thinko's spending is around two percent as well, So overall, 0:16:04.560 --> 0:16:07.800 I think it's sort of coming back in line. One 0:16:07.800 --> 0:16:10.720 thing that there is a discussion about is if Trump 0:16:10.760 --> 0:16:16.040 is elected next, would that also raise Japan's responsibility within 0:16:16.080 --> 0:16:19.520 the reason to spend even more. So that's one thing 0:16:19.600 --> 0:16:22.520 that will continue to monitor as we head into the 0:16:22.600 --> 0:16:23.560 US elections. 0:16:23.920 --> 0:16:26.400 I wanted to bring Tara back into the conversation. You know, 0:16:26.520 --> 0:16:30.080 many pundits thought that with the Bank of Japan raising 0:16:30.200 --> 0:16:32.840 interest rates earlier this year, we thought it could actually 0:16:32.920 --> 0:16:36.680 strengthen the Japanese currency. But in fact the currency as 0:16:36.760 --> 0:16:40.040 we can significantly to levels we have not seen since 0:16:40.040 --> 0:16:42.840 the nineteen eighties. Obviously, it's great for your tourists, but 0:16:43.080 --> 0:16:46.400 you know what went wrong and how worrying is this trend? 0:16:46.760 --> 0:16:49.800 Yes, I think recent yen slide is a sort of 0:16:49.800 --> 0:16:54.480 a surprising factors, but having checked history, we have already 0:16:54.520 --> 0:16:57.360 seen this when the Bank of Japan and that its 0:16:57.520 --> 0:17:01.200 first form of quantitativising back in two thousand and six. 0:17:01.800 --> 0:17:04.680 And at that time, although the Bank of Japan is tightening, 0:17:04.760 --> 0:17:08.520 the yen is sold against a dollar because of the speculation. Basically, 0:17:08.880 --> 0:17:13.159 the traders and investors are seizing on still start contrast 0:17:13.200 --> 0:17:16.960 between the US interest rates and Japan's interest rates, and 0:17:17.040 --> 0:17:24.439 that's making a momentum that speculatilating on short position is profitable. 0:17:25.119 --> 0:17:28.639 So in my eyes, the yen now around one sixty 0:17:28.720 --> 0:17:33.200 one zero point seven is supported by a speculative power 0:17:33.359 --> 0:17:37.639 and the correction will happen to some extent at some point. 0:17:37.720 --> 0:17:40.720 But we don't know when and how it's going to happen. 0:17:40.760 --> 0:17:44.439 Probably the trigger would be a more clearer stance from 0:17:44.480 --> 0:17:49.000 the Federal Reserve on its rate cuts, and also probably 0:17:49.240 --> 0:17:52.879 in the Buja's July meeting they will start the quantitative 0:17:52.960 --> 0:17:57.320 tightening and also proceed with the rate hikes simultaneously. That 0:17:57.320 --> 0:18:01.120 could change the yen's declining trend. But as long as 0:18:01.160 --> 0:18:04.720 it's a speculative, we don't know how far the dollar end. 0:18:04.760 --> 0:18:06.320 We'll go further from here. 0:18:07.400 --> 0:18:09.560 Okay, before I let you guys go, I wanted to 0:18:09.640 --> 0:18:13.200 ask you what could go wrong? Like everyone, all investors 0:18:13.240 --> 0:18:15.439 seem to love Japan right now. If you turn on 0:18:15.600 --> 0:18:20.679 Bloomberg TV, you've got activist shareholders loving Japan, private equity investors, 0:18:21.160 --> 0:18:23.640 you hear stories of how investment banks and hedge fund 0:18:23.640 --> 0:18:26.880 traders are looking for Japan rate traders, Like, what could 0:18:26.920 --> 0:18:28.800 go wrong with this bullish case? 0:18:29.680 --> 0:18:32.000 There's a lot that can go wrong. One would be 0:18:32.320 --> 0:18:35.680 going back to the wage hike, whether wage growth will 0:18:35.720 --> 0:18:40.400 continue and boost consumer confidence to spend more. This is 0:18:40.480 --> 0:18:44.160 also on the back of the weekend because for Japanese, 0:18:44.359 --> 0:18:48.840 for example, tourists going abroad is a very difficult thing 0:18:48.880 --> 0:18:52.040 to do right now, so confidence in the wage growth 0:18:52.080 --> 0:18:56.000 could lead to more spending internally at this point. Also, 0:18:56.280 --> 0:18:59.720 the pace of change has always been, you know, it 0:19:00.080 --> 0:19:03.160 not done in a day, so or Hitachi, It took 0:19:03.640 --> 0:19:07.960 a decade or two to actually transition, and now investors 0:19:08.000 --> 0:19:12.439 are noticing that, and we are seeing similar transitions with 0:19:12.560 --> 0:19:15.639 companies like me to be see electric with their portfolio 0:19:15.680 --> 0:19:19.560 of businesses. That just doesn't happen over a period of 0:19:19.600 --> 0:19:22.560 a year for everyone. So I think it'll be a 0:19:22.600 --> 0:19:26.280 gradual step and whether the market is patient enough to 0:19:26.560 --> 0:19:28.680 wait for that step is one thing we do need 0:19:28.720 --> 0:19:31.280 to continue to monitor and be realistic about. 0:19:32.000 --> 0:19:34.360 And Tarosan, do you have any final comments? 0:19:34.480 --> 0:19:38.160 Yeah. On the positive note, the history sets, For example, 0:19:38.240 --> 0:19:41.800 the US Great Depression took two decades or twenty five 0:19:41.880 --> 0:19:46.159 years for the stock market to recover previous peak. Probably 0:19:46.200 --> 0:19:50.239 in Japan's case, it started to plunge in ninety and 0:19:50.320 --> 0:19:53.040 it's more than three decades, probably because we had a 0:19:53.080 --> 0:19:56.800 great financial crisis or some unfortunate events. But we see 0:19:56.960 --> 0:19:59.880 kind of one cycle is over and we are going 0:20:00.080 --> 0:20:02.919 to the positive trend overall. So it's not just about 0:20:02.960 --> 0:20:07.040 waste growth and inflation, some very structural positive shift that's 0:20:07.080 --> 0:20:11.040 happening in many perspectives, so I think investors should be 0:20:11.080 --> 0:20:14.119 focused in various industries and should keep an eye on 0:20:14.480 --> 0:20:17.960 how the economy will be transformed structurally going forward. 0:20:19.320 --> 0:20:23.400 It's been a fascinating discussion on japan It's economic turnaround 0:20:23.720 --> 0:20:26.800 and also some of the risks for the Japan pol story. 0:20:27.160 --> 0:20:28.520 Thanks Takeshi and Taro. 0:20:28.840 --> 0:20:30.040 Thank you, John, thank you so much. 0:20:31.000 --> 0:20:34.360 I'm John Lee in Hong Kong. This podcast was produced 0:20:34.359 --> 0:20:36.960 by Clara Chen and you've been listening to the Asia 0:20:37.040 --> 0:20:37.920 Centric podcast