Daybreak Weekend: Netflix Earnings, Reeves Speech, Japan Eco | Bloomberg Daybreak: US Edition
[Music] Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, the latest reads on inflation, what it could mean to the Federal Reserve. I’m Tom Busby in New York. I’m Caroline Hetka here in London where we’re looking ahead to the UK Chancellor’s key speech to the city of London. I’m Doug Krer looking ahead at what we may learn in the coming week about the impact of US tariffs on the Japanese economy. That’s all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 1130 New York, Bloomberg 991 Washington DC, Bloomberg 929 Boston, DAB Digital Radio London, SiriusXM121, and around the world on Bloombergradio.com and the Bloomberg Business App. [Music] Good day to you. I’m Tom Busby. We begin today’s program with two fresh readings on inflation this week coming off a better than forecast June jobs report. What all that plus retail sales for June could mean to the Fed. For more, we turn to Michael McKe, Bloomberg’s international economic and policy correspondent. Well, Michael, I I want to look back. Let’s start with that June jobs report just over a week ago. What an upside surprise. What does it tell you about the labor market? What does it tell you about how important it could be to the Fed, to the president? Well, the upside surprise was in the headline, but when you look under the hood, the news wasn’t quite as good. The unemployment rate did not rise. It fell a little bit, but that was because uh the labor force declined. So, that’s what we call uh drop in unemployment for the wrong reasons. Uh and it does seem to have something to do with the president because the number of foreignb born workers uh dropped significantly and long-term that could be a problem for the economy. Also uh what we saw was half of the gain was in government employment and economists are pretty unanimous in suggesting that’s a seasonal adjustment problem because in June you don’t see huge amount of education hiring since school is out and that was the that was what drove it. So um we are looking at a labor market that is slowing down would be the conclusion but not in trouble yet. So for the Fed it’s kind of a wash. Okay. So even Stephen this week though two reads coming up for the month of June on inflation. The consumer price index out on Tuesday. The producer price index for June out on Wednesday. Also retail sales for June that comes out Thursday. Another big number. It’s a big week and the CPI is going to get most of the attention because it’ll be our uh broadest picture of what the consumer inflation situation is. even if it’s not the Fed’s main index for for its uh inflation target and it is expected to rise and so that should get a lot of attention on Wall Street because everybody’s been waiting for some kind of tariff impact on uh the price level and so if we see that people will be a little concerned for the Fed it might be the producer price index that’s more important in the sense that uh producer prices tell you what uh are probably going to be a better indication of where underlying tariff inflation pressure is coming from because all the parts that people buy from overseas to uh make other things will start to show up. We’ve had uh tariffs on steel and aluminum. Uh and that’s the kind of thing that in theory will show up in the producer price index and suggest that we will see further consumer price uh increases down the road. Auto parts, lumber, all in there, too. All in there, too. And now you mentioned obviously the tariffs. A lot could change. Last week we heard President Trump talking about anti-American bricks nations, a 10% levy on nations. I mean, how bad could it get? Is it all bluster? I mean, what do you think? Well, so far, uh, it kind of looks like the way people are taking it is anything could change at any moment because that’s been the story of the president’s, uh, tariff policies. But for the moment, I think what you’re going to see is economists starting to put pencil to paper when they have some numbers to to try to figure out what the effect uh, will be on prices and on consumer demand. You mentioned retail sales. retail sales have been hanging in there at a lower level than uh they are. But if prices go up, then people may stop buying some things. So that’ll be what the the people with the Excel spreadsheets are doing. Uh companies have to figure out what uh uh they are going to do about supply chains, whether or not this means they should uh invest or not uh in expansion, what they think it’s going to mean for uh their customers. So they know whether they’re going to have to absorb things in their margins and uh and that might have an effect on the stock market. So a lot of questions to be answered yet. Uh but I if if we start to get some clarity that we can believe in uh believe is not going to change then that is going to give uh people a chance to start figuring out where this all goes. Well, I’m sure we’ll talk again. Until then, the June CPI figure out this Tuesday, PPI the following day, retail sales on Thursday. Our thanks to Michael McKe, Bloomberg’s international economic and policy correspondent. We turn now to earnings and this week we’ll hear from the streaming video giant Netflix as it goes deeper into live programming to raise revenue. And for more on what’s behind that push, we’re joined by Gita Raganathan, Bloomberg intelligence analyst on US media. Githa, thank you for being here. Although they no longer report subscriber numbers, a key metric for Netflix as it builds its advertising business. What do you expect to see in the latest earnings report out on Thursday? Yeah, you’re absolutely right. They have stopped reporting subscribers as of this year, but the metrics that they want us to focus on right now are revenue gains as well as operating margin. And they’ve really been uh delivering some stellar numbers when it comes to both of those metrics. So, what we’re looking for and what they’ve guided to for the second quarter in terms of revenue growth is mid- teens percentage increases. So about 15 to 15 1.5% increase in revenues uh and a very very strong operating margin at uh you know 33%. Remember last year was absolutely a breakout year for Netflix. They had 600 basis point expansion in their operating margin. Uh and again they’ve guided to pretty impressive uh increase for this year as well. So you’re absolutely right. the the focus has really shifted now to financial metrics, but that doesn’t mean that subscriber growth is slowing because they have an absolutely fantastic they had a very strong content slate for the second quarter. Uh and they continue to put out really good titles and they have some really big uh series that are going to debut on their platform through the rest of the year as well. Well, it it’s clear I mean the share price has almost doubled in value in the past 12 months. So, they are doing everything right. Let’s talk about what they have done as well as the push into more live programming. They’ve raised prices and that doesn’t seem to have hurt at all either, right? Not at all. So, what Netflix has really done well is they’ve established themselves as a musthave platform. So, they are the go-to kind of default uh entertainment option out there, which gives them a lot of pricing power. Uh they also have you know content is obviously their greatest differentiator. They have a steady stream of really popular content on their service but most of all it’s really the user experience right the user experience is unparalleled and that’s something that Netflix knows um and you know they’re able to raise prices and there has been absolutely no uh backlash or push back from customers. We’ve seen churn at very very manageable levels. So it just gives them more confidence, really emboldens them to keep increasing prices at a steady pace even into the future. Well, let’s talk about some of that programming cuz they have really tried to broaden the lineup to attract new subscribers and it looks like it’s working. I mean the sports, there’s the WWE, the Raw wrestling, UFC matches. We know they’ve been aggressive trying to get Formula 1. I I mean they are really branching out and and we know in the past there’s no football games now NFL, but you know what worked for them on Christmas Day? those two games there, those uh that big celebrity boxing matches. I mean, is that the future that they see right now? Those live programmings, the advertising revenue from that. And are we going to see more and more and more of that? We’re going to see more. There is absolutely no doubt about that. You’re you’re absolutely right. You bring up the WWE. That’s been a great source of programming. We see that show up in the top 10 uh literally every week. So, we know that that programming is resonating very well. again, NFL, that’s something that they tried last year with the Christmas Day games. They’re going to do that again this year. They have more uh, you know, of this kind of boxing matches coming up. So, they’re really getting into live programming in a big way. And if we think about what the strategy is here, it’s not just to kind of expand the entire programming lineup. They’re really chasing advertising dollars. And we know that they are looking to get at least about $9 billion in advertising by 2030. That’s uh that’s a pretty big ask because remember they just introduced advertising. It was only about1 $1.5 billion again estimated in 2024 and they’ve got to really scale that up. So the idea here is to really capture more consumer media usage time and so they want to get all of these different genres. Live sports is something that works really well. uh they did a really very different type of deal just a few weeks ago in France where they’re actually integrating content live content live TV content from TF1. This is the first of its kind uh deal where they’re taking a live broadcasting uh live broadcasters programming and actually putting it on Netflix. So again here we’re you know we’re just looking at them experimenting with different strategies uh basically just capturing more watch time uh increasing engagement reducing churn well they’ve also done a similar thing with NASA plus their ad free offering from the US space agency and they’ve had talks with Spotify about even more programming branching out beyond sports right yeah again this is this goes back to this whole concept of retention monetization how do you keep driving user growth and it looks like they’re they are not afraid of experimenting uh and you know really trying all kinds of things uh to to scale and to become the dominant I mean they already are the dominant streaming platform but it’s just basically expanding that dominance and really really cementing it and we’ve seen Squid Games 3 a blockbuster for viewership the most watched program in 90 countries the final season of Stranger Things and coming out in just a couple of weeks the second season of Wednesday I mean they’ve got a full lineup of shows, too. Yeah, absolutely. So, believe it or not, this is the strongest six-month period ever in the history of Netflix. They have never had three of their, you know, biggest series ever. I mean, remember Squid Game is their biggest series ever. Again, Stranger Things Wednesday, all those three feature in the top five of the most watched series in the history of Netflix, uh maybe in the history of any streaming platform. So we absolutely believe that that is going to drive extremely strong subscriber growth. Management itself has kind of characterized the slate as you know a slight embarrassment of riches. They you know they’ve never had so many big series kind of come out and they’re absolutely capitalizing on it. So remember they are eventizing this whole stranger things. They’re breaking it out into two parts. One part comes out you know around Thanksgiving. The second part comes out on Christmas day. So, they’re really going to capitalize on it and make sure that subscriber momentum is maintained. Wow. Big and getting bigger. Netflix Q2 earnings out this Thursday after Wall Street’s closing bell. Our thanks to Githa Raganathan, Bloomberg intelligence analyst on US media. And coming up on Bloomberg Daybreak weekend, a look ahead to a major speech from UK Chancellor Rachel Reeves. I’m Tom Busby and this is Bloomberg. [Music] This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I’m Tom Busby in New York. Up later in our program, a look ahead to several key data points for the Japanese economy. But first, UK Chancellor Rachel Reeves due to deliver her next major speech to City of London at Mansion House on July 15th. She’s expected to lay out the government’s growth and competitiveness strategy for financial services. But with pressure from within her own party to impose a new wealth tax in Britain, what will Reeves’s message be? For more, let’s bring in Bloomberg Daybreak Europe Banker Caroline Heepker in London. Tom Rachel Reeves will face an audience in the city who may well be relieved to see her still as UK Chancellor. The Labour Party has been in power for a year in the UK. It has not yet been able to deliver the kind of meaningful growth that avoids very difficult tax and spending decisions in the autumn budget. Paul Johnson, the outgoing director of the leading think tank, the Institute for Fiscal Studies, wrote recently on the subject, “The Chancellor has to somehow reconcile tax and spending, but both her own Labor MPs and the Tory opposition are still living in a dream world,” according to Johnson. David Mars from the independent watchdog the office for budget responsibility put the chancellor’s difficulties into context when he spoke to us recently on Bloomberg radio. If one kept all the policy settings as they are, the generosity of various state pensions being uplifted in line with the so-called triple lock uh and health spending likely rising simply to reflect what’s likely to happen to demographics. And if there’s no change in the tax system, in other words, if nothing changes and you just let the system carry on as it is, it looks like it’s going to generate a stock of debt that that doesn’t get under control and and in the longer run in any way carries on going up. The message of the O certainly isn’t, you know, this specific policy needs to change or that specific policy needs to change. It’s just that there are pressures which have to be offset over the long run or or else we’re on a trajectory which is likely unsustainable. So that was the OBR’s David Miles. But those difficulties are still some weeks away. For this mansion house speech will be focused more narrowly on the specifics of the financial industry in Britain amid a push in the US to power ahead with deregulation, tariffs, and tax cuts. Well, joining me now is Bloomberg’s UK government reporter Joe Maize and Bloomberg opinion columnist Paul J. Davies. Welcome to both of you and thank you for being with me. Joe, can we just start by thinking about what we expect in terms of tone from Rachel Reeves? Obviously, we had that moment of tearfulness in the House of Commons quite recently followed by lots of beaming smiles and hugs with the prime minister. Does Reeves retain her authority? I think we can expect the kind of tone which you’d normally get from a chancellor at Imagine House Bees which is projecting a positive grateful attitude towards the city for you know the massive contribution it makes to the tax base to the economy and then setting out what she’s done to help them so far and what she plans to do to make their lives even better going into the future. You’re right that it comes against this backdrop of that very dramatic moment we had in the House of Commons where the pound was moving on these fears that she might have resigned or been sacked. Yeah, I think she came out of that episode actually strengthened with the city and with financial markets because it really showed how markets were worried that she was going to be replaced by a more left-wing alternative. And so by staying and you saw the reaction of the pounds and guilts, you know, rallying when it was confirmed she was going to stay. I think that shows that investors feel like she is probably the safest bet when it comes to Labour chancellors, her fiscal discipline, her commitment to those fiscal rules. So, I think she’ll go into this mansion house feeling somewhat emboldened by that episode and um and yeah, wanting to show the city that she’s still on form and she’s got plans to make the economy grow and and and do better. And maybe that that lesson has become evident to her own party within the parliamentary Labor Party maybe. What do you think she’s going to announce then? I mean, there are so many rumors already, but let’s start by thinking about ISIS, which is a particular investment product in the UK. I mean 18 million people have investments in ISIS. I think this is the most eye-catching announcement we’re expecting which is this change to the £20,000 limit that you can currently put in a cash ISA taxfree on the interest. We’re expecting her to announce a reduction in that £20,000 limit uh on cash so that you could still have £20,000 in an ISA but more of it would have to be in equities and stocks. I think that’s the push he wants to make to move, you know, more capital into uh British shares, British stocks in a bid to get growth going. It’s all part of that growth message. Now, it wouldn’t be without controversy. We know that for some people this is something they do not like. They like the idea of having kind of safe cash as their form of uh saving. But then will they react negatively? Maybe. Um but I think that’s the big announcement we’re expecting. Yeah. and some of the banks and the lenders that operate the ISIS that offer the ISIS um you know have also got a a stake in this too and have pushed back somewhat against maybe some of the changes. Paul, let me bring you in at this point. So that’s kind of setting the tone and maybe the eye-catching announcements, but obviously the city of London wants the detail and particularly on regulation in terms of maybe the idea of scrapping ring fencing rules, which is a rule that dates back to the financial crisis. any thoughts about whether that might be part of this mansion house speech? Yeah, well, this is one of the key sort of I guess most tangible debates at the moment in regulation. It’s and it’s pretty interesting because there’s a split between Rachel Reeves seeming prepared to perhaps ditch it as a way of hopefully enhancing growth. Everything that they’re trying to do is find ways to enhance growth. Bank of England has come out against it. Andrew Bailey, the governor has has said that he thinks it should remain and there’s a split in the industry as well. So, you know, Barclay’s uh bank has has defended it quite strongly and thinks it’s very important as a as a way of protecting depositors. I mean, you remember that the whole point of this thing is to keep uh ordinary consumers deposits separate from the volatile, exciting, dangerous world of investment banking and trading and so on and so forth. Um so, Barclays thinks it’s important to keep that. other banks, particularly HSBC, thinks it’d be much better to find a way of of releasing more of that money for, you know, growth investment inside the UK and beyond. and they’re unhappy that big global banks like JP Morgan and Goldman Sachs can use their small sort of UK deposit gathering businesses Chase UK or Marcus to raise cheap funding which they’re then free to use for whatever they want wherever they want because they remain below this threshold. M um I mean I think what we might see ultimately is maybe a compromise whereby you know the banks like HSBC and Barclays get to use the first 35 billion of UK retail deposits which is the the threshold for um you know ring fencing your UK operations separating it from investment bank then maybe they’ll get to use that first 35 billion in a freer way to kind of you know to to put into investment banking or some kinds of you know corporate lending or something more growthoriented. ated and that could satisfy both sides to some degree. Yeah. And I think this goes to the argument about whether the government’s changes, all of these tweaks, these small incremental tweaks actually going to add up to something more major and meaningfully change the trajectory when it comes to economic growth or in fact this focus on financial services. We know that financial services is one out of the eight growth areas that the government is focused on. But how much are they really relying on financial services? It’s sort of an interesting question, isn’t it? In terms of what other maybe smaller banks are concerned about the increase potentially in capital requirements for smaller lenders, how big a difference would that make? Yeah. So, I guess one of the debates around ring fencing has been is this is keeping it away of restricting competition from smaller banks because it puts a cap on their growth to some degree. those smaller banks like you know stling or one savings bank they’re kind of much more worried about these kind of mrell capital requirements which kick in sooner and are much more costly very quickly in terms of the amount of capital and and sort of you know lossabsorbing debts which is the kind of capital that you have to issue as those banks so they would much rather see a change there and there is a kind of an idea I think that maybe the the point at which that kicks in might be lifted as well currently from sort of 15 to 20 billion pounds of of assets up towards that 35 billion where the ring fencing kicks in. Okay. So that on regulation, Joe, in terms of other things that could also feature in the next few days, a shakeup of the pension system, especially if auto enrollment, I mean pensions are such a major issue for the UK. Not enough savings, not enough good returns for investors. What might a shakeup look like? Yeah. So I think the government would like to see more money going into pensions firstly so that more could be invested in the economy. That would be a growth story for them but also for us and our retirement savings and do we have enough. So I think we could see changes as you mentioned to the contribution levels for what p what gets paid into pensions. So at the moment you have the system where minimum contributions of 8% by employees but only 3% by the employer and there’s some you know talk about that 3% number perhaps going up. Now to Bell the pensions minister has said that the rates won’t change for this parliament but there could be an announcement that says we’re looking at in the longer term could that number change. Now businesses would be reluctant to that because it would mean more costs for them if they had to pay more into our pensions but it might be something that does you know boost retirement savings boost the economy. So I think that’s one to potentially look out for. Paul the city functions as part of a global financial system. We’re seeing really big changes in the US in lots of ways. Is London keeping up? Some banks that I speak to actually are very positive about positioning themselves in London, the the trading hub, the hours and so on. Should we be can we be optimistic? Can London keep up? Yeah, I mean there are, you know, there there’s a whole lot of issues surrounding this obviously. I mean, I think the risk with the debate that we’re having in the UK over financial services regulation and what we need to do to kind of tweak things slightly to encourage growth risks being completely overtaken by a a big deregulatory wave in the US. I mean I think in the city the kind of the long-term debate and and and the issue that they want the government to address with the Bank of England with the uh FCA is one of you know a very risk averse kind of culture and approach to not only the kind of rules we have but how they are applied and they would love to see you know a bit more freedom and a bit more growth focus and and competition focus in the attitude of regulators and there’s signs that starting to happen. The Bank of England is looking at has already delayed, you know, stricter capital requirements for the trading books of investment banks and is looking at ways to make the remaining capital requirements for banks a bit more flexible so they could sort of operate at a lower level of capital during times of crisis. Thank you so much Bloomberg’s UK government reporter Joe Mays and to our opinion columnist Paul J Davies. Thank you so much for your time. I’m Caroline Hepka here in London. You can catch us every weekday morning for Bloomberg Daybreak Europe beginning at 6:00 a.m. in London. That’s 1:00 a.m. on Wall Street. Tom, thank you, Caroline. And coming up on Bloomberg Daybreak Weekend, a look into the impact of US tariff policy on the Japanese economy. I’m Tom Busby and this is Bloomberg. [Music] This is Bloomberg Daybreak weekend. Our global look ahead at the top stories for investors in the coming week. I’m Tom Busby in New York. In the week ahead, we’ll get several key data points for the Japanese economy likely to show the impact of US tariff policy. For more, let’s get to the host of the Daybreak Asia podcast, Doug Krnner. Tom, the Japanese economy was beginning to show signs of vitality and inflation before President Trump unleashed his tariff policy. And now the story in Japan seems to be about economic uncertainty, especially since Washington and Tokyo are still trying to reach a trade agreement. Now, in the coming week, we’ll get the reading on Japanese core machine orders, as well as the print on industrial production, plus trade figures for the month of June. And to help me preview these readings and explore the impact US tariffs are having, I’m joined by Katya Dimitriva, Bloomberg, Asia economy reporter. Katya is based in Hong Kong. Thank you for making time to chat with me. Can I ask you right out of the gate, how dark is the cloud hanging over the Japanese economy right now? Well, it’s pretty dark right now. And if we were to take that metaphor further, I mean, you’re getting not just storm clouds with thunder and lightning because you have an economy that for the past few years has been trying to engineer inflation and has been fairly successful at doing that, right? They were in a period of deflation and then pretty flat growth. Prices started to perk up. Um the central bank started to hike interest rates was planning to continue to do that and then enter President Donald Trump and tariffs and now the economic outlook is looking a lot more uncertain. So they went from trying to increase prices to now the risk is a technical recession um with two backto-back quarters of of negative growth. And the reason for that is largely because of tariffs and tariffs on autos in particular. Japan’s number one market for car exports is the US. It has been for some time. and the 25% tariffs that were added on cars in April by the US government is hurting them already. We actually saw signs of that recently. So, Japan’s automakers cut their export prices to North America by a record amount. So, what that signals is that essentially producers are not willing to face a decline in orders. They’re trying to keep the demand going and trying to remain competitive in the US market by cutting their prices. But of course, if they’re cutting prices, that means other companies um are cutting their costs and prices along the chain, which means in Japan, overall inflation might actually face some dampening here. So, it it’s a huge risk. So, when I’m listening to you, I’m thinking of Japan Inc. and the degree to which margins are going to be under pressure. Yeah, absolutely. I mean, this is not good for Japanese companies and they’re hoping that President Trump and Prime Minister Ishiba can sort of reach an agreement on trade. But the signals we’ve gotten from the Japanese government is very much we’d rather be patient. We’d rather wait for the right deal even if it means that we may initially get hit with tariffs, but we don’t want to rush into this because they want to protect their domestic sector as well. They want to ensure not just that they can continue to sell cars and other goods into the US. They want to make sure that their agriculture sector, for example, doesn’t get slammed by US agricultural goods if they change those non-tariff barriers, which of course Trump wants. Trump wants to have more US exports and support US farmers. So, it’s they’re kind of at an impass right now. And the difficult thing is and the scary thing is for other countries is that Japan has been like far and above one of the most active countries when it comes to trade negotiations. So they have flown their trade team to the US at least seven times. Yeah. And we ran the calculations um for how many hours that is in the air and how many miles that is. So they’re far and above every other country in that regard. And if even they can’t reach an agreement and avoid for them it would be 25% tariffs as of August 1st then who can on top of that Japan is the largest investor in the US. It has been for the past 5 years. It’s also a crucial security ally. I would think that there is a level of goodwill that’s that’s a part of this story as well. There should be and it’s it’s a similar case to South Korea and to Taiwan as well. I mean these are allies in Asia of Americas for some time and that’s something that the prime minister and trade delegations um have flagged time and time again both in meetings with the administration and also publicly and in the media is that there is a lot of common ground and they do hope that they can reach some sort of resolution and the data at least for Japan’s side is really going to underscore that next week because you know you had mentioned we’re getting some of the industrial production data that’s probably going to slow down. Uh we’re getting producer prices and consumer prices. This is something that the central bank and the government really wants to see perking up and it’s it’s probably going to slow again for for CPI. It’s going to probably be the fourth month in a row. And then we also have export. Both of those fell in May. And it sets up this interesting dichotomy between Southeast Asia and North Asia because South Korea, Japan, we’ve seen a slowing of exports, but Southeast Asia has really accelerated because a lot of the stuff essentially from China is going through there onto the US. So that’ll be something interesting to watch in the data as well. But really next week, I think the message from Japanese data is going to be they need to reach an agreement. They need to reach an agreement soon, otherwise their economy is at risk. So any notion of the Bank of Japan positioning itself to begin to hike interest rates is off the table at this point. I don’t see a way for the BOJ to be able to execute on that mission. It’ll be really tough, especially if there is an economic even if it’s a technical recession, even if policymakers can sort of look through some of this data as short-term fluctuations related to ongoing trade talks. I mean, it’s really hard to think of a world where as a central bank you hike rates into a recession or during a recession. It just doesn’t happen. and they only have to look around the world to the Federal Reserve to the US to see the exact same uncertainty over there. You know, uh minutes were released this week and it clearly shows there’s a debate and there’s uncertainty about whether what to do with interest rates because the economy is looking like they can start um taking action. But tariffs are showing that there might be some economic uncertainty and they might need to potentially cut interest rates. So there’s that cut versus raise debate happening across central banks globally. And what it likely means is just holding until you get some clarity and then looking back in hindsight and saying okay you know either patting yourselves on the back or saying we moved a bit too slow on that. I mean, it’s it’s not a great situation, right? Being behind the curve rather than being prudent in trying to wait for the data to drive the decision-making. One of the debates, you mentioned the Fed minutes as to whether or not these tariffs are inflationary. But I’m really curious about what it means for the political future of Prime Minister Ishiba, the situation that Japan is in right now visav these tariffs that have been put in place and the fact that maybe we’re going to see a tariff rate that is permanent much higher than the one that exists now. Is this in any way a political setback for Ishiba? It’s a political setback in the sense that if we see the impact of the tariffs roll through into an economic crisis in addition to consumers having to pay a lot more for a staple, you know, I’ve I’ve seen this called the rice election, for example, because rice prices have soared this year in Japan and there have been lineups and the government had to sort of unleash their strategic reserves of rice. And you know, in case listeners don’t know, rice is a food staple. It’s sort of like if the same thing happened with bread prices in in North America, there’s been a lot of push back on that. The government has been very keen to come out in front of that and and do as much as they can to lower prices. And also, frankly, this is why they want to protect their agricultural sector from imports abroad. They want to protect their farmers to be able to continue to produce rice and other agricultural goods. I’m uncertain as to whether or not the impact of these tariffs on the Japanese economy is having any effect on the way in which people in Japan are feeling about the United States. Katya, you and I have talked in the past about how this trade war between China and the US is changing the attitude of people in China toward the United States, right? There’s definitely been a a visceral reaction on social media um both ways in China. You know, you have a lot of netizens basically saying, you know, Trump is making China great again because, you know, China just has to sit back and wait for the US to isolate itself and China can form all these trade agreements and trade deals and come out on top and then you have other the other half basically coming out against the US and against Trump in this because of the economic pain it could have in China. I think in Japan the bigger issue to be honest among people has been the currency and the impact that that’s had on tourism and on more Americans and Westerners living in Japan and also traveling through Japan. There’s been a huge push back domestically against that. So do you have a sense of this tension between the US and Japan having an impact on Japanese relations with China? Is is that at all possible that Japan begins to perhaps look for other markets or to fortify the relationship with China in a way where that trading relationship is maybe improved to some extent? Yeah, there is that happening for sure. As the US continues to isolate itself and issue tariffs as a country, you’re just going to look to do business with other major economies and especially if they’re in your neighborhood, that definitely helps. You know, there was a former South Korean official that I was speaking with a few months ago who made this exact point who said, you know, if your previous friend becomes your enemy, you’re going to look for other friends. You’re going to look for other people that you can form agreements with. And it’s true that the Asian region has the most integrated trade of any other region in the world. So more than 50% of trade agreements are within the region. And so a lot of the growth in trade and exports and imports and demand frankly comes from within the region. The issue with that unfortunately right now is that China’s economy isn’t doing as well as it was a few years ago pre- pandemic. So that’s one consideration that yes, they have a huge population. Yes, they have consumers with a lot of savings. They’re still not unleashing those savings. And so if you bet on the Chinese consumer and the Chinese economy, you might kind of end up in um a similar place as dealing with tariffs on the US. In other words, you’re not going to see the same amount of growth. So there there are a few considerations on both sides. But of course, we’ve seen more trade agreements made. You know, China has traveled through Latin America. They did the Southeast Asia tour meeting with leaders. So we’ve definitely seen those those ties grow closer. The question is how serious is it? And is China willing to make changes to its own market especially in services and access of other countries service providers within China is one of the main issues. So if they can tweak that great but it remains to be seen how serious they are about it. Katia we’ve certainly covered a lot of ground. Thanks so very much. Bloomberg’s Katya Demitria. Katya is our Asia economy reporter based in Hong Kong. I’m Doug Krner. You can catch us weekdays for the Daybreak Asia podcast. It’s available wherever you get your podcast. Tom, thank you, Doug. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at 5:00 a.m. Wall Street Time for the latest on Markets Overseas and the news you need to start your day. I’m Tom Busby. Stay with us. Top stories and global business headlines are coming up right now. [Music]
Bloomberg Daybreak Weekend with Tom Busby takes a look at some of the stories we’ll be tracking in the coming week.
In the US – a look ahead to U.S CPI and PPI data, along with Netflix earnings.
In the UK – a look ahead to a speech from UK Chancellor Rachel Reeves.
In Asia – a look at several key data points for the Japanese economy.
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