Insight on Japan: US Trade Deal, PM Ishiba’s Fate | Insight with Haslinda Amin 7/22/2025

Insight on Japan: US Trade Deal, PM Ishiba’s Fate | Insight with Haslinda Amin 7/22/2025

This is INSIGHT.
I’m Paul Allen in Sydney. Japan is our focus today with reports
just breaking. The Prime Minister Shigeru Ishiba, will
announce his resignation by the end of August, and that is after his ruling
party lost its upper House majority in Sunday’s election.
And that bombshell coming just hours after his government struck a surprise
trade deal with the US for a 15% tariff rate in return for opening markets up to
American cars and agriculture. I just signed the largest trade deal in
history, I think maybe the largest in history with Japan.
We worked on it long and hard, and it’s a great deal for everybody.
I always say it has to be great for everybody.
It’s a great deal a lot different from the deals in the past, I can tell you
that. Well, let’s get straight to Tokyo and
Bloomberg’s the Asia trade to co-anchor Sherry and Sherry.
A number of reports now coming through from local media differing in the
details, but all the same basic theme that the era of Shigeru Ishiba appears
to be over. What more do we know?
Yeah, we were watching how long the prime Minister could stay in power after
vowing to stay on despite that historic election defeat over the weekend for the
upper House majority. So we’re now hearing from TVs as well
that the prime minister will decide soon on the resignation.
Although Mainichi has given the date of the announcement for the resignation by
the end of August. And of course, this will mean that
whoever becomes prime minister next will still have a challenging task ahead.
We have seen the ruling LDP and its coalition partner lose that majority of
the LDP set to govern without a majority in both chambers for the first time
since the party founding. And we have seen before the era of Prime
Minister Shinzo Abe a revolving door of prime ministers that have lasted only by
about a year. The compromise on tax policy is what
we’re watching, because, of course, we have seen the opposition parties that
wanted to lower the sales tax actually do pretty well in the upper House
election. But we have heard from the top trade
negotiator, Akhundzada as well, that the trade deal was a result of Prime
Minister Ishiba strong leadership. So perhaps this a good reason to go out
on a high note for Prime Minister Ishiba.
You mentioned whoever is Prime Minister next and referred to the revolving door
of Japanese prime ministers. I mean, are there any obvious candidates
to replace? Shigeru Ishiba
Not of this point because we have seen, of course, a fracture in Japanese
politics, very high even coming to this upper House election.
A lot of names have been talked about. What we know at this point from local
media is that the prime minister is actually set to meet with heavyweights
from the party, Taro Aso and Kishida as well today.
So we’ll be watching those developments. But what will be important for the
Japanese public as well will be how this trade deal with the United States is
really received, because we are now getting some details of what was
announced and we are hearing that it will be 50% tariffs on goods across the
border from Japan going into the United States when it comes to car tariffs,
that was a key concern because, of course, the auto sector makes up for 10%
of Japan’s GDP. It employs more than 5 million people.
So it’s very consequential for the Japanese economy.
We’re hearing from Akhundzada that this will be 15% tariff on cars with the
existing two and a half percent rate included in that number.
Still, we have no clarity on what happens with steel and aluminum tariffs.
So we’ll continue to watch for more details on what was agreed between
Washington and Tokyo. Yeah, in terms of this trade deal, I
mean, it looks like a victory. Certainly the remark that the market is
responding positively. But we must remember that a year ago
these tariffs didn’t exist at all. Never mind 15%.
Did Shigeta or Shiba perhaps face a tough sell to the Japanese electorate
coming off the back of that weekend election defeat?
The thing is that when it comes to tariffs, especially put forth by the
United States, is also very relative. Right.
When we saw the Philippine deal, for example, earlier today, we saw that the
reduction of the threatened tariffs were to 19% from 20%.
15% is still lower than the 25% threatened on South Korea, lower than
the initially planned, 24% for Japan, which rose to 25%.
So when it comes to tariffs relative to other countries, I think will be the key
point that Prime Minister Ishiba and the government will try to sell to the
broader public. So we will have to watch also what the
implications are for Rice. We have heard from local media that
perhaps the ratio of rice imports from the United States could rise.
That’s, of course, a sensitive topic for the Japanese public, for the Japanese
agricultural sector, at a time when rice prices have gone up 60% from last year.
But a key question right now is what happens
after, of course, August and a new leadership perhaps comes forth here in
Japan and how the markets will receive that, because we have seen a lot of
skepticism about Japanese government bonds, given the fiscal concerns in this
country and yields continuing to rise. All right.
Bloomberg Shery Ahn there in Tokyo. Well, joining us now for more on this is
Tobias Harris, founder and principal at Japan Foresight.
Tobias, obviously, immediately after that election, speculation began to
swirl about how long Prime Minister Ishiba could hold on, and it appears not
very long. Are you taken aback at all by the by the
haste of this announcement and what’s going to happen next
by the haste? No, not necessarily, because I think
what we’ve seen, you know, since Sunday night when the when the returns came in
and it looked like the government was going to fall short of holding its
majority. The calls within the LDP for him to go
have been very insistent, very loud. Some of them have been more tacit than
others. But it was clear that the party needs to
turn or she needs to turn a new page that the feeling that the party is in
crisis, that it needs to reconnect with voters, particularly its long time
supporters, that there’s work to do. And that issue was not up to the up to
the task. So I think the party is ready to move on
from him. There’s some ambiguity at the timeline,
precisely when he’s going to go and when exactly he’s going to say that he wants
to go, and then what the timeline looks like for for having a leadership
election. But it’s not going to be an easy
leadership election for the LDP because they have a lot of challenges that the
next leader is going to have to overcome going forward for the next the next
months. Well, Shigeru Ishiba had to fend off a
number of other candidates for the top job when he got it.
Could you see any of those potentially re-emerging now to take over as prime
minister? Because in terms of successes, there’s
not really any obvious ones. No, I mean, I think that’s one of the
challenges that Ishiba has dealt with over the his year in office, that he
really is the head of a party that is deeply divided.
And his victory last year did not resolve the dispute within the party.
I mean, you really have a pretty deep division between maybe what we might
call the Abe loyalists and the right of the party and Ishiba, who’s surrounded
by sort of reformist, more moderates who want to keep the party, is a big tent
that represents more of the country. And that divide has not really been
reconciled under his watch. And frankly, I think in a leadership
election, you’re going to see maybe a fight again between these two parts of
the party with two very different visions, two different ideas of the
direction the party should go. And there’s maybe going to be an
argument, particularly from the right wing part of the party, that the biggest
issue they’ve had in these last two elections, that a lot of the more right
wing supporters of the party have defected.
I think there’s a lot of reporting to that effect.
And they’re going to argue that you need to find a right wing leader, someone who
can bring back some of the policies and the approach of the late Abe Shinzo to
try to bring back some of those voters, reconnect with right wing supporters,
the LDP, and really try to chart a direction forward along those lines.
That’s not necessarily going to be a uniformly popular approach.
So there’s going to be, I mean, I think, a pretty divisive battle again.
And it really is something that might take might take an outright election
defeat to really have turnover in the party that resolves this dispute.
Because, I mean, this is just a bitter fight that leadership struggles, really
leadership contest really cannot settle. Yeah.
Yeah. Longevity as Japanese prime ministers.
Those are two words that don’t really go together.
Right. Unless we’re considering that the likes
of Shinzo Abe or a little bit further back in history, Junichiro Koizumi.
Now, on the subject of Koizumi, it’s worth pointing out that his son,
Shinjiro Koizumi, sits in the cabinet. Is he a potential candidate?
I think he’ll be in the mix. And I think after he was brought into
the cabinet and raised, prices, started going down and he got good marks for the
work he was doing, it certainly put him back in the mix in a way that it didn’t.
See Mike after his disappointing performance last year.
I still think the mood might not favour him this time around.
I think we do have to look at Taka Aegis Takeuchi Sano, who was the runner up
last year, maybe Kobayashi Takayuki, another Conservative candidate who ran
last year. I think really the LDP has a few
conflicting things it needs to achieve. It needs to really reconnect with the
broader public, try to regain the trust that it’s lost over the last several
years. It really needs to have a vision
politically for the economy because, of course, I think it got hammered on its
handling of the economy and on inflation during this campaign that just ended.
And it really needs to show, I think, generational change because, of course,
that was another area where I think you had these new parties that emerged that
really connected to young voters and showed that we’re fresh, we’re new,
we’re different voice And the LDP, frankly, has been governed by people
who’ve been around for a long time. And I think they really have struggled
to show that they’re able to connect to younger voters, to parts of the
electorate that feel unrepresented. And as of now, that hasn’t been the kind
of leadership that you’ve gotten from the LDP.
So these are some of the challenges that I think they’re going to have to
struggle with and find and see if there’s someone really who is at the
sweet spot of all of these issues. Oh, by the way, also find someone who
could be a competent statesman and sit across the table from Trump and really
try to move beyond sort of the acrimonious trade disputes and get the
relationship on a stronger footing. So it’s going to be a tall order for
whoever follows ishiba. Yeah.
You don’t make it sound easy, Tobias. All right.
Thanks so much for joining us. Tobias Harris, their founder and
principal at Japan Foresight. Well, let’s take a closer look at the
market moves after all of this news. April Hong joins us in a dramatic day in
Tokyo. April.
Yeah, the twists and turns out of Japan today was really interesting to see how
the yen was trading in a narrow range against the greenback, even amid news of
all the trade deals. And it’s reacting sharply.
That weakness you’re seeing against the US dollar following the news from local
media that we could soon see a resignation from Prime Minister Ishiba.
And even though the BOJ next week is not expected to rush into rate hikes, think
about how it has been insisting that for it to move, it really wants to see the
impact of tariffs and now it has a trade deal.
And now some could argue that the political uncertainty is sort of cleared
out of the way as well. So we are seeing JGBs sort of pricing in
for a rate hike. Swaps markets are pricing in at least
one 80% of one by the end of the year. And JGBs are really coming under
pressure today and out of the board. I think the clear winner out of all of
this today has really been Japanese stocks, and they’re fueled by the catch
up play we’re seeing in automakers, some of them today jumping by double digits,
including Subaru as well as Mazda. And this could all help Japanese
equities that have been trailing in terms of gains versus the broader
indices in the region to play further catch up, including to the likes of the
Cosby and the housing pop. Oh, All right.
Thanks very much, April. Well, still to come, we’ve got US
Treasury Secretary Scott, Business and Commerce Secretary Howard Lutnick going
to be joining Bloomberg Surveillance. That’s later on tonight.
If you’re watching in Asia Wednesday morning, us time on the times on your
screen. Coming up, more presently, though, the
outlook for global trade as the Philippines and Japan become the latest
countries to clinch deals with the United States.
The Hinrich Foundation going to be joining us next with more on that.
This is Bloomberg. Well, Japan is the latest nation, as we
have been reporting, is to secure a trade deal today with the two nations.
That’s Japan and the US agreeing to 15% tariffs.
This comes as other nations scramble to get their own agreements across the
finish line before President Trump’s August deadline.
So for more on the tariff implications for Japan and other nations in Asia,
let’s get to our next guest. Jeff White is senior trade policy
analyst at the Hinrich Foundation. Thanks so much for joining us today.
I just wonder if you can start by giving us your thoughts on the significance of
this. Japan, US steel markets certainly
responding very positively in Tokyo today.
Yeah, I mean, certainly it just sounds like it’s great news for Japan.
They had a 25% previously announced and now a 10% cut to a 15% tariff.
And that includes the auto sector, which is great news for the automakers in
Japan, I think. And compared to what the Philippines
got, which is only a modest cut of 1% and is definitely a much greater news
then they can get. And furthermore, then when you look,
there are still some concerns for the Japanese side despite all this great
news. And that comes from the steel sector,
which still still has a fairly high 15%, 50% debt is looming.
There’s no certainty of whether the the Japanese side would get a reprieve on
such tariffs. Yeah.
Let’s talk a little bit more about the details of this into your point.
President Trump calling this and I quote, a great deal for everybody.
But I mean, is it really we’ve had some analysis from Bloomberg Intelligence
that says Japanese exports to the US could drop by up to 30% in the meaning
medium term, and it could mean a 6/10 of 1% hit to Japanese GDP as well.
So is this really such a great deal for Japan?
Oh, I think you will have to look at what other long term economic
consequences would be when it comes to oh four for Japanese market.
That’s to say what would be due to domestic prices.
Oh, but I and what those tariffs would cost, it would cause to Japan’s exports
to the US. You can see that in previous rounds of
tariffs, Japan automakers had to cut their prices by a rather steep amount in
order to secure their market share in the US.
In terms of some of the other details as well.
There there will be greater access for US agricultural products, including
rice. Also US autos into Japan.
I do remember covering a story a few years ago.
I got to visit a rice warehouse in Tokyo and the manager showing me around
pointed me doing a huge pile of rice sitting in the corner.
And when I asked about it, he said, Well, that’s coming from the US and
nobody wants to buy it. So it’s one thing to bring rice and
autos into Japan, but the Japanese consumers want to eat US rice and drive
US cars. This is certainly a good point to make.
For the Japanese, I think they do have preferences for consuming local rice and
Japanese cars, of course, but design good too, for the Japanese reports that
are usually smaller than those larger cars of the U.S.
and certainly. And then rice prices have increased to a
certain amount. That is really challenging for
domestic consumption. Japanese beer also began to start to
look at alternatives. And I think this opening of the rice
market to the US certainly result in some domestic consequences for the
domestic rice producers. Hmm.
Well, you mentioned the deal with the Philippines as well a short time ago
that was also making news today is that the Philippines going to open its market
to also US cars to import more soy and farmer products as well.
President Marcos of the Philippines calling this a significant achievement.
But the same question really, is it an overall net positive for the Philippines
economy and industry in terms of the demands of concession
that they actually had to give to the US in return for a such a modest cut?
I think it is certainly a question that the Philippines will have to manage on
the economic side and I think
for the rest of Asia, looking at the of the tariff deals that were previously
concluded, for example, with Vietnam as well as Indonesia, tariff levels remain
very much on par with what the Philippines got
a 19%. Mm hmm.
Well, we’ve also got a number of other ASEAN countries trying to negotiate
deals before the deadline, including Malaysia, Thailand, as well.
What sort of leverage do these countries have when it comes to pushing for a
reduced tariff in terms of their
exports? I mean, for both the Thailand as well as
Malaysia, the US remains a significant export market for those countries,
especially for the electronics sector as well as autos.
I think in terms of the economic size of there is fairly limited economic clout
to what they can pull. So still, I think, oh,
but these countries, they will have to look at what
the rest of ASEAN already got into to really adjust their expectations
accordingly and factoring that into the negotiation strategy.
Is it going to be a different story when we get to the really big one, which is
the US China deal? Because of course the US needs rate
receipts from China. We’ve already seen an agreement struck
on that. Do you see that China has got a bit more
leverage here and what are your expectations for the contours of that
deal between the US and China? Well, certainly China is the oh one of
the largest economy after the US, and certainly with the right of control over
overall refining capabilities of around 90%.
I think it is a really big car that they can play in the negotiations.
It’s that I think there is already announcements from basin that they are
going to extend the deadline of the negotiations
to go pass all this 12. I think there is seems to be a lot of
challenges in trying to get a breakthrough from the previous
negotiations. But when you consider the difficulties
that have been created in global trade from trying to deal with the second
Trump administration. You see, there’s an opportunity here
perhaps for more regional cooperation in Asia.
And perhaps can you see a scenario where China achieves its long held goal of
joining the TPP? Certainly, I think
those terms shock’s imposed by Trump will certainly
be a factor for celebrating all those trade talks and initiatives in ASEAN and
across Asia. I’d say ASEAN particularly has a quite
active and in 4G FTA and having negotiations with
its trading partners for ASEAN and China just recently upgraded
its FTA earlier this year. And it also has a FTA negotiation with
other countries that are also affected by Trump’s tariffs, like Canada.
Some of our members are also negotiating with the EU,
and I think going forward there are also new
opportunities for ASEAN to collaborate with other regions as well.
Oh, I think Malaysia proposed that there is to have a ASEAN
FTA, which is going to be explored and a
feasibility study by ASEAN. Mm hmm.
All right. Jim White from the Hinrich Foundation,
thanks so much for joining us today with your views on all the trade deals that
have been struck today and the ones that are coming up.
Well, it’s been a lot of action in Japan today, as we’ve been discussing, as if
the trade pacts between the US and Japan wasn’t enough.
We’re now hearing those local media reports, as mentioned you see on your
screen there as well. That’s according to many cheered.
Japanese Prime Minister Ishiba will announce his resignation by the end of
August. And that’s the sentiment of that report,
certainly being echoed by other media outlets as well.
A lot of the reaction, though, to do with that trade deal of seeing the
Nikkei popping pretty healthily. Other indexes rising as well, and
Japanese automakers performing very strongly.
You got Toyota up by more than 13%, Nissan up by almost 9%.
Although it must be said, both those stocks are still lower on year.
Subaru Corp., meanwhile, better by almost 16% worth, pointing out what’s
been happening in terms of Japanese bonds as well, because we do have that
40 year auction coming up very soon. We’re watching that closely.
But Japanese two year notes at the moment trading like next week’s Bank of
Japan meeting is a live one. So plenty happening in Japan at the
moment. We’ll dig into those shares of Japanese
car makers next. Powering ahead after securing that 15%
tariff rate and a deal with President Trump.
More on the outlook for the sector next. Welcome back here watching inside.
Well, Japanese markets are going to be coming back from their lunch break on an
eventful day. April’s here for another look overall.
Yeah, eventful, indeed. We getting news about this trade deal as
well as possible resignation by Prime Minister Ishiba.
And no wonder the JGBs are reacting because that kind of could clear some of
the uncertainties on tariffs on political front out of the way.
Does this mean that the BOJ meeting next week is low?
Certainly on the short end, JGBs appear to be pricing in a hike.
We’ve seen swaps market also pricing in the 80% chance of a hike by the end of
the year. And on the long and it’s not like some
of these deflation worries have gone away.
Indeed, even though there are some who think that the 40 year sale today might
pass safely, we’ve seen how authorities have been taking pains to calm market
concerns, including reducing issuance. What is key to watch is going to be the
pool of buyers. We really need to see the life
insurance, for example, play ball for it to be a sort of credible sale in Japan
today. Now, flip the board.
Take a quick look as well at what we’re seeing in Japanese stocks.
We’ve seen how the automakers have been rallying really hard.
It’s worth noting the new ones are the ones that are outperforming in auto
stocks, are the ones that take more of the proportion of profits from North
America, for example. And the rally among them is really
helping the topics to outperform. Today, we’re seeing it not far from the
levels we saw last July, which, as you recall, was just before the yen carry
trade on one poll. All right.
Thanks very much, April. Well, we’re seeing historic gains, as I
mentioned, among Japanese automakers today after President Trump agreed to a
15% US tariff on cars imported from Japan.
Now, that gives these companies some much needed certainty and a degree of
relief. They were bracing for a 25% levy on all
cars and parts sold in the US. Let’s get to Bloomberg senior Japan
economist Taro Kimura Taro. Obviously this reduced tariffs much
better than it would have been. But let’s not forget a year ago there
was barely any tariffs at all. So how sustainable is some of these
gains that we’re seeing? Exactly.
The agreement the announced agreement was sort of a positive surprise for the
market. But don’t forget, Japan has had little
U.S. tariffs back into the in 24, and now it
has on average 16% because 50% are still an unknown.
Other than that, tariffs, aluminum tariffs still remain.
So it’s a huge potential, huge blow for exporters.
And it’s mixed so far.
The yen is still at the weak level, it appears, providing some cushion for
automakers and other exporters to keep their production line running and gain
profits by exports to the US. But at the same time, their profits are
also tempered by tariffs, obviously because
they are reducing the export prices in order not to hike prices for US
consumers. So therefore we need to keep an eye on
the hard data coming, coming out going forward.
And there is some jittery moments. The real economy still goes on
in the auto industry, very important to Japan’s economy more broadly with a 15%
tariff. What’s the potential drag on Japan’s
growth? We roughly estimate like in the mid to
medium to long term, like the Japan’s hit to hit to Japan’s GDP still around
0.3%, which sounds small for you. But given that Japan’s potential growth
rate is usually estimated around 0.5 or 6%, I have to admit it’s a big blow.
So therefore, it depends on how the auto export export cars
still hit. The interest of US consumers and
Japanese factory workers are being kept hired and also
kept their wages kept rising because inflation’s passing.
So there’s a domestic momentum is probably stalling because of the
stagflation or any kind of shock because of the running inflation recently.
So external fear should be closely being watched.
But we’ve got a Bank of Japan meeting next week and previously Governor White
has said he wouldn’t be doing anything until there was a trade deal with the
US. Well, now there’s a trade deal with the
US. Short dated bonds seem to be trading
like next week’s meeting is a live one. What can we anticipate?
Still, I expect that the BOJ won’t hike rates in the coming meeting on July 30
and 31 because of course, as you said, the BOJ rate hike signal was hinges
around the onset of uncertainty around trade negotiation.
But watching recent BOJ officials communication carefully, they’re also
very cautious about potential fallout from US tariffs regarding growth and
inflation. So therefore it will take at least a few
or several months for the Bank of Japan to judge.
It’s conducive to go ahead with increase rates because they need to watch some
hard data such as production wages. But that said, in a broad picture, it’s
clear to me that Japan is now in inflation and the direction for the Bank
of Japan that it needs to still increase rates.
That’s still 0.5%. And considering the inflation that’s
running above 3% right now, it’s subdued, significantly negative in real
terms. So therefore,
the Bloomberg economics baseline is they will hike rates in October where they
update their price forecasts based on the agreed announced agreement on
between the US and Japan. TER I just want to get across some
breaking news here. We have been closely watching for the
auction today of Japan’s ultra long 40 year bond.
So we’ve just had the result of that selling the bid cover ratio there, 2.13.
That compares with the 12 month average of 2.48.
So that’s a 48 bond sale, the weakest demand ratio that we’ve seen since 2011.
I know we’ve just got that news, but can you give us your quick analysis of it?
Of course. There’s also a previous breaking news
that the ECB is probably stepping down in August or he will announce it in
August. And given that Ishiba are basically
concerns about fiscal soundness and he wants to protect consumption tax, any
other potential next leader is likely to be more fiscally expansionary.
And also, you need to consider a unique factor for Japan’s long yields market,
which is the Bank of Japan is reducing the JCP purchases.
So therefore, I totally understand the jittery moment continues for the bond
market and auctions. All right.
Senior Japan economist at Bloomberg Economics.
Taro Kimura. Well, Bloomberg’s executive editor for
Asia markets, Paul Dobson, joins us now from Singapore.
Paul, just want to start off with some of the action that we’ve seen in Japan,
a number of asset classes being affected today.
I mean, we’ve got two equity markets performing very strongly, particularly
those auto makers and then that 40 year bond sale.
Well, really exceeding some of the worst predictions.
What are the key takeaways for you today?
Yeah. Pretty explosive day in Japan’s market.
So all round started off by the trade deal, of course, which has seen those
stocks blast higher. And then the news, as we were just
hearing, the potentially ishiba will be looking to resign his post quite
quickly. The risk there from a markets
perspective is that any of the competing sort of voices who would like to have
influence on the government would most likely push for looser fiscal policy.
That means more stimulus spending essentially either through tax cuts or
free handouts, those kinds of things that might be good news for the equities
market and how stocks could continue to rally.
But it’s not good for the bond market where people are worried about the
government spending discipline already. And that, I think is why you see demand
are very low for these auctions of the very long maturity bonds.
They’re not yet offering enough compensation for those risks and
therefore people aren’t really showing up in their droves.
So that weakness in the Japanese government bond market may continue.
The one hope is, you know, not all that good either, but if the BOJ does move
quicker to hiking interest rates, then it should at least keep inflation under
control. So that might help to put a lid on those
longer term yields. Admittedly, at the same time pushing out
the short term borrowing cost to, you know, just also want to get to a
story that’s been somewhat buried by the news coming out of Japan at the moment.
And that’s what we’re seeing in Hong Kong.
The Hang Seng China Enterprises Index, better known by its acronym CPI, having
a terrific day. I was heading for the highest close that
we’ve seen in some years. Can you unpack this for us?
What’s driving the enthusiasm here? Yeah, well, I think that there’s a
combination of factors. The general backdrop is pretty
supportive at the moment. Global equities are at record highs, US
equities are at record highs because these trade deals are starting to get
done in the market is starting to get a little bit more certainty.
China, as we know, is in this negotiation process.
It seems like Bessen is going to meet with some Chinese counterparts in
Stockholm quite soon, but extending the negotiation window as well.
So China’s sort of comfortable with the tariff situation at the moment.
Meanwhile, you’ve got more signs that there’s a little bit more support coming
for you for China in terms of fiscal and economic policy.
You’ve got, on the one hand, these efforts by the government to sort of
stop the really cutthroat price competition in the mainland, which is
lifting the outlook. And then you’ve got some of these longer
term stimulus plans in terms of infrastructure, particularly the massive
hydroelectric dam they’re planning to to build in in the far west of the country.
This really helping to sort of change the mood a little bit and get people
more optimistic about the prospects for construction companies and the like for
commodities and for the labour force and therefore for the economy as well.
So signs of optimism there that have been building for a while in the Chinese
market starting to really show out now. All right.
Bloomberg’s executive editor for Asia markets there, Paul Dobson.
Well, joining us now is Janet Rilling, senior portfolio manager at All Spring
Global Investments. Janet, plenty to talk about today, not
the least of which. Some of this news flow coming out of
Japan and being involved in fixed income credit.
I just wonder if I can get your reaction to that 40 year auction that we just saw
in Japan, the weakest demand ratio we’ve seen since 2011.
At what point to some of these longer dated notes in Japan see yields that are
too attractive to ignore? Well, I think there is a specific
element to Japan, but there’s also a common element globally, and that is
there’s a lot of long duration bonds for sale because many governments have a
fiscal situation where they need to finance the deficit.
So the expectation of the bond market is there’s going to be continued supply in
the long end and there are more limited buyers out there.
So I think the specific auction today underscored that limited demand.
But maybe more specifically to the situation in Japan, concerns about the
high debt to GDP ratio and the increasing fiscal concerns is is really
weighing on that auction. Yes.
And there’s been some interesting action at the short end in Japan today as well,
following this trade deal that we’ve seen agreed between the US and Japan
since a big moves in two year JGB yields as well seemed to be behaving like next
week’s BOJ meeting could be a live one. What are your thoughts on that?
Yeah, I would tend to think they’re going to wait to see how some of this
filters through the economy. I mean, certainly it’s good to have a
concrete number in terms of tariffs. The question is how will that be
absorbed between the manufacturers like the autos compared to the consumer?
So my expectation is they would wait to see some of the data come through post
the implementation of these tariffs. Yeah.
What’s your reading of the inflation picture in Japan at the moment?
Because the numbers look pretty hot. And then at the same time, we’ve just
been hearing from our reporters about the potential drag on growth from this
trade deal because, you know, there are tariffs now in place against the auto
sector that were not there 12 months ago.
So are you concerned about the balance between inflation and growth in Japan at
the moment? I think that is a difficult balance.
I mean, with with the potential for increased costs related to the tariffs,
that is an upward force. At the same time, the tariffs will be
could be somewhat of a drag to economic activity.
This is a common situation globally. I mean, the US is in a similar position
where the push and pull between higher inflation and lower growth is putting
some boundaries around yields. Yeah.
Let’s turn to the situation in the US as well.
Do you? I know that you view there is a risk of
reacceleration of inflation in the United States.
Can you tell us a little bit more about that view?
When we look at the overall U.S. macro picture, we’re quite constructive.
But the one element that does raise concern is the potential for inflation
to reaccelerate. We’ve generally had more benign
inflation figures this year with the exception of the last CPI print, which
shows showed a bit of acceleration and maybe some evidence of the tariff
concerns coming into consumer prices. So inflation is something we’re watching
closely. It’s not our base case that it’s going
to become unanchored, but we do see it as one of the higher risk elements in
the macro outlook for the second half of 2025.
Yeah, that’s certainly a view that you share with those data dependent members
of the Fed, which much to the frustration of President Trump refusing
to cut rates. And we do have a Fed meeting next week
as well. So what are your thoughts on what we
might see there? Because many in the markets still see
two cuts in 2025, but with only three meetings left after this, one is time
running out. Well, we don’t expect any moves this
meeting, as I think the Fed wants to see a few more inflation prints and
employment prints prior to moving. But it is our expectation that they will
look to cut rates later this year. They’ve communicated a dovish bias.
They have described the current rate as restrictive and they want to move it
closer to neutral. Given the employment picture being
pretty balanced and our base case that inflation will not become unanchored, we
do think the most likely course of action will be for two cuts later this
year. Yeah.
Also, questions continuing to swirl about the Fed, the independence of the
Fed, the pressure that’s being put on Chair Jay Powell.
President Trump undercut Chairman Powell again today.
Let’s just have a listen to what he had to say.
Real. Terrible, terrible head of the Fed.
And if he brought down interest, you know, in Europe, the European Union,
they’ve lowered their interest rate now 11 times, and we haven’t lowered ours at
all. He’s not doing a good job.
And but it’ll be he’s only going to be there for a short while.
Not going to be there much longer. Well, let’s run a little thought
experiment, Janet. Suppose Jay Powell did cave in and
suddenly start lowering interest rates. What in what in your view, would be the
impact on the US economy? Well, again, it is our base case that
later this year the Fed will lower rates.
Now, let’s remember that it’s not just one member of the committee making that
decision. Right.
There’s a number of individuals that vote.
Jay Powell is the leader of the group, but not the only voice.
But nonetheless, it is our expectation for a cut in rates.
We think the market is largely expecting that.
So we wouldn’t expect a large reaction if that came to fruition.
If that came to fruition sooner rather than later.
Is there a risk in moving to early? I think the market would be surprised if
there was a cut in the July meeting and I think there would be a reaction.
Is there a risk of moving too early? Certainly, if we if the Fed was to cut
rates and thereafter we saw an uptick in inflation, and when that was larger,
they could see that the increase could be viewed as a policy mistake if it
stoked inflation and caused it to spike higher.
Well, certainly the criticism of Jay Powell from President Trump is nothing
new. We’ve been hearing it for four years
now. But he is, of course, an appointee of
President Trump. Is there any reason to think that the
next Fed chair appointed by President Trump wouldn’t also act independently?
We’ve heard from some of the individuals who’ve been considered candidates for
the Fed, and they have reiterated the importance of independence.
Certainly most economists, if not all economists, believe in the importance of
independence, as do financial markets. So I think there is a strong call to
keep the Fed as an independent function in the US.
What’s your outlook for the United States dollar?
Against this backdrop, as well as further weakness in your base case.
We’ve been diversifying a little bit away from the dollar in a modest degree
as as we think that having some diversified currency exposure in a
portfolio makes sense at this point. I just wanted to ask you about China as
well, because there’s some discussion that we might be getting near the end of
the deflationary cycle there. Was that something you would agree with
and what are the implications for yields?
Yeah, the deflation from China certainly has had an impact as it gets exported
through the various sales channels. However, the tariff situation will also
way in terms of the inflation picture there and we will see higher costs being
passed to the US as we source our goods from from China.
So just before we let you go, Janet, I’m wondering if you can tell us about where
you’re seeing the best opportunities in fixed income right now.
So generally we’re quite constructive on fixed income because yield levels are
attractive as compared to this historical levels this cycle.
So we are favouring high quality income in our portfolio.
To us that means looking to places like structure, product to overweight in the
portfolio. This tends to be a very high quality
portion of the market with attractive yields includes agency mortgage backed
securities. There’s a very diversified sector within
the asset backed securities sector. Commercial mortgage backed securities,
those are most definitely our favoured areas of the fixed income market.
All right. Janet Rilling, senior portfolio manager
at Old Spring Global Investments, thanks so much for joining us today.
Let’s take a quick look at Indian markets before we head to the break.
We did have those markets open a short time ago, but very much buried under the
news flow coming out of Japan, as I mentioned.
But much like the rest of the region, seeing a modestly risk on day there.
We’ve got the Sensex better by about a third of 1%, just some very modest gains
for the nifty bank index and the rupee still hovering near those record lows.
More in a moment. This is Bloomberg. It’s been a big day for trade stories.
Here’s some more that we’ve been following.
Thailand says it’s close to a deal with the US to lower a threatened 36% tariff
right before the August 1st deadline. The Thai finance minister says talks
should conclude within days and he expects a reduction in line with their
Southeast Asian neighbours. Thailand has offered to increase
purchases of US goods and expand zero tariffs on American imports.
The Trump administration says its trade deal with Indonesia will unlock $50
billion in market access. An official tells Bloomberg that Jakarta
will eliminate all non-tariff measures on US goods and drop barriers that could
have hit American tech companies. President Trump announced the deal for a
19% tariff rate last week, but we’re told it will only be implemented in the
coming weeks. All right, let’s get to Japan, which has
been the epicenter of all the market action today.
So much news flow will stop with that US Japan trade deal.
15% tariff on Japanese autos to the US. That’s really put a rocket to some of
those big Japan auto names. We’re seeing the Nikkei more broadly up
by about three and a quarter per cent at the moment down the bottom of your
screen. As if that wasn’t enough, Japanese Prime
Minister Xi Ishiba set to announce his resignation by the end of August.
That’s from reporting by Mainichi. We’re also hearing the same from Yomiuri
now. So it looks like, as predicted,
following that very disappointing results in the election that the
Japanese prime minister is going to step down.
Meanwhile, the 40 year government bond auction, which we were watching very
closely, is now well, that saw its weakest demand since 2011 amid concerns
over government spending after the even after the US and Japan reached a trade
deal bid cover ratio. Pretty miserable there for that 40 year
auction. All right.
Big names coming up on Bloomberg TV as well.
US Treasury Secretary Scott Bessant and Commerce Secretary Howard Lutnick is
going to be joining Bloomberg Surveillance later on tonight.
If you’re watching in Asia, that’s Wednesday morning in the US at the Times
on your screen. But that is it for inside horizons.
Middle Eastern Africa is up next. This is bloomberg.

Insight with Haslinda Amin, a daily news program featuring in-depth, high-profile interviews and analysis to give viewers the complete picture on the stories that matter. The show features prominent leaders spanning the worlds of business, finance, politics and culture.

Chapters:
00:00:00 – Insight with Haslinda Amin
00:00:15 – Japanese PM Ishiba to step down: local media
00:05:44 – Tobias Harris on who may succeed Ishiba 11B Trump deals bring some clarity to Asian nations
00:10:53 – Trump deals bring some clarity to Asian nations
00:13:12 – Jia Hui Tee on what’s next for Asia trade talks
00:23:55 – Japanese automakers surge on US trade deal clarity
00:31:34 – Japan’s 40-year bond draws weakest demand ratio since 2011
00:34:57 – Janet Rilling on Trump’s pressure on Powell
——–
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