Japanese Yen Gains As Ishiba Vows To Stay On | Bloomberg: The Asia Trade, 7/21/25

Japanese Yen Gains As Ishiba Vows To Stay On | Bloomberg: The Asia Trade, 7/21/25

This is the to of them.
For Rihanna in Tokyo, I’m Heidi Stroud. Well, it’s in Sydney.
The top stories this hour. The yen as is high with Japan’s ruling
coalition is set to lose its upper House majority after Sunday’s election.
Prime Minister Sugar is saying that he will stay on despite the historic
setback. Investors weighing trade developments
with the EU said to be preparing for a no deal scenario.
China’s banks expected to hold their prime lending rates steady.
Plus, Australia’s treasurer tells us drug subsidies are not up for
negotiation as he evaluates the impact of potential 200% US tariffs.
Take a look at how we’re signing up for the Asian market opens.
We had two weeks of gains for Asian stocks and you can see Nikkei futures
right now gaining a little bit of ground.
We have seen it gain 6/10 of 1%. Of course, this after the upper house
elections. We’ve been watching the Japanese yen
because hedge funds had slipped in bearish views ahead of the upper house
elections. We have a little bit of a rebound in the
overnight session. The Japanese yen about that 148 level
against the US dollar. But what we’ll be watching is the JGB
yield space because we have seen yields at multi-year highs.
Remember these fiscal concerns about spending and given the weakened position
of Prime Minister Ishiba, we might see the government having to cooperate more
with opposition parties in order to get their legislative agenda moving.
And remember, opposition parties actually did quite well, those who were
selling another sales tax cut. But take a look at how Treasuries are
also setting up, because we have seen us all sort of wavering in the previous
session. This, of course, as we are now seeing
earnings season. Guys, if you flip up the board, you can
see the treasuries will be watching. After yields fell in the previous
session, we had fed governor Christopher Wallace.
Are the wall are talking about potentially another rate cut by the fed.
Of course, he’s seen as a candidate for Fed chair after Powell.
U.S. futures at the moment holding steady,
but we’ll be watching. Also, oil prices, Brent, very close to
that $70 a barrel level, but it’s really about the election.
So we had this weekend here in Japan, Prime Minister Suga really by saying
that he’ll stay in office despite NHK reporting that his ruling coalition lost
his upper House majority in Sunday’s election.
Now, remember, this is the first time since 1955 that the Liberal Democratic
Party will govern without control of both chambers.
Let’s bring in our North Asia economics and government editor Yuko Takeo Yuko.
So if the results are in fact, as Poles had predicted, this is a particularly
bad result for the Prime Minister. Can he still stay in power despite the
fact that he’s saying that he’ll hang on?
Yes. Seem seems have just missed securing a
majority. So the results may be a little bit
better than the polls initially predicted.
But the bottom line is, as you say, he’s lost control of the upper house.
And this is a historic result because since 1955, that hasn’t happened to
Chambers being lost by would. So she has already said multiple times
last night that he’ll stay on despite the result, which suggests for now,
he’ll have to somehow cobble together enough support from opposition parties
to pass the legislation on a case by case basis.
That means he will likely have to make concessions to opposition party demands,
meaning more fiscal spending in some form is likely.
And but it’s hard to see him staying too long.
Every time a prime minister has lost this badly, that the they haven’t stayed
in power for so long. So we probably expect the LDP to
ask to get to leave in some form fairly soon.
How influential could the opposition parties be?
Because they take over. Technically, this is possible since they
hold more seats than the ruling coalition, but it seems like a very
remote possibility given those seats are split between a dozen or so parties that
are very unlikely to be able to come together to form a government.
It would probably make more sense for them to try and influence policy through
the leverage they have of the ruling government for now and wait for whatever
the next large election may be. And all of this coming at a time, of
course, when Japan is facing higher U.S. tariffs.
Yes, that’s something that’s hanging over the election as well, and it
remains unresolved. Japan is set to face across the board
tariffs of 25% from August 1st, barring a deal with the U.S.
And so far there’s been nothing concrete.
True. After Japan’s chief trade negotiator,
Ozawa, has been to the US seven times already.
So now the ruling coalition will have to continue negotiations from a weaker
domestic position with the deadline for higher tariffs coming up in about ten
days. Such a confluence of complications going
into this election. Bloomberg’s North Asia economics and
government editor talk here, though, with us.
Well, staying on the theme of trade risks and European Union envoys are set
to meet soon to formulate a plan for how they will respond if the bloc cannot
secure a US trade deal by President Trump’s August 1st tariff deadline.
WALLACE Brand senior editor Wendy Benjamin’s in an When do we know Flurry
of letters have gone out over the past few days.
There’s a lot of discussions and contemplation underway.
Where do things stand when it comes to negotiations with the EU?
Well, they’re there’s going on, but they’re not making a tremendous amount
of progress.
And that has led the EU to begin, as you have said, to create this no deal
scenario where nothing works out. And Trump President Donald Trump does
place 30% tariffs or higher on the EU. And then they have to figure out how
they are going to retaliate, which they have to not only calculate how they will
retaliate, but really still if they will retaliate because any actions on their
part could be met with reciprocal actions by the U.S.
At least that is what the president has threatened.
So right now this morning in the U.S., the commerce secretary said that he was
absolutely confident that there would be a deal with the EU, but the EU
negotiators seem a little more worried. What are the key sticking points at this
moment? It’s the key sticking points in the
negotiations. It’s hard to tell.
It’s it’s really sort of up to Donald Trump and his mood and how he’s feeling
about them. I think the negotiations and the details
that normally in past administrations we have always watched very carefully are
not as germane this time because it just depends on whether, you know, they will
agree to the 30% tariffs. And if they don’t, they won’t.
But they are looking at sectoral tariffs and they’re trying to excise from the
30% tariffs. Sectoral items like steel, like
aluminum. And in return, the EU could place higher
taxes on American tech companies or, you know, other actions like that, that that
could really cause a big mess. What else are we looking out for at the
start of this week when we know that anything is really possible when it
comes to the developments and headlines generated by the Trump administration?
That’s absolutely right. Today, he has been celebrating the mark
of six months into his term and he’s been sort of all over the map on things
that he wants to do going forward. But he’s really trying to shed the whole
Jeffrey Epstein saga and move back into tariffs and trade, which are his
favorite subjects. So and he is heading to the UK, to
Scotland at the end of the week. And so I think we’ll probably start
hearing a lot about tariffs as the week wears on.
Bloomberg senior editor Wendy Benjamin’s in there joining us from DC on the
latest trade headlines as we continue to watch the markets.
Of course, we have seen the dollar now seeing its best two weeks this year.
On the other side of that trade, we have the yen pressured for the majority of
last week. But in fact, in the overnight session we
saw a little bit of strength against the greenback as traders react to reports
that Japan’s ruling coalition will lose the majority in the upper house.
For more, let’s bring in executive editor for Asia markets, Paul Dobson.
And, Paul, of course, we had expected this triple dip when it came to Japan,
including when it comes to bonds and the Japanese yen as well.
It seems that we have a little bit of strength, not a lot on the Japanese yen.
What’s the trajectory from here? Yeah.
Good morning, Sherry. So really interesting.
I think that it’s a bit of a watch and wait situation now for currency traders,
for people in markets in general to see exactly
what form the new government or the government can take after this election.
Ishiba is saying that he plans to stay on.
Maybe the market takes that as a little bit of good news.
Perhaps the party marginally perform better than might have been expected
going into this. And yet, on the other hand, there’s
clearly been to be under pressure to do more in terms of fiscal stimulus.
And that is what the market has been kind of nervous about.
So what that actually looks like and how that plays out is going to be really
important. I remember parts of the market aren’t
even open today. What will be crucial will be how the
Japanese government bond market reacts, and that won’t give us a strong
indication until tomorrow when trading resumes again.
So you could say is the yen up because of a little bit of a Haven bid?
Maybe. Is the yen up because of a little bit of
a relief? Maybe so.
Could be either way. Not entirely clear at this point.
But either way, we do know that traders have fatten their positions a long way.
So it may be that sort of neutral and slightly cautious approach that we get
at the start of the week. And so we have a little bit more
information here. Speaking of caution, of course, we’re
watching the Fed as well. And as far as sort of the the line when
it comes to caution and patience for further easing, that’s still expected by
the markets going into the end of this year.
The Fed becoming a little bit of an outlier among central banks.
The Fed is been sitting still for quite a long time
now while some of the other central banks have been cutting, as we know.
And we’ve heard plenty about that from the US president, among others.
It seems that as some point the Fed is going to start cutting interest rates
again, but probably not this month. We’ve heard quite explicitly at the end
of last week from Waller on the Governing Council, sort of talking about
how he’s planning to vote for a cut this month.
But that doesn’t seem to be the consensus.
We’re still in that sort of watch and wait kind of scenario.
Need a bit more information on what the tariffs does to the inflation outlook
before more people are going to be comfortable voting for further cuts.
And so into the second half of the year when we might see that.
It’s funny, isn’t it, because a lot of the other central banks, like the
European Central Bank, has been cutting already through the first half of this
year and it’s heading more towards a pause at some point by it by the by the
sense of what we’re hearing from policymakers there.
So everybody’s moving a slightly different paces at the moment, and that
makes interesting opportunities, of course.
If you’re a currency trader looking for where the interest rate trajectory is
going from here. Yeah, but in the meantime, Treasuries
have already been pressured by abundant supply.
Already this notion of the Fed, perhaps its independence being threatened.
What how does that vote for the direction of yields?
Very difficult to read again is an injury.
It does feel like I mean, the big long kind of like consensus view at the
moment is that US markets in general are over owned by the rest of the world and
that people are reducing their positions.
Theater in U.S. equities or in US Treasuries for that
matter, is only playing very, very, very slowly.
But that’s why people continue to see this kind of gradual depreciation of the
dollar over time as well. And what that’s doing is pushing up
yields, particularly at the back end of the Treasury curve.
And if you do have more of that challenge to the Fed’s independence and
more concerns about the investor bility of the US overall, then that’s going to
do more to push up those long term yields, because that’s where people will
express the mistrust. And on top of that, if the Fed is being
pressured to cut interest rates, all things being equal, and if Powell is
going to be replaced by somebody much more dovish, you should see a much steep
yield curve as well. People betting the interest rates in the
short term will fall, but that will probably push up inflation and add to
those risks again for the back end of the yield curve for long term bonds.
And so you see that recalibration, and that’s the way that people are choosing
to express it. If they’re anxious about
about the Fed independence at these times.
Thanks. Paul Dobson there with what we’re
watching. And coming up next, we’ll be talking
global trade with the Center for Global Development.
Later on, insights from the Eurasia Group.
Moody’s Analytics joins us to talk about the prime ministership, his election
setback in Japan. Much more ahead here on the Asia trade.
This is Bloomberg. Take a look at how we’re setting up the
start of a brand new trading week. A lot of event risk, of course, when it
comes to what we’re seeing in terms of Japanese assets, a faltering of the yen
on political risks, some of the concerns over the loss of that, a ruling
coalition majority as sort of projected as we went into Sunday’s vote.
But certainly that upper House majority potentially being lost raises the risk
of further fiscal largesse. Some of the complications when it comes
to input from the opposition parties as well.
Here in Australia, we’re looking like a pretty downside day.
But of course on Friday we saw stocks extending that record rally there, banks
and financials advancing. We actually saw the biggest daily gain
for the ASX 200 since April 10th. But of course overlaying all of this
ongoing concerns about trade and tariff risks.
Let’s get some more. When it comes to these ongoing tariff
negotiations between the US and a few nations around the world, that August
1st deadline is ticking ever closer. Joining us now is Karen Matheson, who’s
a project director at the Centre for Global Development.
Karen, really great to have we with us. And as we speak, we’re also hearing that
European leaders and policymakers are sort of trying to come up with
contingency plans if a deal is not struck by that new August 1st deadline.
What are your expectations? Because if you take a look at financial
markets, that sort of perhaps complacency on the assumption that
things will get worked out and President Trump will sort of seek some sort of
compromise is still the prevailing narrative here.
Yes. Thanks again for having me on.
It continues to be fascinating times. I think the you know, the August one
deadline is a bit of a puzzler because at this point, there are 25 countries
plus the EU in play. We know it’s not realistic to have deals
done with all of those countries. And, you know, at this point, they’re
sort of only deals with three the U.K., Indonesia, Vietnam.
And we don’t really know the details of this look like.
So I think the real question for August one is how real a deadline is it and
will we see another kicking the can down the road situation?
And even Trump himself has hinted that, you know, it may not be a hard and fast
deadline. So I you know, I think that makes it
complicated for negotiators all over the world because they simply don’t know how
serious the deadline is. And and for that reason, it’s I think it
must be quite tricky to figure out what an appropriate negotiation negotiating
strategy is. And in particular for some of the
smaller, more vulnerable countries like, you know, Cambodia, Laos, you’re Sri
Lanka who are, you know, not major trading
partners, but for whom these tariffs could be quite devastating.
So, you know, again, just a lot of uncertainty which which seems to be the
continued narrative here. The strategy is an interesting one,
right? As someone who’s worked under Presidents
Bush, Clinton and Obama. How disincentivizing is it for
negotiation negotiators in other countries when it’s not just the the
deadline goalpost keeps shifting. It’s also what’s on the table.
Right. We know that President Trump is quite
willing to throw everything on the table, including a lot of topics and
issues that are not related to trade in terms of geopolitics or security.
Mm hmm. Yeah, I think it must be it must be
quite disincentivizing for many of them. I think it’s it’s going to be much
harder to, you know, basically make a case for providing a lot of concessions
because you simply don’t know what you’re going to get in return.
And if you have a deal one week. Whether it will last, you know, I could
imagine with the other three countries, UK, Vietnam, Indonesia, of any of the
developments in those countries that Trump was unhappy about, I could easily
see him up ending these deals. Right.
And so I think that’s enormously problematic.
And I think as we’re seeing in Brazil, too, it can work.
It can work the other way where you see President Lula are getting quite a bit
of credibility and domestic support for resisting
the sort of geopolitical nature of his tariff threat around Bolsonaro.
So, yeah, I really think it must be it must be quite brutal for a lot of tariff
negotiators in these other markets. So what’s the point and the incentive
for all of these trading partners to actually get to a deal?
I mean, how easy is it for President Trump to tear down anything that has
been agreed upon with other sectoral tariffs that could come later?
I mean, that is that is a great point. And I was going to flag that.
You know, since we last spoke, we’ve had the tariffs
for aluminum and steel imposed the threat of tariffs on copper.
So you’re absolutely right.
You can have some sort of deal with on a country basis, but suddenly that could
be undermined or offset by some sort of sectoral tariffs because, you know, the
administration is working both angles at the same time.
I mean, I think the incentive, of course, is to is to try to avoid the
tariffs at all. And so I think you have to at least make
an effort to show that you’re negotiating in good faith.
Right. And
and I think Japan is a really good example of that.
You had best sent over there at a very difficult time for Japan is, as you just
mentioned on your show, the prime minister is, you know, lost
control of the upper house. And at the same time, he’s trying to
negotiate a deal with with with a fairly unreliable partner.
So I think it’s it’s got to be very hard.
But I think you do have to show you’re negotiating in good faith in an effort
to at least, if not eliminate the risk, reduce it, or
potentially, again, kick it down the road a bit.
Try to postpone on Japan the decisions. Yeah.
Given that the auto sector is such a sticking point between the two sides,
how do you see this actually getting to a break through and what’s next?
Well, I think. I think that.
What we have to remember is the extent to which the relationship is mutually
dependent. Right.
And we saw this with China, and as there was this escalation towards an
absolutely brutal trade war. Both parties eventually did back down as
it became clearer and clearer just how devastating impact could be.
Both economies and I think that will happen with with Japan as well.
And I think what you can’t discount is what is happening behind the scenes in
the United States. We do not know, you know, what is going
on at the White House, but I think it is safe to assume that you have a lot of
panicked calls from a lot of very powerful CEOs who are really spelling
out for the president just how devastating the impact could be on
manufacturing, on jobs. And, you know, these are things that he
really cares about. So I think it’s that that that unknown
that the the known unknown that we’re dealing with will help to bring this to
some kind of resolution. Carrie Mathison, always good to have you
with us, project director at the Center for Global Development.
We have more ahead on the Asia trade. This is Bloomberg. Yeah.
Some of the other stories we’re following this hour.
And Ukrainian President Volodymyr Zelensky says his government has
proposed a meeting with Russia next week, more than a month after a previous
round of direct talks. Zelensky says the Russian sides should
stop hiding from making decisions. A Kremlin spokesman, meanwhile, says a
meeting between President Putin and Trump will definitely happen, but that
so far the right time has not come. Iranian media reports say agreements
have been reached for talks on its nuclear program with the U.K., France
and Germany. A state run agency says the talks
planned for Friday will be at deputy foreign minister level.
Says the discussions will be separate from indirect talks with the U.S., which
has stalled since Israel launched attacks on Iran in June.
Presidents Trump and Xi Jinping are reportedly expected to meet at or before
the epic summit beginning at the end of October in South Korea.
The South China Morning Post sources saying that Trump could make a stop in
China on his way or they could meet on the somewhat sidelines.
Sources have told Bloomberg that Trump has been doubling down his
confrontational tone with China in hopes of securing a summit.
Much more ahead here on the Asia trade. This is Bloomberg. The private sector is not doing as well
as everybody thinks it is. Most of the half of the employment
growth we saw last month was in the public sector.
And that means the private sector is not doing particularly well.
So I was just joking that, you know, if
you’re walking on a lake and the ice is frozen, it sounds safe.
But when you start hearing cracks and that’s when I feel like it’s too late
once you go through the ice. Federal Reserve Governor Christopher
Waller there citing concerns over hiring in the private sector after calling for
the bank to cut rates this month. We actually saw Treasury yields falling
on those comments last week. Remember, we have seen, of course,
yields pressured higher, given concerns about spending and the fiscal picture in
the United States. But we have seen that pressure on yields
last week with the Fed governor calling for a cut in July.
And this, of course, as is seen as a contender for the next Fed chair
position if Powell is dismissed. We have seen already June CPI
surprisingly soft in the United States last week, although U.S.
consumer sentiment did rise to a five month high.
We’ll be watching existing home sales and new home sales data this week out of
the U.S. Heidi.
Take a look at what we’re watching here in Australia when it comes to the setup
for the session. And as you mentioned, some of these
terror concerns also weighing on Australia, given that the exposure that
certain sectors have here. But Sydney futures looking a little bit
softer today. We had the extension of that record
rally on Friday, though largely led by financials and banks.
We are seeing a little bit of a pullback there, perhaps some profit taking at the
start of this week. The Aussie dollar, though, still on
fairly firm footing at 65 at ten, the sort of ongoing China truce of the
potential of that summit between presidency and Trump.
But driving a little bit more optimism in this proxy risk currency.
Well, Australian Treasurer Jim Chalmers says there’s no chance that his
country’s subsidies when it comes to certain drugs are up for negotiation.
As officials evaluate President Trump’s threatened potential 200% tariffs on
pharmaceutical imports. Chalmers spoke with Bloomberg from the
G20 meetings in South Africa. Well, Australia has the baseline tariff,
the 10% and some additional areas like steel and aluminium, copper,
pharmaceuticals. And so we’re engaging with our
counterparts in the US like almost every other countries in the world.
We’re pretty well placed and we’re well prepared to deal with these tariffs.
The direct impact is relatively manageable.
Our bigger concern is the impact on global demand of all of this uncertainty
and volatility and unpredictability, which puts global growth and indeed
global inflation at risk. And so in our modelling, the bigger risk
comes from the impact on the global economy rather than the direct impact,
because 10% is basically, as far as we can tell, the lowest possible deal.
It’s effectively what you will have with the United States.
Are you happy with that? And does that warrant retaliation or no?
We’ve decided to go for resilience in our own economy rather than retaliation.
You know, the 10% tariff is the lowest of any countries.
But yeah, we’ve made it really clear that we think the appropriate tariff,
consistent with our trade agreement, is zero.
We see these tariffs as self-defeating. We see them as an act of economic
self-harm. We’ve made that very clear bad for the
US economy, bad for the global economy and therefore not good for Australia.
Do you see any progress possible on steel and aluminum?
Well, it remains to be seen. I mean, we’ve been engaged more or less
constantly for some months now, whether it’s still in steel and aluminium or
some of the more recent announcements around copper and pharmaceuticals.
Our approach to is to engage at every level as much as we can to get a better
deal for our workers and our industries, our exporters, our industry and our
investors. And that approach will continue to guide
us. And in terms of the negotiations around
pharma, we’ve heard, you know, 200% as a possible figure from the United States.
Is the changes to Australia’s Pharmaceutical Benefits Scheme, is that
something that’s on the table? Because the Trump administration’s been
very focused on non-tariff barriers? That part of the conversation?
Absolutely zero chance. Yeah, we couldn’t be clearer.
Our Pharmaceutical Benefits Scheme is a crucial part of our architecture, our
policy architecture. It’s something we’re very proud of.
We’ve made it really clear that we’re not prepared to negotiate or diminish or
weaken the PBS in order to get a deal. We’ve been clear about that from the
beginning. We’re working through the potential
consequences of pharmaceuticals being caught up in these escalating trade
tensions. We do have quite a substantial export
offering into the US when it comes to pharmaceuticals, but how this potential
tariff might work, we’re working through with with the industry and with the
administration. There’s been a huge amount of pressure
from the United States for allies to spend more on defence.
You saw that most concretely in Naito a couple of weeks ago where you had that
boost in pledges for three and a half percent of.
Actively. Of defence.
Do you think Australia could get to that figure of three and a half percent?
You think that would be appropriate to join sort of allies at that level?
Well, first of all, it is a big part of the conversation here, particularly with
European friends, how they will find the three and a half per cent of GDP and how
they will account for the other one and a half per cent of GDP for national
security related spending. For Australia, we are already quite, by
our standards, quite dramatically escalating our defence spending.
We’re taking it from 2% of GDP up to 2.3 at the start of the next decade that it
already represents yet tens of billions of dollars in extra investment.
It’s a much higher trajectory than when we came to office three years ago.
And so we are increasing our defence spending.
We make those decisions. Why trading them off against all kinds
of other budget priorities. But we say to American friends and we
say to the world more broadly, we are already increasing our defence spending
because we think it’s important at a time where we are, where we are seeing
this heightened uncertainty in the world.
Australian Treasurer Jim Chalmers, speaking with our colleague Oliver
Crook. Well, of course we know that China is
tightening controls on critical mineral exports, pledging zero tolerance for
smuggling and illegal shipments. State broadcaster CCTV says Beijing’s
export control Office flagged recent cases involving false declarations on
trans shipments through third countries. China’s enforcing stricter licensing for
all shipments amid ongoing trade tensions with the US.
Well, Myanmar is the world’s third largest source of rare earth after China
and the US. But nearly all of its mines are in the
state of Kachin, which is clustered around an area controlled by a rebel
army. For more on this, Bloomberg big tech
Businessweek Asia editor Matthew Campbell joins us now for more on this
sort of renewed focus on which nations has potential supply of these critical
minerals has really kind of taken the headlines since this trade war, right
when it comes to the rebel army in Myanmar.
How does this fit in with it being a key rare earths player?
Well, Myanmar, as you said, is the world’s third largest rare earths
producer. That does put it quite a ways behind
China and the United States, but significant nonetheless.
And it turns out that since last year, the vast majority of Myanmar’s supply
have been controlled by this fairly obscure rebel group, the Kachin
Independence Army, who are now sitting on something like 50% of the global
supply of two particularly important rare earths, terbium and dysprosium.
And what they intend to do with this whole these riches is a bit of a
mystery. Do they have a relationship with China
at least? Yes, they do.
So the Kachin Independence Army, the Kayah or the KIO, is their political
arm. I have a very complicated relationship
with China. The Chinese government, so far as we can
tell, are not terribly close friends of the KIA because the KIA, of course,
fight the Myanmar junta, who are a key partner for China.
However, these rare earths do go over the border from Kachin, from Kayah
controlled territory incursion into China, where they are processed in
Chinese plants. So for the moment, these supplies do
flow into the Chinese supply chain and are then subject to whatever export
controls China may want to impose on them.
So there’s obviously no refining capacity there, hence why it’s going to
China. How are they mining these rare earths?
And as you say, even if they’re a far thirds behind China and the U.S., is
there any sort of leverage or usefulness that they’re making out of this?
I think in principle, anyone with a significant supply of rare earths at
this point has significant leverage. So one one thing we point out in the
story is that Greenland, which President Trump has said he covets for its rare
earths supplies as zero active, rare earth mines, a catch in this region of
being or has hundreds of active, rare earth mines.
So it is very significant the question of what leverage they have.
We don’t really know yet, specifically because
there are no alternative export routes. For the moment from Kachin.
But there could be in the future. And that then puts this organization to
a stroke in a very interesting position. The extraction, which you asked about,
is a dirty and dangerous business. There is a process called in-situ
leaching, which is employed in this part of the world, which we don’t need to go
into all the details, but suffice to say it’s very polluting, very dangerous,
exposes workers to potentially a great deal of harm.
But the CIA do not seem terribly concerned about that at this point.
What does that mean for Myanmar itself? Of course, we know that this is a
country that’s not necessarily been able to control all of its territory during
its history. So do we have any idea right now what
will happen to these new riches coming from there or it’s.
For the moment, the kids are firmly in control of this remote part of Myanmar.
The central government, the junta, as we often call it, have been kicked out
pretty comprehensively and the prospects of them retaking it are somewhat remote.
So this is going to be another example of where Myanmar ends up looking like a
Swiss cheese with these ethnic militias of various kinds, carving out
territories, some more organised, some more permanent than others.
In this case, it is a territory that came with an incredible mineral
endowment which will be enriching for the foreseeable future.
Bloomberg Businessweek Asia editor Matthew Campbell there with the latest
on Myanmar and rare earths. Take a look at some of the other
commodities that we’re following at the moment.
Oil is sort of holding steady, but very close to that $70 a barrel level for
Brent. And this, of course, after we continue
to see the latest progress on trade negotiations.
We’ve seen a weekly drop this month already for oil prices, a trade deal
progress, and the European Union’s efforts to curb Russian energy exports
in focus. We’ve been also following the price of
gold it gained in the previous session after we saw the Fed governor
Christopher Waller, hinting that he could dissent potentially from his
colleagues at the FOMC when it comes to holding rates steady.
At their July meeting, his called out for a rate cut given the state of the
U.S. economy.
Iron ore, of course, we’ll be following the Chinese economy.
We do get those long prime rates today and a hold expected for this decision
with China’s commercial banks likely to keep rates unchanged for a second month.
We have more ahead. This is Bloomberg. Take a look at how the yen is trading.
Of course, we have seen significant pressure on the Japanese currency in the
last few weeks, especially as hedge funds turned bearish when it comes to
the Japanese yen ahead of the upper house elections.
We’ve seen a little bit of strength in the overnight session.
This, of course, as we got the results of the upper house election to be
announced and confirmed later today. But so far, polls showing that the Prime
Minister Ishiba government might have lost the upper House majority.
And of course, the implications of that, especially for the JGB space as there
have been fiscal concerns in this country, will be crucial.
Markets closed today on the holidays. So we’ll see the resumption of stock and
bond market trading on Tuesday. But let’s bring in David Bowling,
director of Japan and Asian trade at the Eurasia Group.
He previously served at the office of the U.S.
Trade Representative where he helped negotiate deals with Japan.
It’s great to have you with us. You’ve been here writing for a month,
taking a look at the campaign season and how this upper house election has
unfolded. I mean, are we expecting Prime Minister
Ishiba to resign despite the fact that he says that he’ll stay on, given the
results? Good morning.
Yes, great to be here. And I think the big message from this
election has been, you know, inflation and it kills incumbents.
And we saw that happen in last October in the election.
And this is a sort of the second punch that Ishiba has taken.
I think it’s very hard. He was already on shaky ground.
He’s even on more shaky ground to remain as prime minister.
He’s vowed to do so. We’ll see what he says at his press
conference today. But, you know, Taro Aso, very
influential member, former prime minister, has already said that he wants
to push him out. So I think there’s going to be, you
know, the knives are coming out and we’ll just have to see if he can hang
on. It’s not going to be easy When we talk
about shaky ground, when we talk about this political battle within the
government, that just means that the agenda of the government will not be
able to be moved forward right at a time when Japan is also facing U.S.
tariffs. How problematic is this?
I mean, it’s difficult again, Ishiba It was already in a weak position.
This is not Abe. You know what?
Abe was negotiating with Trump. He was negotiating from a position of
power and control. Both houses had strong majorities so he
could talk to Trump and make concessions on agriculture.
I mean, Ishiba wasn’t in that position even before this election.
Right. And he was having to deal with sensitive
issues like rice and automobiles. He was in no position whatsoever to be
able to make concessions. Now, you think about, well, he doesn’t
have an upper House majority, doesn’t have a lower House majority.
How is he going to push this thing through if he has to to I mean, to get a
deal? How’s he really going to push it through
so the lame duck gets even llama? It’s a good way to say it.
So what does that mean for the, I guess, the tenor of these trade negotiations?
Right. Obviously not a great deal of leverage
if there’s political some degree of political uncertainty or even chaos
going forward. Yeah, I mean, in one sense, it doesn’t
change the dynamic a whole lot. I mean, we saw Japan was a priority
country for the Trump administration early on.
I think it’s lost that status. I think that Trump now looks at Japan
honestly like dozens of other countries. And the letter that he sent to Prime
Minister Ishiba shows that. I don’t think you see that letter come
from President Trump to Prime Minister Abe.
So I think that gives you a pretty good sense of where Japan is in the pecking
order right now. And also, we have to remember, I mean,
Trump is his tariff man, right? And so if they end at the end of the
day, the negotiations produce higher tariffs on Japan and higher tariffs on
many other countries. That is not necessarily a bad outcome in
Trump’s mind. You talked a little bit about the
fragmentation of the Abe faction three years after his death.
Is there a kingmaker adjacent at this point?
We’ve talked a little bit about Taro Aso.
He’s obviously a heavyweight. Who do you see as being pushed forward
as alternatives for the leadership? Well, I mean, obviously, Koizumi
Shinjiro is going to be a leading contender if Ishiba steps down.
And then Takeuchi, Sunny and I would say Takeuchi Sunny is the most Abe like when
it comes to her positions. You know, she still supports Abenomics,
even though it’s probably not really suited for the economy right now.
And, you know, she’s been very tough on the Bank of Japan.
She said raising interest rates is stupid.
So I think she probably would be the one that the conservatives would most be
attracted to. But her problem is, just as you said,
the Army faction is disintegrated. It’s gone away.
And where’s her base? That was her base.
And many of the candidates she supported last October lost.
So the challenge for her is, you know, basically, where is her base now in the
LDP that could push her to on to victory When it comes to the Japanese economy,
we have seen these parties that actually advocated for sales tax cuts doing
pretty well in this election. Are we headed that way, given that the
LDP will need to make concessions? I mean, I think the LDP has got a fight
on its hands, right? I mean, the LDP has been trying to
position itself as the party of fiscal responsibility.
And so I understood stand why they took that position in the election.
But every one of the opposition parties was advocating either to abolish the
consumption tax or to gradually eliminate it or some sort of version to
lower the consumption tax. And so I think it’s going to be
difficult for the LDP to keep that from happening.
I think the Ministry of Finance is going to fight this to the death because they
want to keep that consumption tax. And so in the end, I think they will
probably have to compromise. But it’s going to be a fight.
And LDP and Ministry of Finance are going to try to limit the cut as much as
possible, which eventually complicates the picture for the Bank of Japan and
just a broader economy. Bingo.
I mean, the Bank of Japan already in a very delicate position because of not
knowing the tariff issue and when it would be resolved.
Now it has to deal with the fiscal picture.
Well, which looks like, you know, it could become more complicated.
So the Bank of Japan has a very tough job right now.
Well, we had debts of 240% of GDP or something here in Japan.
David Bolen, good to have you with us, director of Japan in the Asian Trade and
Eurasia Group. And of course, you can catch Japan ahead
every Monday and a 40 a m if you’re watching in Tokyo, subscribers can also
watch live on the terminal using the TV go function.
More ahead. This is Bloomberg. Well, it’s been a milestone couple of
days for TSMC. Of course, we saw the stock closing on a
record higher top in Taiwan. The market topping $1 trillion as of the
Friday close and in fact, matching Berkshire Hathaway in terms of market
cap entering that top ten list globally. It is by far the heaviest weighted stock
on the MSCI pack, more than double the weighting of the second heaviest, which
is Tencent. But TSMC has cited volatility as a major
source of uncertainty going forward, affecting its profit margins.
Comes after the Taiwanese dollar surged nearly 11% this year against the US
dollar. CFO Wendell Huang told us exclusively
that the chip maker is constantly reviewing hedging strategies.
We do predict the Taiwan dollar, would we?
We simply described the potential impact to us.
And as I said, there are six factors affecting the profitability.
Foreign exchange rate is something that we cannot control.
But there were such instances before where the foreign exchange rate was not
in our favor. But we managed to leave no other factors
so that we are able to keep our profitability.
And that’s why we are paying it to do. Do you have contingency plans in place
for a more rapid appreciation of the Taiwan dollar?
It goes back to what impact of profitability.
So there are the the factors that we’re able to control.
We will definitely work hard. On those factors to maintain the
profitability. We use different hedging alternatives.
The first one is to just simply sell the US dollar in the market spot market and
we also use for contract and we also move part of the the cash, the US dollar
cash to a offshore holding company which the financial statements are
denominated, US dollars not in the ante. So that saves our hedging cost,
which to your priority or is your priority?
It’s a combination. You at the same time, you want to sell
the spot, which is the easiest one. But there is market appetite to
consider. So you go to the for contracts.
So there is also market appetite and cost and hedging cost.
And then we’ve been using this capital injection to the offshore
company for years. So there’s a combination and we will use
those combinations. TSMC CFO Wendell Huang, speaking
exclusively with Bloomberg’s Anabel Jewelers.
Take a look at how the Japanese yen is trading.
We have seen significant pressure on the Japanese currency, but we’re seeing a
little bit of a rebound in today’s session, of course.
We just are getting the picture of the upper house elections on the weekend.
The ruling coalition is expected to have suffered a historic setback with its
partner losing its majority in the chamber.
We’re also getting the latest when it comes to trade negotiations with the
United States. And we’re hearing that the chief
negotiator will be headed to Washington next week.
The market opens in Sydney. And so our next. This is a major trade.
We’re counting down to Asia’s major market open in Japan, though.
Are we on holidays, Heidi, we’re following the Japanese yen after we’re
now expecting the ruling coalition to lose its majority in the upper house.
What that means for Prime Minister Ishiba, that’s, of course, just
negotiating this trade agreement with the US will be key, really trade
headlines, a top of mind this week as well.
Yeah, for the EU as well, Greg, we’re hearing that officials there are
preparing some sort of retaliatory plan in case is August 1st deadline cannot be
met with a deal there. But as you said, it’s very it makes
things very difficult and it was difficult going into the upper house
election. But now for any kind of progress to be
made when it comes to Japan in the U.S., especially given that the Liberal
Democratic Party may have to make some concessions to the opposition parties
and what that means not only for trade negotiations, but also for, of course,
the Japanese government bond space that has already been really concerned about
the fiscal picture here in Japan is a key question.
We have seen yields at two decade highs. What that trajectory of JGBs will be
going forward. A key question for investors as well,
watching the Japanese yen, which is now rebounding slightly towards that 148
level against the U.S. dollar.
Of course, we have already seen significant pressure on the Japanese yen
in the last couple of weeks, with hedge funds turning bearish on the Japanese
currency ahead of the upper house elections.
We’re following South Korea as well. We’re now getting the first 20 days of
trade that data for the month of July. We saw exports now falling 2.2% year on
year, imports also falling 4.3% year on year.
That leaves a surplus for trade. That’s $465 million.
A key figure, of course, as we continue to follow the South Korean economy and
its own negotiations with the U.S., a 25% tariff expected on August 1st, if
that deal is not reached, not a lot happening in the stock space.
The Korean one also holding at that 1391 level, Heidi.
Take a look at what we’re watching when it comes to the setup in Australia.
A little bit of a breather perhaps when it comes to stock investors, given that
we had the extension of that record rally just in that Friday session off by
just about half a percent, we heard some of the comments from Treasurer Jim
Chalmers about the drug subsidies issue, given that there are all these fears
still that even if these pharmaceutical tariffs out of flow, as President Trump
has hinted, they could go towards that 200%, which is flagged within a year or
so. So we are seeing quite a bit of
resilience when it comes to the Aussie dollar trading at 6511 and of course a
proxy for what’s going on in China as well.
We’re expecting that loan rate to be held steady today watching Treasuries as
well. Given that it’s not just a GDP story,
that we have seen that broader pressure when it comes to the long end of yields.
Our next guest says signs of market complacency towards tariff risks is a
worrying development. David Chao is a global market strategist
for Asia Pacific at INVESCO, joining us from Singapore.
And David, we’ve heard sort of a chorus of voices warning about this complacency
ride. But at the same time, we continue to see
really market participants shrugging off the worst case scenario.
Do you think it’s a worrisome narrative that, you know, the talk of trade will
sort of prevail, that the compromise will be reached and things won’t be as
bad as at least when the tariffs were initially first flagged?
Well, I think that it depends on what kind of investor you are.
I think that bond investors certainly appear to be a lot more concerned than
equity investors, and I’m perhaps more on the bond investor side.
I think that we’re a bit whistling past the graveyard here when it comes to
tariff risks. It’s very apparent to me that the Trump
administration continues to want to use tariffs in its toolkit.
When one when looking at global trade, ultimately we have to remember, though,
that tariffs are just a near term phenomenon and we have to look at what
the fundamentals are for the American economy, for the global economy are
going to look like for the remainder of the year after we get through this
tariff phase. And how do the fundamentals look like
and how do they sort of inspire you to invest at this point?
I think that the fundamentals around the world look pretty strong.
We’re continuing to move through a phase of uncertainty which could cause growth
to be below trend. But I think that with central banks
around the world, especially in the APAC region cutting rates, they do praise
that they do provide a bit of a floor for fear, for growth and also for
markets. So I’m I take a more sanguine view of
growth outside the US. And also, I think that markets outside
the US look a lot more attractive. Is a flaw for the Japanese market, the
fact that we might get more fiscal spending, given that the central bank is
actually going in the opposite direction and trying to hike rates.
Well, I think that all eyes are still on how the composition of the Japanese
government is going to be formed going forward.
And we could be in a very short phase where there is a bit of political
uncertainties. But ultimately, the results of the
election were expected, largely expected by the markets.
And I think all eyes are very much on the trade deal now between Japan and the
US. And we got some optimistic comments
coming out of leaders that a trade deal can be inked very soon.
Where is the Japanese yen headed? I mean, we’ve been talking about
strength for a while now, but we’re now at 148 and continuing to weaken.
I think that very much depends on the direction of the US dollar.
And I think that this recent strength of the dollar is just a dead cat bounce.
I think it’s likely to reverse action and reverse course.
I think that dollar’s likely to weaken. And that means that, you know, that
gives you a chance for the for the Japanese yen to strengthen.
And we continue to expect a tightening monetary policy in Japan in order to
counter some of the inflationary effects that we’ve seen for a while.
So I think that the Japanese yen continues to be a very attractive
currency. We think that it’s going to be perhaps
one of the best performing currencies in the next 12 months.
Talking about best performing. We saw the Hang Seng index in the
previous session and the recent levels that we haven’t seen in about three
years or so. Is there more room for upside given the
valuation levels at this point, or is this a one off?
I think that there’s more room for Hong Kong stocks to run.
And we have to remember that the first place that foreign investors look at
when investing in China, they go into Hong Kong stock, they look they go into
large cap Internet stocks in Hong Kong.
And I think that when you look at valuations, you know, Chinese tech
stocks listed on Hong Kong trade at a steep valuation discount to their
American peers. And so I think that there there is still
room for Hong Kong stocks to run, for Chinese tech stocks to run.
And that’s going to be a very important investment theme that that will look at,
especially once we get through these tariff uncertainties.
Yeah, I was going to ask, he’s that sort of agnostic to whether this trade truce
holds or not. Well, you know, we continue to be an
environment where there’s trade escalation and de-escalation.
But I would say that we’re through the peak tariff uncertainties and we’re
looking at at deals now. And secretly, we’ve you know, we’ve had
a few deals that were announced already, especially in Asia, and I continue to
expect that going forward. Tariff deals when they’re announced are
our better off for markets in Asia, for the countries that the deals are
announced in. And so it’s possible that we get some
deals announced, you know, in India and Japan and other places in Asia that
could provide a boost for Asian markets in the coming weeks.
Anyway, David, really great to have you with us.
David Chao, global market strategist for Asia-Pacific at INVESCO.
One of the stocks that we’re watching when it comes to trading in Australia,
South32 we had a limited production coming in basically in line with
expectations and we’re seeing a little bit of upside there of 1.7% more ahead
on the Asia trade. This is Bloomberg. Japan’s Prime Minister Shigeru Ishiba,
says he will stay in office, despite NHK reporting that his ruling Coalition lost
its upper House majority in Sunday’s election.
This marks the first time since 1955 that the Liberal Democratic Party will
govern without control of both chambers. Let’s bring in our North Asia economics
and government editor Yuko Takeo and Yuko.
I mean, I guess the question is how long can he stay in office for?
Given that this is not his first this election and the last one, three LDP
prime ministers who lost the majority in the upper house actually had to step
down later. Yes.
Each of us seems to have just missed securing a majority, so the results may
be a little bit better than the polls initially predicted.
But the bottom line is, as I say, he’s lost control of the upper house, which
is a very historical result. It was already said multiple times last
night that he’ll stay on despite the result, which suggests he’ll somehow
have to cobble together enough support from opposition parties for now to pass
legislation on an issue by issue basis. But that means he will likely have to
make concessions to opposition party demands, meaning more fiscal spending in
some form is likely. But given the historic nature of the
loss, it seems difficult to see who should be remaining in power for much,
much longer. Given the precedent that all three prime
ministers who lost control of the Upper House left within two months, it seems
hard to see Shibu as breaking from that mould.
How much influence will opposition parties have from here on in?
Technically, they could take the government.
It is technically possible since they hold more seats than the ruling
coalition, but it seems like a very remote possibility given those seats are
split between a dozen or so parties that are very unlikely to be able to come
together to form a government. It will probably make more sense for
them to try and influence policy for the leverage they have over the ruling
government. As the LDP struggles through for now and
for them to wait for the next general election to try and consolidate more
power. Unstable leadership here in Japan will
not help with trade negotiations with the United States.
But at least we’re hearing that the top negotiator could be headed to Washington
this week. Yes, that’s what we’re hearing so far,
but has been to Washington already seven
points with very little to show for it. And this whole issue of tariffs likely
rising to 25% on August 1st, barring a deal, that’s been something that’s been
hanging over the election and it remains unresolved.
And Japan continues to be hit by the auto
tariffs as well that are at 25% and with a weakened domestic situation for you.
But things aren’t looking very good for Japan as it heads into further
negotiations with the U.S.. Bloomberg’s North Asia economics and
government editor Yu Takeo. They’re following the latest
developments around the upper House elections.
And we have more coming up on in Japan. Moody’s Analytics joins us to break down
the economic outlook as trade tensions rise.
And of course, we continue to get this political uncertainty as well with the
government hiding. Take a look at European futures as we
get this trade uncertainty continuing to play out.
We are hearing that there are plans by EU policy makers to prepare a
retaliation plan as a US stance when it comes to tariffs seems to harden.
Envoy is set to meet to formulate that strategy of measures to respond to a
possible no deal scenario ahead of that August 1st deadline.
The US now seem to want a near universal tariff on EU goods higher than 10%.
Limited exemptions, according to people familiar with the matter.
So we are seeing a little bit of downside after European stocks really
managed to eke out a small weekly gain in the previous session.
But of course we’ve seen quite a lot of optimism when it comes to expectations
domestically within Europe, with a lot of stock market momentum really seeking
to. Having seen this market outperform the
US this year we’re seeing Stoxx Europe 600 moment trading at a 35% discount to
the S&P 500 when it comes to forward P valuations.
But let’s get some more when it comes to the trade front on news desk, editor
judy sass is with us. You know, Joe, we know that anything
could happen, but in the coming days and certainly before August 1st.
But we are hearing that European policymakers are sort of preparing for
worst case scenarios. Yes, that’s right, Heidi.
I mean, what this ultimately boils down to is that when it comes to the EU and,
you know, many other economies that are ultimately trying to negotiate trade
deals with the U.S., there’s this increasing feeling that Trump has really
hardened his stance on what the U.S. would consider allowable.
And so what you see in the case of the EU is they were slapped with a
trade deal letter from Donald Trump installing tariffs of about 30%.
So that’s pretty far away from a baseline of 10% with some exemptions
that they were ultimately hoping to get. What we’re hearing now is that the
number of exemptions that the Trump administration that Washington is
willing to ultimately allow the EU at this point to maybe some carve out
specifically for aviation, maybe some medical products, just seems like an
increasingly shrinking number of sectors that ultimately would be allowed here
ahead of this August 1st deadline, which, of course, as we know, is very
quickly approaching. When you take that in combination with
all of the other tariffs that ultimately already exists that are impacting the EU
and other economies that the Trump administration has implemented here,
you’re talking about, you know, some of those sectoral tariffs on steel and
aluminum. You know, you’re looking at other broad
level tariffs. I think it’s something around 70% of
goods I have down here that the EU estimates that U.S.
duties already covers. That’s to the tune of about 442 billion
USD worth of goods here. So when it comes to the EU side, what
they’re ultimately preparing for here is the likelihood that any trade deal is
going to fairly heavily favor the US, but then they also have to come up with
some concept of how exactly, you know, they would how they would retaliate.
So there is the Bloc has already approved some potential tariffs on some
goods, particularly ones targeting politically
sensitive American states, you know, some spirits, some poultry, motorcycles,
those kinds of things. And so there’s there’s some tariffs that
are already in the works, but there is discussion about whether to sort of
broaden things out and allow for a more fulsome retaliatory effort here.
How strong a united front is the European Union presenting against the
United States? Because we’ve heard the some members
want to activate one of its most strongest trading tools.
That’s called the anti coercion instrument.
Yes, that’s right, Terry. So there is some discussion on that
front. What that tool would allow them to do is
ultimately to apply tariffs more broadly.
So there is retaliatory measures more broadly there.
So it would kind of enable these states that these these countries to ultimately
have that more fulsome effort. Of course, that is the big difficulty
here in terms of, you know, do you get everybody sort of united on that
particular front? I think that what this ultimately spells
out for us, though, is that there’s such a limited window in which, you know, the
EU, again, and all of these other nations ultimately have to try to
negotiate a deal with the United States. We’ve certainly seen in the case of
other places, I mean, you know, we were just talking about Japan a few minutes
ago. We’ve seen this in the case of India,
some other nations in Asia-Pacific in particular that have tried to send trade
envoys to the United States trying to get negotiations done.
But when you’ve got so many other countries that are ultimately trying to
get something over the line, I think that becomes really, really tricky in
terms of how exactly, you know, you was here, that you you as a bloc ultimately
try to negotiate some of these efforts. Shields.
He’s there with the latest on the E.U., U.S.
trade negotiations. We have more ahead on the Asia trade.
This is Bloomberg. Take a look at what we’re watching when
it comes to S&P futures, as well as how the dollar index is tracking at the
moment. We’re seeing a little bit of softness
there when it comes to tracking in the US dollar.
Of course, we’re watching the yen with great interest given the level of
political uncertainty that’s causing some interesting moves in the Japanese
currency. So the end strength coming off the
election. Analysts saying that uncertainty
obviously tends to at least initially favor the Japanese currency.
The moment we’re seeing a little bit of a pullback when it comes to the dollar,
but mild gains for S&P futures. Well, Federal Reserve Governor
Christopher Wallace says it’s important to look at three month and six month
inflation ratings to gauge the impact of tariffs.
Wallace told us about later the one possibility a continued wave of
additional levies would pose a greater challenge.
Tariffs are a tax, and in public finance, you learn that you may levy a
tax on a firm, but who bears the incidence of the burden of that tax can
be a group of people or one person, not necessarily the firm.
So this is what I’ve heard from a lot of firms.
If there’s a 10% tax, they’ll force their suppliers to eat Some of that
cost. Workers made some of that cost in terms
of the less hiring and things like that, the firm will take it out of their
profit margins. And then lastly, some of it will get
passed on. And as I mentioned last night, I’ve
heard this for months now, the rule is 10% is lawfully.
Rule of thumb is a third. A third, A third.
Suppliers laid a third firm’s lead to third consumers going to eat a third of
that tariff. So if you eat a third of it and it’s 10%
like I’ve been arguing, this is like 3/10 of a in three basic three 3/10 on
the inflation rate for a few months. And that’s it.
And it’ll persist. If you do 12 month over 12 months, That
base effect will not go away for a while and then it’ll just drop off a cliff.
So that’s why I’ve been arguing. You want to look at like three month and
six months to see if these terror affects pop up and then go away.
And so that’s more critical than looking at 12 month.
Yes. But the way the president is putting
these tariffs on might not match up with theory.
Chris, The Smoot-Hawley tax was passed and came into effect on a certain date.
The president is not yet put on most of these tariffs.
They they’re in theory, still coming and we still haven’t seen the Section 232
tariffs for the most part, the national defense tariffs that he wants to put on
semiconductors and pharmaceuticals, etc..
So if the process is stretched out, consumers could be hit by a series, an
ongoing series of tariff increases. And given what they’ve just been
through. Isn’t there a danger that inflation
psychology starts to seep in? Well, that’s exactly the point that all
my examples, Ben, is if you put the 10% uniform tariff on and keep it roughly in
that range, then what I’ve described is what will happen if there’s constantly a
sequence of higher and higher and higher tariffs, then you are going to get this
rolling potential impact on prices. That that’s true.
If it’s still just a question of delaying it, that doesn’t change my
argument. Whether you see the spike in July or it
happens in June or Army, August or September when it happens is irrelevant
for the economics. That’s that’s a that’s a nonstarter of
an argument. Firms could also just spread it out in
smaller increments over several months. The total effect still ends up being the
same. They just get there in a later fashion
and it will be smaller amount. So the bigger thing is if we just
continually get another wave of tariffs, another wave of tariffs, another waves
of tariffs, that’s when things become more problematic.
Thinking about what’s going to happen with inflation.
Federal Reserve Governor Christopher Waller speaking to Bloomberg’s Mike
McKee. Take a look Now.
Some of the biggest earnings that we’ll see this week, Alphabet and Tesla will
kick off results for the Magnificent seven on one C to the and things that
Alphabet’s revenue could grow at its slowest pace in about two years even as
it adds spending on its Google search engine stayed resilient.
Meanwhile, Tesla’s self-driving offerings will come under renewed focus
as investors seek more on the planned expansion of this driverless robotaxi
beyond its limited rollout in Texas and to here in Asia.
South Korean chipmaker SK Hynix will report on Thursday.
Analysts consensus is for a 63% jump in second quarter operating profit margins
could be supported by robust average selling prices for memory chips.
But the point is, Heidi, that we are now seeing really markets trying to get any
positive news out of the earnings season to keep rallying.
The S&P 500, in fact, finishing the year record highs.
It notched seven record highs in last 15 sessions.
And the second quarter earnings season for the United States has been going
pretty well. I mean, consumer sentiment is at a five
month high, but the margin for error is really small.
So if you if you disappoint in any way, you’re going to get punished.
The market penalizing results are far short of expectations, but the most in
nearly three years. Yeah, it really is a sense that
obviously this is a market that’s seen by many to be priced to perfection or
even beyond that. There’s so many external risks in terms
of the inflation outlook, the Fed outlook, the tariff outlook, some of the
geopolitical worries there as well. So you set a cherry.
You know, if you sort of outperform, then maybe you get a little bit of a
shrug at best. You can see that in the financials that
we saw. The banks had blockbuster numbers last
week, still failed to juice their shares.
Right. That crushed second quarter earnings
expectations. We saw it almost 95% beat rate in those
companies, but stocks kind of saw pretty muted reactions.
Investors were largely pricing in these results.
And as you said it, the disappointments are going to be punished.
We saw Netflix exceeding outlooks in every major metric united when it comes
to the airlines, upbeat about travel demand.
But investors were pretty kind of collectively giving a shrug to these
results. Right.
Netflix, in fact, on Friday closing down over 5% despite the strong performance.
So it does have this sense that all of the good news is priced into the markets
now, which kind of, you know, goes to this idea that are we still seeing
complacency? Because when it comes to tariffs and
trade, it still feels like investors are willing to expect that, you know, a best
case scenario or at least a not as bad case scenario might emerge.
This is Bloomberg. Take a look at how currencies are
trading at the moment. Japan.
Away on the holidays but we’re seeing the Japanese yen strengthening a little
bit against the US dollar. We are now expecting the ruling
coalition to have lost his majority in the upper House elections on this week.
And we’re also following the euro because of these ongoing trade
negotiations with the United States. Sources now saying that envoys of the EU
will need to get some measures to respond to a possible no deal scenario.
We’re also watching the offshore yuan. We do get the loan prime rates today.
China’s commercial banks likely to have kept them unchanged.
But let’s discuss what’s going on with the upper House election and what could
happen with the Japanese government here.
And bring in our next guest who says the government hasn’t done enough to address
voter frustration when it comes to the ongoing cost of living crisis.
With us now is Stefan and Greg, head of Japan economics at Moody’s Analytics.
Stefan, great to have you with us. Of course, for a time for Japan decades,
it was about bringing inflation to the economy.
We finally have it. But of course, voters not happy.
Absolutely. First of all, thank you so much for
having me. You’re one or 2% rate.
The inflation Japan is seeing is inflation that’s driven by a supply
shock is driven by a higher cost of energy, food, most of which are
imported. It’s not the kind of inflation that
Japan wanted. It’s not the good kind, for lack of a
better word, right? It’s not because of better growth, wage
growth in particular. So the kind of inflation we’re seeing is
stretching household budgets. The electorate has been unhappy with
that and the government has mostly been throwing its hands up in the air and
said you can’t really do anything about that.
So to that extent, the result that we’re getting that we got is not a surprise.
So we have seen the government try to throw utility subsidies at voters.
We have seen opposition parties calling for a sales tax cut when it comes to the
health of the Japanese economy. What is the right way to go forward?
Yeah, it’s a great question, because I don’t think that either of these sort of
policies really goes to the core of what Japan is struggling with right now.
The opposition mostly called for various kinds of consumption tax cuts.
Right. Those run the gamut from small cuts on
the consumption tax for food to broad cuts on the consumption tax for
everything. The government advocated for cash
handouts, etc. But what the Japanese economy really
needs is support for both the demand side and the supply side.
The Japanese economy is now in a place where I guess it gets more difficult to
grow through exports because of the deteriorating trade environment.
Tariffs in the US have threats from the US, so Japan will need to find a way to
get to generate more homegrown demand, if you will, to grow going forward, and
that requires both demand support and supply support.
And that is not something we’ve seen from either the opposition or the
government. So, well, domestic growth is going to be
hard, though, given the structural and demographic situation that Japan has
been in. No, that is true.
But there is space for the government to act given the fact that we now have
inflation. Australia was noting
that has helped the Government raise record amount of tax revenue in the last
couple of years. Tax revenue has constantly surpassed
projections, so there is room to act. And the question then is what do you
what do you spend money on? What’s perhaps ironic about the election
is that Prime Minister Ishiba dug his heels in and said he would absolutely
not cut the consumption tax, but the kind of cash handouts that he’s been
advocating for. They don’t actually spend all that much
money, but they don’t actually save all that much money compared to the more
modest proposals for consumption tax cuts.
But they don’t get you a lot of bang for the buck.
So it’s just a less efficient way of spending money.
So at the end of the day, you wouldn’t really come away with better, better
fiscal metrics. And that’s, I think, what’s at the heart
of this debate. You can focus on the short term and say,
we’re not going to do anything, but if you don’t really support the economy,
that’s going to come around to bite you in the long run because you end up
throwing the baby out with the bathwater, you’re not going to get the
fiscal house in order unless the economy unless the economy grows.
And if you don’t get that, that’s just you know, you’re doing it the other way
around. It’s just a non-starter, if that makes
sense. We did see inflation in June, sort of
easing, but sort of staying still elevated.
Right. Comfortable levels.
Are you confident that a virtuous cycle is sort of firmly in place?
And do you worry about what are the elements being that, you know, real
wages as well as household confidence and spending still seems to be a gap
when it comes to the surge in inflation or the progress being made in inflation
and how that’s impacting broader confidence.
Yeah, it’s a great question. So we look for real wages to gradually
pick up towards the end of the year as inflation slows and nominal pay gains
get some better footing. But there’s a real risk that that’s not
a scenario that will that will materialize at the end of the day.
We’re already starting to see some weakness in the monthly wage data coming
out in Japan, like the monthly labour survey, right.
Cash, earnings, etc.. Those are showing some weakness.
And there’s a real risk that next year’s soon to spring wage negotiations might
give us a rather disappointing result on account of what’s going on with US trade
negotiations, right. The US just announced that they would
raise tariffs on Japanese exports to 25% starting on the 1st of August.
Now that might not come to pass, but it’s certainly a sign that the talks
with the US haven’t really made a lot of progress and that they’re that they’re
not in a good place. So if wage gains in next year’s flow on
account of that, that would be that would be bad and that would keep
households where they are right now. It could push real wage gains into the
distance, and it would mean that real growth would continue to stagnate.
And yet, would a trade deal this year and the next few months change the
calculation completely for the Bank of Japan?
Given that other metrics are still strong?
Yes, it’s a good it’s a good point. I think what matters for the Bank of
Japan at the end of the day is what happens to inflation.
Are they going to get the demand driven inflation, the wage driven inflation
that they look for as well as growth? And even though the tariff outlook
matters, it matters for corporates, it matters for profitability, it matters
for hiring labour market conditions. The Japanese economy is a very large
economy. So at the end of the day, what happens
domestically dominates, right? So that brings us back to a policy
issue but needs to deliver. Right.
And it’s a pivot from being a prime minister that says no to being a prime
minister, that says go right. He needs to do something for the
economy. He needs to address cost of living
concerns. If he gets that right, then he has a
shot of staying in office. If he doesn’t, I think there will be
good reasons to be skeptical about his longevity.
How problematic is the Japanese yen, given that It’s very much dictated by
what the Fed does as well? And of course, a weaker yen doesn’t help
households, it helps some exporters. But that’s also a trick, isn’t it?
Yeah, absolutely. It’s a big part of the story.
It’s one reason why inflation in Japan is so sticky.
So if the yen were to weaken again, that’s another factor that might trigger
the DOJ that might cause them to to hike faster than expected.
If it goes the other way, then it might push rate hikes into the distance as
well. But it’s a big it’s a big part of the
story. Now, we’ve seen the yen gain a little
bit in early trading on Monday. As you know, maybe the result wasn’t
quite as bad as markets had expected. Right.
But coming back to my part earlier, what matters in the long run is really how
well the economy does. We’ve seen this in Europe after the the
U.S. has started threatening tariffs on
Europe. That was a pivot towards more fiscal
spending on defense and infrastructure. And the euro has gained a lot of ground
as a result. So there’s really a difference here
between the short run. In the long run, Japan needs to get its
students needs to focus on the economy. If you focus on the fiscal metrics
before the economy, you’re really putting the cart before the horse stuff
and angry. Good to have you with us.
Head of Japan economics at Moody’s Analytics.
As Heidi, we’re also going to get Tokyo CPI numbers later in the week on Friday,
which will give us sort of a look at where national prices are going from
here. So take a look at how we’re tracking
when it comes to trading here in Australia, extending that downside.
Now when it comes to the succession by 7/10 of 1% this year, after we saw
another 1% gain on the Friday session to close at another record high, really the
rebound that we saw last week, a fresh record, all sectors finishing higher,
financials in particular getting that tailwind.
But of course, we’re seeing perhaps a little bit of a breather, a pullback
today off by over half of the Aussie dollar.
Also giving up a little bit of ground, but still over that 65 US cents level.
Would you have the prime rate when it comes to China being looked at today?
That’s expected to hold steady, watching still yields, but perhaps more on the
longer run given that we have had that global concerns when it comes to fiscal
largesse really playing out mostly in sort of the markets, including
Treasuries and JGBs as well. But when it comes to Australia, tariffs
are also front and center, with the Australian Treasurer Jim Chalmers,
saying there’s no chance that Australia’s subsidies for certain drugs
are up for negotiation, even as officials evaluate President Trump’s
threatened potential 200% tariffs on pharmaceutical imports.
Trump spoke with Bloomberg from the G20 meetings in South Africa.
Well, Australia has the baseline tariffs, the 10% and some additional
areas like steel and aluminium, copper, pharmaceuticals.
And so we’re engaging with our counterparts in the US like almost every
other countries in the world, we’re pretty well placed and we’re well
prepared to deal with these tariffs. The direct impact is relatively
manageable. Our bigger concern is the impact on
global demand of all of this uncertainty and volatility and unpredictability,
which puts global growth and indeed global inflation at risk.
And so in our modelling, the bigger risk comes from the impact on the global
economy rather than the direct impact, because 10% is basically, as far as we
can tell, the lowest possible deal. It’s effectively what you will have with
the United States. Are you happy with that and does that
warrant retaliation or no? We’ve decided to go for resilience in
our own economy rather than retaliation. You know, the 10% tariff is the lowest
of any countries. But yeah, we’ve made it really clear
that we think the appropriate tariff, consistent with our trade agreement, is
zero. We see these tariffs as self-defeating.
We see them as an act of economic self-harm.
We’ve made that very clear bad for the US economy, bad for the global economy
and therefore not good for Australia. Do you see any progress possible on
steel and aluminum? While it remains to be seen, I mean
we’ve been engaged more or less constantly for some months now, whether
it’s still in steel and aluminium or some of the more recent announcements
around copper and pharmaceuticals. Our approach to is to engage at every
level as much as we can to get a better deal for our workers in our industries,
our exporters, our industry and our investors.
And that approach will continue to guide us.
And in terms of the negotiations around pharma, we’ve heard, you know, 200% as a
possible figure from the United States. Is the charge changes to Australia’s
Pharmaceutical Benefits Scheme? Is that something that’s on the table?
Because the Trump administration’s been very focused on non-tariff barriers?
That part of the conversation? Absolutely zero chance Yeah, we couldn’t
be clearer. Our Pharmaceutical Benefits Scheme is a
crucial part of our architecture, our policy architecture.
It’s something we’re very proud of. We’ve made it really clear that we’re
not prepared to negotiate or diminish or weaken the PBS in order to get a deal.
And we’ve been clear about that from the beginning.
We’re working through the potential consequences of pharmaceuticals being
caught up in these escalating trade tensions.
We do have quite a substantial export offering into the US when it comes to
pharmaceuticals, but how this potential tariff might work, we’re working through
with with the industry and with the administration.
There’s been a huge amount of pressure from the United States for allies to
spend more on defence. You saw that most concretely in Naito a
couple of weeks ago where you had that boost in pledges for three and a half
percent effectively of defence. Do you think Australia could get to that
figure, a three and a half percent? You think that would be appropriate to
join sort of allies at that level? Well, first of all, it is a big part of
the conversation here, particularly with European friends, how they will find the
three and a half per cent of GDP and how they account for the other one and a
half per cent of GDP for national security related spending for Australia.
We are already quite, by our standards, quite dramatically escalating our
defence spending. We’re taking it from 2% of GDP up to 2.3
at the start of the next decade. That already represents the tens of
billions of dollars in extra investment. It’s a much higher trajectory than when
we came to office three years ago. And so we are increasing our defence
spending. We make those decisions.
Why trading them off against all kinds of other budget priorities.
But we say to American friends and we say to the world more broadly, we are
already increasing our defence spending because we think it’s important at a
time where we are, where we are seeing this heightened uncertainty in the
world. Australian Treasurer Jim Chalmers,
speaking with our colleague Oliver Crook.
We have more ahead on the Asia train. This is Bloomberg. Some stories we’re tracking out of China
for you. And private equity firm Blackstone has
pulled out of a bid for a stake in Tiktok’s US operations.
Also says a firm has offered its potential shares to other investors in a
consortium that includes Oracle, Andreessen Horowitz and General
Atlantic. And ownership shift is needed to split
TikTok from Chinese parent bytedance ahead of a mid-September deadline.
China is tightening controls on critical mineral exports, pledging zero tolerance
for smuggling and illegal shipments. State broadcaster CCTV says Beijing’s
export control Office flagged recent cases involving false declarations and
trans shipments through third countries. China is enforcing stricter licensing
for all shipments amid ongoing trade tensions with the U.S..
President Trump and Xi Jinping are reportedly expected to meet at or before
the APEC summit beginning at the end of October in South Korea.
The South China Morning Post, citing sources, say Trump could make a stop in
China on his way or they could meet on the summit head sidelines.
Sources have told Bloomberg that Trump has been dialing down his
confrontational time with China in hopes of securing a summit.
Well, senior Chinese official says China’s trade with the world is within
reasonable bounds and the nation is not out to dominate global markets.
Let’s bring our China correspondent below and give us the context when it
comes to this Bloomberg scoop. But what was said?
Yes, this is said by the Chinese vice finance minister, Liao Min, and he
essentially is saying that Chinese production is targeted at meeting the
domestic demand. And yes, of course, if there is demand
for Chinese exports, the exporters are going to sell them overseas.
But the goal is not to dominate every single market out there.
And he’s really trying to counter Scott Benson’s accusation that China is one of
the most imbalanced economies in the world.
He said that the Chinese government has, in fact, been leading the charge in
trying to transform the economy into a consumption led one with rather a
balance of trade. And he said that there’s been progress
made. If you look at the last few years,
consumption as a share of GDP growth has gone up to 56% on average in the last
four years, which is eight percentage points higher than the previous four
years. And he says the government will continue
to strengthen social safety net to create more jobs, improve the pension
system, increase salaries so as to boost spending power in the long run.
Now, bear in mind that Leo Min is one of the key members of the negotiating team
that met with Scott Bessen and Howard Lutnick in London and Geneva.
And this these comments are coming just ahead of the expected meeting that will
be taking place very soon to kick off the second round of trade negotiations
between between the two countries. We have seen a lot of front loading of
exports, which of course have helped those trade figures coming from China.
But how much can China’s industrial sectors really survive if we continue to
see this onslaught of tariffs? Yes.
So if you look at the figures, China’s industrial industrial profits last year
was about 15% or so. And a Bloomberg economics team have
found that only five out of the 33 sectors that they studied would be able
to absorb the impact of the levies that are currently applied to them.
Because we are looking at tariff levels on average of about 40% on Chinese goods
versus industrial profits of around 15%, especially when it comes to some of the
worst performing sectors. In terms of profits, we’re talking about
things like stationery, furniture, textiles, the sort of low value, high
volume goods that China exports. They’re getting profits at the low teens
and they are going to likely face either bankruptcies at was or lower profit
margins at best. Some of the better performing sectors
include things like pharmaceuticals, extraction of oil and gas, mining of non
metals. But these sectors already are quite
shielded from those tariffs because they are more domestic facing ones.
So when it comes to the export oriented markets sectors, the cushioning effect
there right now is that China actually sells a lot to many other countries
besides the US. But longer term, if we see the shift of
supply chain away from China, it’s going to have implications on these firms.
If they cut salaries, cut jobs that impact on Chinese employment’s
employment and growth in the longer run as well.
Bloomberg China correspondent Mimi Lowther with the latest on the Chinese
economy. And these are some of the other stories
that we’re following at the moment. The South Korean government says days of
torrential rain have left at least 17 people dead and 11 missing.
The worst impact has been in the country’s south with heavy downpours
causing landslides, flash floods and collapsing houses.
More than 70, it’s 2700 people have been evacuated.
President Ido Myung is pledging support for affected areas now designated
special disaster zones. Israel has warned it will move the first
time into a town in the heart of the Gaza Strip that he had earlier skirted
for fear of harming hostages. The military on Sunday told Palestinians
in their al-balad to evacuate southward. Hamas, meanwhile, says a total of almost
1000 Palestinians have now been killed while waiting for aid, including 67 on
Sunday when Israeli forces fired shells. Israel says its troops fired warning
shots only. Iranian media reports say agreements
been reached for talks on its nuclear program with the U.K., France and
Germany. A state run agency says the talks
planned for Friday will be deputy foreign minister level.
It says the discussions will be separate, separate from indirect talks
with the US, which have stalled since Israel launched attacks on Iran in June.
Ukrainian President Volodymyr Zelensky says his government has proposed a
meeting with Russia next week, more than a month after the previous round of
direct talks. Zelensky says the Russian side should
stop hiding from making decisions. A Kremlin spokesman, meanwhile, says a
meeting between President Putin and Trump will definitely happen, but that
so far the right time has not come. We have more ahead.
This is Bloomberg. We’re watching here, some say in the
session. Of course, it’s been a few days of
milestones when it comes to this particular stock and the breakthrough
that we saw, particularly on Friday, closing at that record high of the
market cap topping $1 trillion as of the Friday close and now matching Berkshire
Hathaway in terms of market cap. So the Autism society’s ethics
volatility as a major source of uncertainty affecting profit margins.
That’s after the Taiwanese donor’s dollar surged nearly 11% this year
against the US dollar. CFO Wanda Huang told us exclusively that
the chipmaker is constantly reviewing its hedging strategies.
We do predict the Taiwan dollar, would we?
We simply described the potential impact to us.
And as I said, there are six factors affecting the profitability.
Foreign exchange rate is something that we cannot control.
But there were such instances before where the foreign exchange rate was not
in our favor. But we managed to the no other factors
so that we are able to keep our profitability.
And that’s why we are pushing it to do. Do you have contingency plans in place
for a more rapid depreciation of the Taiwan dollar?
It goes back to what impact of profitability.
So there are the the factors that we’re able to control.
We will definitely work hard on those factors to maintain the
profitability. We use different hedging alternatives.
The first one is to just simply sell the US dollar in the market spot market.
And we also use for contract and we also move part of the the cash, the US dollar
cash to a offshore holding company which the financial statements are denominated
in US dollars, not in the ante. So that saves our hedging cost,
which to your priority or is your priority?
It’s a combination. You at the same time, you want to sell
the spot, which is the easiest one. But there is market appetite to
consider. So you go to the for contracts.
So there is also market appetite and cost and hedging cost.
And then we’ve been using this capital injection to the offshore
company for years. So there’s a combination and we will use
those combinations. TSMC, CSL Amanda Lang, speaking
exclusively with Bloomberg’s Annabel Jewelers.
And take a look at the wider entertainment trading in South Korea
right now. Jumping as Blackpink’s jump for its new
song also is now topping charts. Remember, this is a comeback song after
a two year hiatus for Blackpink. So we’re watching y g Entertainment and
how consequential that will be for the entertainment industry in South Korea.
The China show is next. This is Boom Bar.

“Bloomberg: The Asia Trade” brings you everything you need to know to get ahead as the trading day begins in Asia. Bloomberg TV is live from Tokyo and Sydney with Shery Ahn and Haidi Stroud-Watts, getting insight and analysis from newsmakers and industry leaders on the biggest stories shaping global markets.

Chapters:
00:00:00 – Bloomberg: The Asia Trade begins
00:05:16 – EU plans for ‘no deal’ trade scenario with US
00:08:21 – Yen reacts as Japan’s ruling coalition set to lose upper house grip
00:08:59 – Japan’s Ishiba faces historic election setback
00:14:49 – Center for Global Development’s Karen Mathiasen on the cost of tariffs 
00:25:29 – Australian Treasurer Jim Chalmers says pharma benefits are non-negotiable 
00:30:09 – A rebel army is building a rare-earth operation near China’s border
00:36:25 – Eurasia Group’s David Boling on Japan’s political outlook
00:43:26 – TSMC’s CFO Wendell Huang on FX volatility impact
00:46:41 – Markets open in Australia & South Korea
00:49:33 – Invesco’s David Chao on market strategy
00:55:57 – Japan’s Prime Minister Ishiba signals intent to stay despite election defeat
01:00:19 – EU gears up to retaliate as US toughens trade stance
01:08:05 – Fed’s Waller discusses how tariffs are influencing inflation
01:11:48 – Moody’s Analytics’ Stefan Angrick on Japan’s outlook
01:25:13 – China defends its growth model
01:33:25 – (8F)
——–
More on Bloomberg Television and Markets

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