U.S.-Japan trade deal ‘may be the best deal’ out of other major countries: WisdomTree

U.S.-Japan trade deal ‘may be the best deal’ out of other major countries: WisdomTree

But the speed of it eight rounds of talks. Finally, we have a deal. Does that surprise you or did you had you been expecting this? Uh to drag on even further ? You know, we thought Japan was going to be one of the first in line. And you had the local election that I think caused the delay. And Besson was on TV this morning saying he thought the deal could come very quickly. Clearly, we’ve been close to something. And they finally took some action and moved it forward . Uh, I think what you see in the reaction to those big car companies that from Toyota, Honda, uh, all, you know, down the line 10 to 12% move says that market got very pessimistic on how things were progressing. Overly pessimistic. I think that’s going to be a key theme of some of the earnings reports we’re coming is they started pricing in the worst case scenario. And things are coming in slightly better than people feared. And so you’re getting a big rally at some of these key levels here for Japan and for the broader markets. Yeah, we’re up about 800 points on the Nikkei about 2% ahead. So this is a very big surge. I’m wondering whether or not the market investors are getting a little bit ahead of themselves right. Because the reciprocal number that we know that we have to work with now finally is 15, uh, for a Japanese goods coming into the US, we have not gotten yet, though to the two three to the reciprocal tariffs. Right on pharma as well as on ships and Japan happens to make a decent amount of both of those products . I mean, what’s interesting is GM was down 8% today in the US on on, you know, some of the tariff impacts. And now you have Japan reacting positively. I mean, I think there’s a number of cases where Toyota can manufacture and assemble their cars in the US at a greater rate or at an equal rate as GM. So it’s kind of interesting just again, how the market’s started pricing in the worst fears. And you’re getting to something that’s slightly better. And Japan does make big investments into the US manufacture. And they’re a good ally. You’ve heard of this $550 billion number. We’ll see. It’ll be very interesting to see the details. You had masses son come over with SoftBank. And that deal of you know how they’re going to partner with Oracle and open AI to bring more AI spending into the US. There’s a lot of places where Japan can be a very good partner, particularly in Asia. You see Trump is using these deals more so than just just the trade. And tariffs, but also strategic spend. And Asia is a key place. You could I think Japan is going to be one of the maybe the best deal. India is trying to compete to get one of the best, most favored economic clauses. But Japan is a key ally in Asia. And I think you’re seeing, uh, you know, some of the best terms from any of the major countries out of Japan. Yeah It was good to finally have gotten this deal done, I would agree. Uh ishiba. Shigeru uh, you know, now that the, the deal has been announced, right? He’s got he doesn’t have that reason to stay on anymore. A are you expecting him to step down? Uh with with almost immediate effect or listening out for a press conference by him? Uh, should be soon. And what happens after that? You know, I think one of the key stories has been that consumption tax and the inflation that Japan is facing. And what can the Bank of Japan do to offset some of this? I think this is one of those win win scenarios where I was perplexed why? You know, I know rice can be one of these very politico issues and you know, if you have rice soaring as much as rice was soaring and causing some of the inflation allows some rice imports to offset some of that. Uh, that price hike you’re getting, that sort of it seemed like a straightforward solution, although very, you can say politically controversial. Joel. Uh, I think that’s a win win scenario for Japan. And offset some of their inflation pressures. Um, and, you know, I think this consumption tax question, when Japan has some of the lowest rates around the world, they could borrow at very, very low rates. So you can say the rates are moving up a bit, but still 1.5% on the ten year, you know, our our ten year in the US is 4.5. You know, it’s a dynamic where, you know, perhaps the consumption tax rate hike wasn’t the best idea. And so you try to have the BOJ put on the gas and the fiscal taking the foot off the gas, putting the brakes on. You know I think the people were voting against that. And we’ll see if that that policy gets reversed. Uh in the short time. What qualifies as a quality deal. How do you express that in portfolios, investments . Because if it’s a favorable deal for the US, for example, uh, depending on how you see a trade deal with whichever country does that necessarily mean a good reason to pick up US assets is that how you define a quality deal for who? Well, I think it’s you. We’ve gone from this free trade to friend trade. So you’re gone from you know, you’ve got to find you see that Trump is going towards people he considers key strategic allies. And I think there’s going to be spending on both sides. I think this will be positive for again more positive than feared is the issue. Like you see these big moves in the Japan car companies because they were worried about how how negative it could be. And so it’s getting more positive. Um, I do think there’s places where the US can help Japan, and Japan is going to help the US. The spending on defense in Asia is going to be a key theme. And, you know, I think we could we could help each other. And so I think that’s, you know, one of the things Trump was looking for was for Europe to spend a lot more on their defense. And you know, I think in terms of being an ally in Asia, I think the US is a good ally. And, you know, I think that we’re coming to a good deal and apart from the trade situation, the tariff negotiation, what happens now to some of these Japanese assets? I mean, the domestic situation and, you know, the election wasn’t really about the tariff negotiations with the US anyways . It was really about inflation story. It’s about consumption tax, uh, potentially. Um, with with this election results, there could be some pressure around that. Can that move the needle or change the direction in any way or are you just sticking to this wide view of negative bonds and negative yen at the moment? Well, I do think the investment appetite, I mean, in terms of the for the equity investors, you have rates still very, very low. If you have inflation, how do you protect yourself from inflation. You don’t want to just have your money sitting in cash earning nothing. You got to do things to protect from inflation. We’ve done a lot of work at Wisdomtree. Uh, as stocks are sort of the best long terme hedge against inflation. Companies raise prices with their cost inputs over time, and the Japanese markets are cheap. And we look at the broad markets, you know we have a basket of Japan, our flagship Dhcp. The prices are £0.12. You get a 3% dividend, 2% buyback. You have record buybacks coming out of Japan. That is an attractive place for the Japan people to sort of hedge their own inflation costs to buy the equity markets put their cash to work and, uh, you know, and I think for global investors, Japan has been an unloved place. You see, us markets £0.10 points higher than Japan. And it’s been unloved in uncrowded. So I think there’s a lot of reasons to look favorably beyond the Japan equities. Yeah Yeah. And you know you can’t forget those Jeremy that you’ve got uh rose up in Japan. Uh we’re up in the into the shallow low teens, which is not a bad thing. Right. It should be pretty appealing. Uh to push back, but I want to get your take on what’s going on in the bond market. I mean, stocks are on fire today. 800 points, 2% ahead. But let’s take a look at what’s going on with bonds. Uh even their benchmark, the ten were knocking back on 159, which would be the highest we’ve seen their in I think about what, 17 years since 2008. Right. So that’s kind of worrying even more worrying is how steep it’s getting. Right. The long end 30 year paper, super long 40 year paper were looking at record levels right there. Uh, this is probably pricing in okay. So Ishiba is going it’s going to be somebody else. Maybe it’s Sanai Takeuchi, maybe somebody else we don’t know yet. But whoever it is, they’re going to have to work with the opposition and the opposition. These are the guys, right, that want cuts in the consumption tax, which isn’t going to be good for the government’s fiscal position. Is it? Well, I’d say in some ways it’s more healthy than the US yield curve scenario. So I’ve got a yield curve in the US of, you know, 4.38 on the fed funds and basically the same rate on the ten year. You want an upward sloping yield curve. That’s the sign of a healthy economy that’s growing. Uh, you can say now Japan is starting to price in inflation. This difference between the ten and 30 year yield is a view on inflation and growth in some ways. And that’s a healthy sign that that’s a more normal functioning economy than a flat or inverted yield curve. If you have no growth, no inflation. Uh, so I think in some ways it’s more healthy than the US yield curve. And I want the fed to be cutting rates so that we get 100 basis points,

Jeremy Schwartz of WisdomTree discusses the latest announcements of the U.S.-Japan trade deal and lowering ‘reciprocal tariffs’ to 15%. He says the steepening in the Japan yield curve is a healthy sign for the economy.