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This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.

This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.

Joining us now for some discussion of all this is Greg Reed, DOCO, who is ey chief economist, to take a closer look, so you can look at this two ways. I mean, it's no matter what, it's a dilemma for investors, Greg and economists. You've got about ten months of falling inflation versus about two months now of stickiness, if not outright games. So what's the more actionable takeaway for you?

Joining us now for some discussion of all this is Greg Reed, DOCO, who is ey chief economist, to take a closer look, so you can look at this two ways. I mean, it's no matter what, it's a dilemma for investors, Greg and economists. You've got about ten months of falling inflation versus about two months now of stickiness, if not outright games. So what's the more actionable takeaway for you?

Well, I think generally speaking, we're still on this disinflationary trend. It is true that the last couple of months have been a little bit bumpy in terms of the momentum on a month to month basis, But whether you look at CPI data, the consumer price index or PPI data the producer price index, you're still seeing the underlying fundamentals of a disinflationary trajectory. It will be bumpy. There will be some upward movement in terms of energy prices like we just saw over the course of February. But overall, when you look at pricing sensitivity, when you look at pricing power, when you look at wage growth, those are all pointing towards further disinflation in the months to come.

Well, I think generally speaking, we're still on this disinflationary trend. It is true that the last couple of months have been a little bit bumpy in terms of the momentum on a month to month basis, But whether you look at CPI data, the consumer price index or PPI data the producer price index, you're still seeing the underlying fundamentals of a disinflationary trajectory. It will be bumpy. There will be some upward movement in terms of energy prices like we just saw over the course of February. But overall, when you look at pricing sensitivity, when you look at pricing power, when you look at wage growth, those are all pointing towards further disinflation in the months to come.

I think the market still has to recalibrate expectations where that it wouldn't be inflation, that is, wouldn't remain as sticky as it seems to be on either the retail or the wholesale level. And if you look at what the swaps market is indicating right now, Gregory, maybe a reduction in the degree of policy easing this year. Maybe we don't get seventy five basis points in total rate cuts, maybe it's close to the fifty and maybe the first cut is not until July. Does that square with your thinking that's a possibility.

I think the market still has to recalibrate expectations where that it wouldn't be inflation, that is, wouldn't remain as sticky as it seems to be on either the retail or the wholesale level. And if you look at what the swaps market is indicating right now, Gregory, maybe a reduction in the degree of policy easing this year. Maybe we don't get seventy five basis points in total rate cuts, maybe it's close to the fifty and maybe the first cut is not until July. Does that square with your thinking that's a possibility.

I think the market has repriced the expectations for a FED rate cut. You may recall that just six weeks ago before the January meeting FMC meeting, we had markets anticipating six rate cuts, almost seven with an onset in March, that got pushed back quite a bit, and now we're down to three rate cuts that are expected by investors starting in July. So that is a big shift in terms of market pricing. What I would caution is that the January data, and to some extent the February data, has been quite noisy. We've seen significant revisions in the employment numbers, for instance. We know that there was a lot of noisiness in the CPI data with January resets, with some seasonal factors, with some methodology issues in terms of the owner's equivalent rent component. I'm getting into the weeds here, but just to say that you have to really look for the signal in the data, and the signal is still pointing towards a disinflationary trend. So I think the Fed will likely consider easing monetary policy in June with about one hundred bases points of rate cuts, because both inflation and the employment mandate will be more in line with what they're expecting.

I think the market has repriced the expectations for a FED rate cut. You may recall that just six weeks ago before the January meeting FMC meeting, we had markets anticipating six rate cuts, almost seven with an onset in March, that got pushed back quite a bit, and now we're down to three rate cuts that are expected by investors starting in July. So that is a big shift in terms of market pricing. What I would caution is that the January data, and to some extent the February data, has been quite noisy. We've seen significant revisions in the employment numbers, for instance. We know that there was a lot of noisiness in the CPI data with January resets, with some seasonal factors, with some methodology issues in terms of the owner's equivalent rent component. I'm getting into the weeds here, but just to say that you have to really look for the signal in the data, and the signal is still pointing towards a disinflationary trend. So I think the Fed will likely consider easing monetary policy in June with about one hundred bases points of rate cuts, because both inflation and the employment mandate will be more in line with what they're expecting.

Interesting, you won't like my next question, I don't think, But well, I mean, obviously a little bit higher inflation with a little bit stronger growth, I mean we can probably handle that. It just kind of pushes out the eventual coming down of inflation and probably growth coming down. However, there are some signs that growth is stalling at a time when you've got higher prices, and so that inevitably brings stagflation into the picture. I'm not sure whether or not you're in that camp, and it's probably too soon to talk about it, but is it at least a growing risk.

Interesting, you won't like my next question, I don't think, But well, I mean, obviously a little bit higher inflation with a little bit stronger growth, I mean we can probably handle that. It just kind of pushes out the eventual coming down of inflation and probably growth coming down. However, there are some signs that growth is stalling at a time when you've got higher prices, and so that inevitably brings stagflation into the picture. I'm not sure whether or not you're in that camp, and it's probably too soon to talk about it, but is it at least a growing risk.

It is definitely one of the key risks for the US economy. That risk of stagflation, where you have limited growth, if not contraction in economic activity and higher inflation, is definitely a risk. But I would point to the fact that while twenty twenty three was a lot or a lot of the story in twenty twenty three was about a strong economy where the supply side of the economy was rebounding strongly and allowing inflation to cool. We're probably going to be more in a normal environment in twenty twenty four, where slower final demand growth is going to put downward pressure on prices. I was talking earlier about pricing sensitivity. We're starting to see it. We saw retail sales were weaker than expected. Consumers are exercising more scrutiny in a higher price environment. That is a sign of disinflationary momentum to come, and I would anticipate that as the economy slows, as employment slows, income is also going to slow. That's going to force consumers to be more scrutinized, scrutinizing of how much they spend, and that will put further downward pressure on inflation. It's not going to be a retrenchment, but it will likely be a slowdown in employment and a slowdown in inflation that leads to fed the ease monetary policy gradually.

It is definitely one of the key risks for the US economy. That risk of stagflation, where you have limited growth, if not contraction in economic activity and higher inflation, is definitely a risk. But I would point to the fact that while twenty twenty three was a lot or a lot of the story in twenty twenty three was about a strong economy where the supply side of the economy was rebounding strongly and allowing inflation to cool. We're probably going to be more in a normal environment in twenty twenty four, where slower final demand growth is going to put downward pressure on prices. I was talking earlier about pricing sensitivity. We're starting to see it. We saw retail sales were weaker than expected. Consumers are exercising more scrutiny in a higher price environment. That is a sign of disinflationary momentum to come, and I would anticipate that as the economy slows, as employment slows, income is also going to slow. That's going to force consumers to be more scrutinized, scrutinizing of how much they spend, and that will put further downward pressure on inflation. It's not going to be a retrenchment, but it will likely be a slowdown in employment and a slowdown in inflation that leads to fed the ease monetary policy gradually.

I'd like to get your take on the American manufacturing economy tomorrow. We got a couple of key data points, US industrial production and the regional Empire manufacturing data. What is your feeling about American manufacturing overall?

I'd like to get your take on the American manufacturing economy tomorrow. We got a couple of key data points, US industrial production and the regional Empire manufacturing data. What is your feeling about American manufacturing overall?

It's been quite interesting to see the resilience in US manufacturing despite global weakness. We know that in China, we know that in Germany, the industrial side of these economies has been a key drag on economic momentum. In the US force manufacturing is less significant, representing about thirteen to fourteen percent of the overall economy, but importantly we've seen this desire to rebuild manufacturing capacity be a strong driver of overall economic activity on the manufacturing side, or nowhere near any type of boom on the manufacturing front. If you look at the annual page of growth, it's very close to zero. But nonetheless that comes despite a global backdrop that is quite concerning. As we see this global backdrop on the manufacturing front starting to stabilize and probably finding a bottom that is going to be supportive of braddle upward momentum in the US, and we'll probably move back above that zero percent line.

It's been quite interesting to see the resilience in US manufacturing despite global weakness. We know that in China, we know that in Germany, the industrial side of these economies has been a key drag on economic momentum. In the US force manufacturing is less significant, representing about thirteen to fourteen percent of the overall economy, but importantly we've seen this desire to rebuild manufacturing capacity be a strong driver of overall economic activity on the manufacturing side, or nowhere near any type of boom on the manufacturing front. If you look at the annual page of growth, it's very close to zero. But nonetheless that comes despite a global backdrop that is quite concerning. As we see this global backdrop on the manufacturing front starting to stabilize and probably finding a bottom that is going to be supportive of braddle upward momentum in the US, and we'll probably move back above that zero percent line.

We talked a little bit about international, so let's talk to Japan. We've got the largest union group in Japan coming out with the wages requests and data today, so that's going to be a very big thing. It'll be this afternoon, and then we'll have the BOJ on Tuesday. Are we getting close enough do you think? Of course, depending on what we see in the wages, are we getting close enough to start thinking that the BOJ will act next Tuesday?

We talked a little bit about international, so let's talk to Japan. We've got the largest union group in Japan coming out with the wages requests and data today, so that's going to be a very big thing. It'll be this afternoon, and then we'll have the BOJ on Tuesday. Are we getting close enough do you think? Of course, depending on what we see in the wages, are we getting close enough to start thinking that the BOJ will act next Tuesday?

Yeah, I think we're getting pretty close to the point at which the BOJ not only exits the negative interest rate world, but also let's go of its healed curve control policy. Both of the are or have been tied to an environment where Japan has been struggling with deflation. This is not a new story. This has been an ongoing story, but it had been exacerbated prior to the COVID crisis. Now we're seeing more of an inflationary environment in Japan. Inflation touch four percent. It has now come down a little bit, but wage growth have accelerated. They're likely in the wage negotiations going to be around five percent. That is forcing the BOJ to consider adopting a slightly more hawkish tone and more hawkish policy. And I think those types of developments on the wage front are likely to lead the BOJ to both exit its negative interest rate environment and let go of its yield control, either at this meeting in a week or in April.

Yeah, I think we're getting pretty close to the point at which the BOJ not only exits the negative interest rate world, but also let's go of its healed curve control policy. Both of the are or have been tied to an environment where Japan has been struggling with deflation. This is not a new story. This has been an ongoing story, but it had been exacerbated prior to the COVID crisis. Now we're seeing more of an inflationary environment in Japan. Inflation touch four percent. It has now come down a little bit, but wage growth have accelerated. They're likely in the wage negotiations going to be around five percent. That is forcing the BOJ to consider adopting a slightly more hawkish tone and more hawkish policy. And I think those types of developments on the wage front are likely to lead the BOJ to both exit its negative interest rate environment and let go of its yield control, either at this meeting in a week or in April.

Gregory, last question, I can give you thirty seconds, but I'd like to get your view on the Chinese economy. We've been talking about slow growth and deflation. What's your view on China right now?

Gregory, last question, I can give you thirty seconds, but I'd like to get your view on the Chinese economy. We've been talking about slow growth and deflation. What's your view on China right now?

In thirty seconds. I think we have a structural slowdown of the Chinese economy that will unlikely be the global engine of growth as it has been over the past decade. But from a cyclical perspective, perhaps we are finding a floor in terms of economic activity and there might be a little bit more momentum as we navigate through the rest of the year.

In thirty seconds. I think we have a structural slowdown of the Chinese economy that will unlikely be the global engine of growth as it has been over the past decade. But from a cyclical perspective, perhaps we are finding a floor in terms of economic activity and there might be a little bit more momentum as we navigate through the rest of the year.

All Right, Gregory, thanks very much for being with us. At least we did not ask you the dreaded question about the stock market, so you won one there from us. Thanks for joining us, Gregory dot o Ey, chief economist, looking more closely at economic performance really all around the world. Well, joining us now for some discussion of markets in our studios here in Hong Kong. Is Villain Sells gloio at HSBC Global Private Banking and Wealth. Villain, thanks very much for coming into our studios here. I know you're normally based in London. Let's talk a little bit about the investment climate in the United States after that hot PPI reading. We've had both hot CPI and PPI now for a couple of months, and it presents investors and economists, I suppose with a little bit of a dilemma. The long trend is disinflation, but the short trend is stickiness, which is more important.

All Right, Gregory, thanks very much for being with us. At least we did not ask you the dreaded question about the stock market, so you won one there from us. Thanks for joining us, Gregory dot o Ey, chief economist, looking more closely at economic performance really all around the world. Well, joining us now for some discussion of markets in our studios here in Hong Kong. Is Villain Sells gloio at HSBC Global Private Banking and Wealth. Villain, thanks very much for coming into our studios here. I know you're normally based in London. Let's talk a little bit about the investment climate in the United States after that hot PPI reading. We've had both hot CPI and PPI now for a couple of months, and it presents investors and economists, I suppose with a little bit of a dilemma. The long trend is disinflation, but the short trend is stickiness, which is more important.

The long trend is more important, so we put our cash to work. We have zero percent cash in our model portfolios. Currently we have overweights in both bonds and in the equity market. In the bond market is basically to lock in those attractive bond y'lt. So we would use any sort of volatility from those short term ups and downs, you know, to step in into the bond market and to lock that in in the equity market. I think it's interesting to see that you see margin expansion, earnings expansion, and actually the equity markets are somewhat less concerned because of them than the bond market about those inflation figures.

The long trend is more important, so we put our cash to work. We have zero percent cash in our model portfolios. Currently we have overweights in both bonds and in the equity market. In the bond market is basically to lock in those attractive bond y'lt. So we would use any sort of volatility from those short term ups and downs, you know, to step in into the bond market and to lock that in in the equity market. I think it's interesting to see that you see margin expansion, earnings expansion, and actually the equity markets are somewhat less concerned because of them than the bond market about those inflation figures.

How do you look at liquidity right now globally? Are we looking at excessive levels of liquidity?

How do you look at liquidity right now globally? Are we looking at excessive levels of liquidity?

There is a lot of liquidity. You had a headline this morning on the Terminal and talking about you know, record and money market holdings. You know, so there's certainly still a lot of money that can be put to work, and we do think it will go into both bonds and equities and actually also into alternatives where we see opportunities as well. That means to me that you know, concerns that or comments that is investor positioning is stretched or sentiment to stretched, I think those are probably you know, incorrect because indeed, you know that money can still be put to work.

There is a lot of liquidity. You had a headline this morning on the Terminal and talking about you know, record and money market holdings. You know, so there's certainly still a lot of money that can be put to work, and we do think it will go into both bonds and equities and actually also into alternatives where we see opportunities as well. That means to me that you know, concerns that or comments that is investor positioning is stretched or sentiment to stretched, I think those are probably you know, incorrect because indeed, you know that money can still be put to work.

Villain. There are some people worried about the possibility of stagflation down the road, But then you can also look at the growth and commodities here. Of late, we've seen a little break in trend. It's been a long downward trend. Now is trending up a little, and I'm wondering whether or not we can draw any conclusions from that along with you know, the little bit stickier inflation suggests that growth is sticky too, and maybe we go into an upticking growth globally. Do you see it that way or no?

Villain. There are some people worried about the possibility of stagflation down the road, But then you can also look at the growth and commodities here. Of late, we've seen a little break in trend. It's been a long downward trend. Now is trending up a little, and I'm wondering whether or not we can draw any conclusions from that along with you know, the little bit stickier inflation suggests that growth is sticky too, and maybe we go into an upticking growth globally. Do you see it that way or no?

Exactly. You can't be negative on both. I would I would actually be, you know, relatively encouraged by both. But I could accept the argument that in the shorter time we will see some inflation volatility on the growth side. Though I am an optimist, I do think that, you know, a US recession is very unlikely. Even Europe, I think, has seen the lowest, you know, quarter of growth, slowest quarter of growth, and we will see a very very mild acceleration from there. And then in China we have all of that stimulus which is probably putting a bottom under you know, economic growth, So you know, we are cyclically exposed in in the US and that's where where our overweight is as well. So on the stackflations, it's certainly not a stack part.

Exactly. You can't be negative on both. I would I would actually be, you know, relatively encouraged by both. But I could accept the argument that in the shorter time we will see some inflation volatility on the growth side. Though I am an optimist, I do think that, you know, a US recession is very unlikely. Even Europe, I think, has seen the lowest, you know, quarter of growth, slowest quarter of growth, and we will see a very very mild acceleration from there. And then in China we have all of that stimulus which is probably putting a bottom under you know, economic growth, So you know, we are cyclically exposed in in the US and that's where where our overweight is as well. So on the stackflations, it's certainly not a stack part.

What about the enthusiasm surrounding artificial intelligence, I know it's been a key I were of so many different threads of the equity market here in the US. I mean you can look at a company like in Nvidia as being emblematic of that euphoria. Is this something that you think is peaked or does that still have the potential to extend gains?

What about the enthusiasm surrounding artificial intelligence, I know it's been a key I were of so many different threads of the equity market here in the US. I mean you can look at a company like in Nvidia as being emblematic of that euphoria. Is this something that you think is peaked or does that still have the potential to extend gains?

So we have an we are basically looking mostly at how is that AI now going to translate into the rest of the economy and not just in a handful of stocks. And you know, the encouraging part there is that any any business owner that I talked to, and obviously we have a lot of business owners amongst our clients, they're all telling me they're using AI. For some of them it is still marginal, but for some of them it is really now quite substantial. So that is going to you know, percolate through the rest of the economy in terms of efficiency gains and so on. Robotics is a specific you know topic where obviously it is already leading to you know, lots of innovation. I would say healthcare innovation is also supported you know by AI. And then obviously a lot of you know, the in the electric vehicle or the vehicle industry more generally as well. You know, a lot of that is going into there, so you can have indirect place which are obviously quite quite a lot cheaper than the direct place. At this point in time.

So we have an we are basically looking mostly at how is that AI now going to translate into the rest of the economy and not just in a handful of stocks. And you know, the encouraging part there is that any any business owner that I talked to, and obviously we have a lot of business owners amongst our clients, they're all telling me they're using AI. For some of them it is still marginal, but for some of them it is really now quite substantial. So that is going to you know, percolate through the rest of the economy in terms of efficiency gains and so on. Robotics is a specific you know topic where obviously it is already leading to you know, lots of innovation. I would say healthcare innovation is also supported you know by AI. And then obviously a lot of you know, the in the electric vehicle or the vehicle industry more generally as well. You know, a lot of that is going into there, so you can have indirect place which are obviously quite quite a lot cheaper than the direct place. At this point in time.

I want to go back to China for just a moment. HSBC obviously was so much business in Hong Kong and such a long presence out here Shanghai and Hong Kong, and you know, built into your name, so we're looking for expertise. Don't disappoint. The economic activity looks mixed at the start of the year. We've got this five percent target, We've still got a major drag from property. When we're weigh it all up, how are we moving through this year in China?

I want to go back to China for just a moment. HSBC obviously was so much business in Hong Kong and such a long presence out here Shanghai and Hong Kong, and you know, built into your name, so we're looking for expertise. Don't disappoint. The economic activity looks mixed at the start of the year. We've got this five percent target, We've still got a major drag from property. When we're weigh it all up, how are we moving through this year in China?

So the consensus forecast ten hours as well are relatively flat in terms of economic growth over if you look at different quarters. This is a central momentum in a certain way that's already you know, I think that will already help in terms of market sentiment. You know that we're not decelerating from here, and I think that similus is really critical. You know, the only thing that we're not seeing at this point in time is a sharp acceleration of that activity, either on the economic side or on the earnings, and I think that is what you know, investors are looking for. That being said, we have a neutral and not an underweight at this point in time because we do believe that number one, valuations are very low. Number two foreign investors in particular are very underweight and in my view, would be very unlikely to be able to further sell, but are waiting for that acceleration to step in. There are also some sectors which are doing well, right so electric vehicles are doing well. There is obviously activity as well.

So the consensus forecast ten hours as well are relatively flat in terms of economic growth over if you look at different quarters. This is a central momentum in a certain way that's already you know, I think that will already help in terms of market sentiment. You know that we're not decelerating from here, and I think that similus is really critical. You know, the only thing that we're not seeing at this point in time is a sharp acceleration of that activity, either on the economic side or on the earnings, and I think that is what you know, investors are looking for. That being said, we have a neutral and not an underweight at this point in time because we do believe that number one, valuations are very low. Number two foreign investors in particular are very underweight and in my view, would be very unlikely to be able to further sell, but are waiting for that acceleration to step in. There are also some sectors which are doing well, right so electric vehicles are doing well. There is obviously activity as well.

View ideas straighting down now is so much.

View ideas straighting down now is so much.

Competition, but they but they are gain they have a lot of market share gains, right so you know, hence the European auto manufacturers, you know, being quite worried about this to.

Competition, but they but they are gain they have a lot of market share gains, right so you know, hence the European auto manufacturers, you know, being quite worried about this to.

Say the least.

Say the least.

Yeah, well that's a great point. I mean, geopolitics, how is it influencing market behavior right now? Whether you're looking at something is you know, simple as let's say, US export controls on advanced technology to China. You mentioned the evs manufactured in China, trying to find a market in Europe. Is geopolitics kind of foremost in your mind when you evaluate opportunity?

Yeah, well that's a great point. I mean, geopolitics, how is it influencing market behavior right now? Whether you're looking at something is you know, simple as let's say, US export controls on advanced technology to China. You mentioned the evs manufactured in China, trying to find a market in Europe. Is geopolitics kind of foremost in your mind when you evaluate opportunity?

It is a It is a discussion point with clients. The difficulty always is number one to forecast it and number two to forecast the timing. You know, also what people, you know, the presidential candidates for example, we're not necessarily sure they would indeed implement what they are saying, so you know, very hard to invest on that basis, and I don't think it would be you know, very wise to second guess. But so the US itself has an you know, economic and earnings engine which is very strong, and therefore that's a big overweight for US. The other bit within Asia, the way that we deal with geopolitics there is we diversify our exposure. So whilst we are neutral on China, we have overweights in India, Indonesia, South Korea and Japan, so four countries where we see opportunities, and that allows you to be somewhat less exposed to this.

It is a It is a discussion point with clients. The difficulty always is number one to forecast it and number two to forecast the timing. You know, also what people, you know, the presidential candidates for example, we're not necessarily sure they would indeed implement what they are saying, so you know, very hard to invest on that basis, and I don't think it would be you know, very wise to second guess. But so the US itself has an you know, economic and earnings engine which is very strong, and therefore that's a big overweight for US. The other bit within Asia, the way that we deal with geopolitics there is we diversify our exposure. So whilst we are neutral on China, we have overweights in India, Indonesia, South Korea and Japan, so four countries where we see opportunities, and that allows you to be somewhat less exposed to this.

So it sounds like you're fairly optimistic out of time now, but I suppose one interesting possibility might be you mentioned the foreign buyers back to a certain degree with Chinese equities. If you had foreign buyers at the same time as you had the national team buying, then maybe you would have something more to talk about. Villain. Thank you for joining us film selves from HSBC. We are joined by Taro Kimura Bloomberg Japan economists with us in our Tokyo studios. Tara Kumura, Thanks very much for joining us. You know, are we likely to see an adjudgment made by the bo J as a result of what these numbers will likely say?

So it sounds like you're fairly optimistic out of time now, but I suppose one interesting possibility might be you mentioned the foreign buyers back to a certain degree with Chinese equities. If you had foreign buyers at the same time as you had the national team buying, then maybe you would have something more to talk about. Villain. Thank you for joining us film selves from HSBC. We are joined by Taro Kimura Bloomberg Japan economists with us in our Tokyo studios. Tara Kumura, Thanks very much for joining us. You know, are we likely to see an adjudgment made by the bo J as a result of what these numbers will likely say?

Hi, thanks for having me. I think it's likely to It's it's a high probability, I will say, although it's not my baseline, but the march is moved the next week. Moves by the BOJ is plausible in a sense that like the media reports are saying that the BOJ board is moulleling based on what we see on the trade unions agreed pay raises, and I think the race growth was what was long being missing piece for the BOJ that renders them to continue easy monetary policy. They stimulated the economy, but waste growth was very wobily, but finally pushed up by recent inflation. It's became a wake up call for the labor unions to restart requesting strong pay rises, which they hadn't done for many years. And that's making a kind of upbeat note in the spring waste negotiations. And that's if we see a positive number, the strong number in a grid rage rasis that pushes the WOH to move.

Hi, thanks for having me. I think it's likely to It's it's a high probability, I will say, although it's not my baseline, but the march is moved the next week. Moves by the BOJ is plausible in a sense that like the media reports are saying that the BOJ board is moulleling based on what we see on the trade unions agreed pay raises, and I think the race growth was what was long being missing piece for the BOJ that renders them to continue easy monetary policy. They stimulated the economy, but waste growth was very wobily, but finally pushed up by recent inflation. It's became a wake up call for the labor unions to restart requesting strong pay rises, which they hadn't done for many years. And that's making a kind of upbeat note in the spring waste negotiations. And that's if we see a positive number, the strong number in a grid rage rasis that pushes the WOH to move.

So there I understand it. I'm maybe going to oversimplify three basic threads to the policy right now. There's the purchases of the ETFs, there's yield curve control, and there's the negative policy rate. If you had to kind of predict a sequencing of changes in each one of those, what would it look like. Do you begin to dial back on your ETF purchases initially? Do you change the policy from a negative ten basis points to let's say zero percent? Is that the next step and then the last step is yield curve control or I'm curious what would the sequencing look like?

So there I understand it. I'm maybe going to oversimplify three basic threads to the policy right now. There's the purchases of the ETFs, there's yield curve control, and there's the negative policy rate. If you had to kind of predict a sequencing of changes in each one of those, what would it look like. Do you begin to dial back on your ETF purchases initially? Do you change the policy from a negative ten basis points to let's say zero percent? Is that the next step and then the last step is yield curve control or I'm curious what would the sequencing look like?

In my view? Whenever the bo J's move is gonna be, I think the BOJ will and all of this stuff at this u uh simultaneously, meaning and negative rates rates and also and youth curve control and stop purchasing ETFs because it's a package that was introduced by previous governor Krouda, and I think where the new governor Kazu Weda was seeking a timing to pivot from those policy packages. That doesn't mean that like the Bank of Japan suddenly become aggressive and stop purchasing JGB at all. UH. Probably they will end the youth curve control UH the package itself, but I think they will keep continue some measures UH to purchase Japanese government bonds so that the long term meals UH wasn't suddenly right Sharply.

In my view? Whenever the bo J's move is gonna be, I think the BOJ will and all of this stuff at this u uh simultaneously, meaning and negative rates rates and also and youth curve control and stop purchasing ETFs because it's a package that was introduced by previous governor Krouda, and I think where the new governor Kazu Weda was seeking a timing to pivot from those policy packages. That doesn't mean that like the Bank of Japan suddenly become aggressive and stop purchasing JGB at all. UH. Probably they will end the youth curve control UH the package itself, but I think they will keep continue some measures UH to purchase Japanese government bonds so that the long term meals UH wasn't suddenly right Sharply.

Do you think they we'll see capital abroad come back to Japan or do you think things will stay pretty much the same.

Do you think they we'll see capital abroad come back to Japan or do you think things will stay pretty much the same.

I think it depends on how the BOH will communicate on the policy after ending negative interest rates. So in my view, if the Bank of Japan moves next week, that means from an economists point of view, still the prices are globally and information they get whether there is actually secured two percent inflation steadily, it's still kind of not enough. That means that speaks to me that the Bank of Japan Policy Board is tilting towards normalization instead of purely pursuing steady two percent inflation because recent readings by about consumption or CPI is actually weak. So that speaks to me, if they move next week, it means they move in haste, and that means their will to normalize policy is strong. So that will end up probably not just ending negative interest rate policy, and probably they will move to gradual rate hikes once or twice this year. That means the weight will raise in Japan, and probably we will see some unwind of Yan carry trade, and yes, the investment to Japan may come back.

I think it depends on how the BOH will communicate on the policy after ending negative interest rates. So in my view, if the Bank of Japan moves next week, that means from an economists point of view, still the prices are globally and information they get whether there is actually secured two percent inflation steadily, it's still kind of not enough. That means that speaks to me that the Bank of Japan Policy Board is tilting towards normalization instead of purely pursuing steady two percent inflation because recent readings by about consumption or CPI is actually weak. So that speaks to me, if they move next week, it means they move in haste, and that means their will to normalize policy is strong. So that will end up probably not just ending negative interest rate policy, and probably they will move to gradual rate hikes once or twice this year. That means the weight will raise in Japan, and probably we will see some unwind of Yan carry trade, and yes, the investment to Japan may come back.

Maybe we can move away from the theoretical for the moment and get into the practical. And you can, as a as a resident of the Japanese capital, describe for us what the actual effect of inflation is right now, and the average consumer in Japan, how is it showing up? What is it like living there when inflation is now after three decades beginning to occur.

Maybe we can move away from the theoretical for the moment and get into the practical. And you can, as a as a resident of the Japanese capital, describe for us what the actual effect of inflation is right now, and the average consumer in Japan, how is it showing up? What is it like living there when inflation is now after three decades beginning to occur.

Right So basically like me growing up in Japan, I learned the concept of inflation in college from macroeconomics textbook, and before that I was even aware. I wasn't even aware that the price of a certain thing could change without its intrinsic value moving. So I think it's like for one generation people didn't see inflation, and finally they tangibly recognized, oh, that's the inflation. And probably that's making a difference in the waste negotiation process and also in the deflation. It's optimal for Japanese people to put your cash in the bank's deposit, but faced with inflation, including me, they probably the individuals have to reconsider about their asset management strategies. So Japan is kind of known as people are reluctant to invest in stocks because it used to be something that just declines. But now things are changing and probably the household investments towards asset or other stocks or other assets may become some factors that strengthen picking up of the acid prices in Japan.

Right So basically like me growing up in Japan, I learned the concept of inflation in college from macroeconomics textbook, and before that I was even aware. I wasn't even aware that the price of a certain thing could change without its intrinsic value moving. So I think it's like for one generation people didn't see inflation, and finally they tangibly recognized, oh, that's the inflation. And probably that's making a difference in the waste negotiation process and also in the deflation. It's optimal for Japanese people to put your cash in the bank's deposit, but faced with inflation, including me, they probably the individuals have to reconsider about their asset management strategies. So Japan is kind of known as people are reluctant to invest in stocks because it used to be something that just declines. But now things are changing and probably the household investments towards asset or other stocks or other assets may become some factors that strengthen picking up of the acid prices in Japan.

Tara, thanks very much for joining us. Taro Kumura, Bloomberg Japan economists so refreshing. An economists too. Used to be at the Bank of Japan now with Bloomberg who had a great little anecdote there that he had to learn about inflation from the textbooks. Unbelievable and it's so cool.

Tara, thanks very much for joining us. Taro Kumura, Bloomberg Japan economists so refreshing. An economists too. Used to be at the Bank of Japan now with Bloomberg who had a great little anecdote there that he had to learn about inflation from the textbooks. Unbelievable and it's so cool.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.