Good morning, and welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisoner. Here are the stories we're following today.

Good morning, and welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisoner. Here are the stories we're following today.

I'm Charlie Pelotin for Doug Crisner this week, and Japan is facing a period of political instability after the ruling coalition failed to win a majority in parliament for the first time since two thousand and nine. It sets up a race among the country's two main blocks to form a government. For more, Bloomberg Shrryon spoke with Alistair Gail Bloomberg japan Eco Gov reporter. Let's listen in.

I'm Charlie Pelotin for Doug Crisner this week, and Japan is facing a period of political instability after the ruling coalition failed to win a majority in parliament for the first time since two thousand and nine. It sets up a race among the country's two main blocks to form a government. For more, Bloomberg Shrryon spoke with Alistair Gail Bloomberg japan Eco Gov reporter. Let's listen in.

Will the Prime Minister be able to hold.

Will the Prime Minister be able to hold.

Onto his job right?

Onto his job right?

As you say, it's been a long night for the Prime Minister. It's going to feel particularly cold and wet for him this morning. So everything is up into the air at the moment. The LDP has fullen a long way short of the goal that Prime Minister issue a set of securing a majority with its coalition part of Cometo. So now they have to try and form some kind of government, either working with one of the smaller opposition parties formerly bringing them into the coalition, or trying to find a way to work with them on individual policy issues, and the Prime Minister has said that he's willing to do that. But we'll find out, hopefully today, you know, how they're going to think about trying to form some kind of government.

As you say, it's been a long night for the Prime Minister. It's going to feel particularly cold and wet for him this morning. So everything is up into the air at the moment. The LDP has fullen a long way short of the goal that Prime Minister issue a set of securing a majority with its coalition part of Cometo. So now they have to try and form some kind of government, either working with one of the smaller opposition parties formerly bringing them into the coalition, or trying to find a way to work with them on individual policy issues, and the Prime Minister has said that he's willing to do that. But we'll find out, hopefully today, you know, how they're going to think about trying to form some kind of government.

What are the policies that could be most impacted.

What are the policies that could be most impacted.

Well, anybody who has been invited into the coalition is likely to have requests. There'll be policy things that some of these smaller parties will want. Specifically, the parties that are most likely to join the coalition want a cut in the sales tax, perhaps an increase in the tax free allowance on income. So those will be the things that the LdB will have to think about whether they can stomach those to bring these parties into the coalition.

Well, anybody who has been invited into the coalition is likely to have requests. There'll be policy things that some of these smaller parties will want. Specifically, the parties that are most likely to join the coalition want a cut in the sales tax, perhaps an increase in the tax free allowance on income. So those will be the things that the LdB will have to think about whether they can stomach those to bring these parties into the coalition.

At least, when it comes to the different parties, it seems the biggest winner was a Constitutional Democratic Party. What does that mean for the future of Japan.

At least, when it comes to the different parties, it seems the biggest winner was a Constitutional Democratic Party. What does that mean for the future of Japan.

Well, yes, as you say, the Constitution Democratic Party did extremely well. They are now the second large well they are still the second largest party, but they have many more seats and their leader has said that he actually wants to try and form a government with other opposition parties. That seems like an outside possibility right now, but at least what we do have is more of a two party system here in Japan. The LDP has been so dominant, but with the CDP now gaining more seats, they will feel that they have momentum, feel that they'll be able to impose their requests more on the government, and Japan will be back to a sort of you know, perhaps a stronger opposition and that will hold the LDP to account.

Well, yes, as you say, the Constitution Democratic Party did extremely well. They are now the second large well they are still the second largest party, but they have many more seats and their leader has said that he actually wants to try and form a government with other opposition parties. That seems like an outside possibility right now, but at least what we do have is more of a two party system here in Japan. The LDP has been so dominant, but with the CDP now gaining more seats, they will feel that they have momentum, feel that they'll be able to impose their requests more on the government, and Japan will be back to a sort of you know, perhaps a stronger opposition and that will hold the LDP to account.

A weekend government, though, does mean that we might not see a clear path when it comes to the Japanese economy. We have the Bank of Japan policy decision on Thursday. How consequential could this be?

A weekend government, though, does mean that we might not see a clear path when it comes to the Japanese economy. We have the Bank of Japan policy decision on Thursday. How consequential could this be?

That's right, I mean, it's you know, all of these issues now become very murky because what Isshuba has to do in the next thirty days is to try and form a government, which means that, you know, when it's things like policy issues, when his priority is doing things like raising the tax rates to pay for defense, that becomes a lot harder. And then maybe people inside the ruling party who feel that they now have you know, the momentum, they may be able to kind of raise their voices on things like BOJ policies. So it does become harder for the boj particularly if the markets are in turmoil, to think about when it could next raise interest rates.

That's right, I mean, it's you know, all of these issues now become very murky because what Isshuba has to do in the next thirty days is to try and form a government, which means that, you know, when it's things like policy issues, when his priority is doing things like raising the tax rates to pay for defense, that becomes a lot harder. And then maybe people inside the ruling party who feel that they now have you know, the momentum, they may be able to kind of raise their voices on things like BOJ policies. So it does become harder for the boj particularly if the markets are in turmoil, to think about when it could next raise interest rates.

Oh Japan Economy and Government reporter Alisair Gil thank you so much for coming out here in the Rain as we dissect, of course, a parliamentary election right now and the result.

Oh Japan Economy and Government reporter Alisair Gil thank you so much for coming out here in the Rain as we dissect, of course, a parliamentary election right now and the result.

Markets in the APAC region are coming online against the backdrop of elections from Japan to the United States. For more, we heard from Naomi Fink, chief Global strategistic Nico Asset Management. She spoke earlier with Bloomberg Sherryon in Tokyo.

Markets in the APAC region are coming online against the backdrop of elections from Japan to the United States. For more, we heard from Naomi Fink, chief Global strategistic Nico Asset Management. She spoke earlier with Bloomberg Sherryon in Tokyo.

Already we're seeing the Japanese yen under pressure. What are your expectations of how the session will go?

Already we're seeing the Japanese yen under pressure. What are your expectations of how the session will go?

Yes, thanks very much. I think that this probably does look like maybe a larger than expected laws for the LDP when we look at the markets, but I think that the short term moves in the markets may not last, even if we do see some pressure on stocks. Of course, at least short term traders are probably going to make short term moves, but there are plenty of longer term investors wanting to capitalize on those volatile moves and buy on the dips. And the earnings are there, the valuation doesn't look too stretched and the economy is turning toward more domestic demand growth.

Yes, thanks very much. I think that this probably does look like maybe a larger than expected laws for the LDP when we look at the markets, but I think that the short term moves in the markets may not last, even if we do see some pressure on stocks. Of course, at least short term traders are probably going to make short term moves, but there are plenty of longer term investors wanting to capitalize on those volatile moves and buy on the dips. And the earnings are there, the valuation doesn't look too stretched and the economy is turning toward more domestic demand growth.

I do wonder what happens if Prime Minister issue Ba actually resigns. We are getting his press conference at two pm. Barclets was saying we could see a two percent spike on the end on risk of moves.

I do wonder what happens if Prime Minister issue Ba actually resigns. We are getting his press conference at two pm. Barclets was saying we could see a two percent spike on the end on risk of moves.

Well, I mean, if we do see risk off, it probably has to be a little bit more globalized than just the end, because of course, with currencies, you have at least two currencies at play, and the end doesn't yield as much as the dollar, and that's kind of a fact, and so it would I would find it hard to see that move really last, even if it does happen.

Well, I mean, if we do see risk off, it probably has to be a little bit more globalized than just the end, because of course, with currencies, you have at least two currencies at play, and the end doesn't yield as much as the dollar, and that's kind of a fact, and so it would I would find it hard to see that move really last, even if it does happen.

We continue to see a weakening of the Japanese yend, which is already the worst G ten performer this year. What does that mean for the markets, especially for equities exporters that are reliant on selling products overseas well.

We continue to see a weakening of the Japanese yend, which is already the worst G ten performer this year. What does that mean for the markets, especially for equities exporters that are reliant on selling products overseas well.

I mean, if we see weakening in the end, of course for the exporters it's it's really positive. But I think counterbalancing that, we do have a Bank of Japan meeting coming up. I don't really expect them to do anything right now, but we have had quite a lot of price tikes in food and beverage for example, that's hitting households. So the BOJ can't totally back off from its tightening regime. It may avoid volatility, as we have heard them say this, but I think that if we do see any weakening in the end, JA gets more vigilant and perhaps more all else equel bias to eventually hike.

I mean, if we see weakening in the end, of course for the exporters it's it's really positive. But I think counterbalancing that, we do have a Bank of Japan meeting coming up. I don't really expect them to do anything right now, but we have had quite a lot of price tikes in food and beverage for example, that's hitting households. So the BOJ can't totally back off from its tightening regime. It may avoid volatility, as we have heard them say this, but I think that if we do see any weakening in the end, JA gets more vigilant and perhaps more all else equel bias to eventually hike.

Do you see a virtuous cycle finally setting in here in Japan with inflationary pressures beans sustainable?

Do you see a virtuous cycle finally setting in here in Japan with inflationary pressures beans sustainable?

Now?

Now?

I do see some signals of a virtuous circle, but it's not something that's created overnight. I mean we are seeing things like wage rises and some months we've seen real wage rises. We've seen some positive signals for next year shunto, we have seen domestic demands start to pick up. But it's not just one and done. It's a process that has to continue. So I think we have a lot of the pieces in place, and it will take time, and so long as we don't have some sort of market collapse, which I don't foresee, then I think the process will continue.

I do see some signals of a virtuous circle, but it's not something that's created overnight. I mean we are seeing things like wage rises and some months we've seen real wage rises. We've seen some positive signals for next year shunto, we have seen domestic demands start to pick up. But it's not just one and done. It's a process that has to continue. So I think we have a lot of the pieces in place, and it will take time, and so long as we don't have some sort of market collapse, which I don't foresee, then I think the process will continue.

What do you expect from the Bank of Japan this week?

What do you expect from the Bank of Japan this week?

Well, I think the Bank of Japan is going to give us some messaging, and that messaging probably is that it remains on its hiking path. The Bank of Japan has over this whole regime pledged to remain behind the curve, and that's consistent with allowing prices to pick up first and then acting prices are picking up. So I would imagine that they're not going to abandon their their hike regime.

Well, I think the Bank of Japan is going to give us some messaging, and that messaging probably is that it remains on its hiking path. The Bank of Japan has over this whole regime pledged to remain behind the curve, and that's consistent with allowing prices to pick up first and then acting prices are picking up. So I would imagine that they're not going to abandon their their hike regime.

There's a weekend government less than clear mandate for Prime Minister Shiget to issueva affect that calculation for the BOJ.

There's a weekend government less than clear mandate for Prime Minister Shiget to issueva affect that calculation for the BOJ.

Well, I think the BOJ will avoid short term volatility, but that's probably it. I mean, one of the beauties of having an autonomous central bank is that they respond to inflation and growth. So if inflation expectations suddenly start falling through, okay, they'll rethink. But I don't think that the Bank of Japan is going to change everything just because of the political developments. I think they will look through this and take a look at what's going on with inflation and growth.

Well, I think the BOJ will avoid short term volatility, but that's probably it. I mean, one of the beauties of having an autonomous central bank is that they respond to inflation and growth. So if inflation expectations suddenly start falling through, okay, they'll rethink. But I don't think that the Bank of Japan is going to change everything just because of the political developments. I think they will look through this and take a look at what's going on with inflation and growth.

When do you expect the next great hike to come from the Bank of Japan and what could that mean for the yen and stock markets?

When do you expect the next great hike to come from the Bank of Japan and what could that mean for the yen and stock markets?

Well, I mean, we have seen some price hikes this month even and if we actually see those come through a bit stronger in November, it's possible we might have a hike before the end of the year. Of course, we also have the US elections, and if we have volatility around that, that can also affect the boj's calculation.

Well, I mean, we have seen some price hikes this month even and if we actually see those come through a bit stronger in November, it's possible we might have a hike before the end of the year. Of course, we also have the US elections, and if we have volatility around that, that can also affect the boj's calculation.

As you said, I mean, in order for the yen to move, you have the US dollar on the other side, and we continue to see strength there.

As you said, I mean, in order for the yen to move, you have the US dollar on the other side, and we continue to see strength there.

Well, I think that this is if we take a look at the Japanese elections versus the US elections, probably markets are kind of gearing more for volatility around the US elections rather than the Japanese elections. Maybe that's why it was more of a surprise that we had an unexpected outcome. But we still have that ahead of us, so I think that, you know, we can't really make any foregone conclusions before some of these big events are over.

Well, I think that this is if we take a look at the Japanese elections versus the US elections, probably markets are kind of gearing more for volatility around the US elections rather than the Japanese elections. Maybe that's why it was more of a surprise that we had an unexpected outcome. But we still have that ahead of us, so I think that, you know, we can't really make any foregone conclusions before some of these big events are over.

I'm Charlie Pellett. Doug Chrisner has the week off. We heard earlier from Diana Mossini, deputy chief economist at AMP, and she shared her outlook for global markets with Bloomberg's Heidi Stroud Watts in Hong Kong.

I'm Charlie Pellett. Doug Chrisner has the week off. We heard earlier from Diana Mossini, deputy chief economist at AMP, and she shared her outlook for global markets with Bloomberg's Heidi Stroud Watts in Hong Kong.

Kind of a resounding theme that we've been dealing with when it comes to the US economy has been so much strength and momentum for the consumer. So to that end, do you think that PC number is one that we need to look more closely at this week?

Kind of a resounding theme that we've been dealing with when it comes to the US economy has been so much strength and momentum for the consumer. So to that end, do you think that PC number is one that we need to look more closely at this week?

Well, the PC number tends to move around a bit slower than the headline inflation figures, and I doubt that this week's figures will actually tell us anything new. Basically, inflation's moving in the right direction. The FED can keep cutting rates, but probably at a softer pace than where we assumed a few months ago. We were always with the view that market pricing for the FED went a bit too hard. Into the end of this year, market was pricing in about one hundred and twenty five basis points at one point worth of cuts we had the fifty. I think it's likely that we'll see two more twenty five bases point rate cuts. But the economic data is just holding up so strongly in the US that there is real no need for the FED to go harder right now, and especially at the time when bond yields arising, which sort of threatens the outlook for equity markets. I think that will play into the mind of the Federal Reserve as well.

Well, the PC number tends to move around a bit slower than the headline inflation figures, and I doubt that this week's figures will actually tell us anything new. Basically, inflation's moving in the right direction. The FED can keep cutting rates, but probably at a softer pace than where we assumed a few months ago. We were always with the view that market pricing for the FED went a bit too hard. Into the end of this year, market was pricing in about one hundred and twenty five basis points at one point worth of cuts we had the fifty. I think it's likely that we'll see two more twenty five bases point rate cuts. But the economic data is just holding up so strongly in the US that there is real no need for the FED to go harder right now, and especially at the time when bond yields arising, which sort of threatens the outlook for equity markets. I think that will play into the mind of the Federal Reserve as well.

Is it difficult to sort of assign the significance when it comes to the jobs numbers on Friday, given we know there's a number of hurricane as well as labor strike for lated factors that play there.

Is it difficult to sort of assign the significance when it comes to the jobs numbers on Friday, given we know there's a number of hurricane as well as labor strike for lated factors that play there.

Absolutely. I think the volatility in the figures last month with the unemployment rate falling and then with some of those natural disasters for this month's figures, we'll really complicate the analysis. So if we take into account what some of the other labor market indicators are telling us, things like initial jobless claims, continuing jobless claim some of the jobs leading indicators like job advertisements, job vacancies. I mean, they're still pointing to the labor market basically softening but not falling off the cliff, and that I think is really what's key. The unemployment rate doesn't look like it's going to keep urging like you know it often does in periods where the US economy is going to slow, and that's likely for next year that US economic growth is going to be softer. But it is hard to see the unemployment rate rising significantly above five percent in the US, or even really above four point six percent or so. So I think that the outlook for the labor market from the federal reserves point of view is basically one where we see further weakening and employment growth, but we don't see a big increase to the unemployment rate, which is really good news for consumers and allows that normalization of interest rates to go quite slowly rather than to see fast rate cuts. And I think that that's a good outcome for share markets as well, because if we got a big increase to the unemployment rate, that would really lead to concerns that the US is in a recession or at least potentially headed into one.

Absolutely. I think the volatility in the figures last month with the unemployment rate falling and then with some of those natural disasters for this month's figures, we'll really complicate the analysis. So if we take into account what some of the other labor market indicators are telling us, things like initial jobless claims, continuing jobless claim some of the jobs leading indicators like job advertisements, job vacancies. I mean, they're still pointing to the labor market basically softening but not falling off the cliff, and that I think is really what's key. The unemployment rate doesn't look like it's going to keep urging like you know it often does in periods where the US economy is going to slow, and that's likely for next year that US economic growth is going to be softer. But it is hard to see the unemployment rate rising significantly above five percent in the US, or even really above four point six percent or so. So I think that the outlook for the labor market from the federal reserves point of view is basically one where we see further weakening and employment growth, but we don't see a big increase to the unemployment rate, which is really good news for consumers and allows that normalization of interest rates to go quite slowly rather than to see fast rate cuts. And I think that that's a good outcome for share markets as well, because if we got a big increase to the unemployment rate, that would really lead to concerns that the US is in a recession or at least potentially headed into one.

Govn Aweta has said that, you know, there's obviously clear focus, a careful focus on where the US economy heads as to the decision making for the BOJ as well. I do wonder with the kind of political uncertainty now, the failure to win that coalition majority, do you think that has an impact on monetary policy going forward, certainly on fiscal policy settings.

Govn Aweta has said that, you know, there's obviously clear focus, a careful focus on where the US economy heads as to the decision making for the BOJ as well. I do wonder with the kind of political uncertainty now, the failure to win that coalition majority, do you think that has an impact on monetary policy going forward, certainly on fiscal policy settings.

Yeah, the short term, I think it will impact or limit the Bank of Japan's ability to potentially raise interest rates. I mean, it already looked like the Bank of Japan was hoping that they didn't need to raise rates as aggressively as potentially what we thought a few months ago. So I still think that the outlook for Japan is one where there is a normalization to interest rates, where the Bank of Japan does have to raise rates, but that process can probably occur a bit slower because we know that a key concern for households in Japan has also been the cost of living, like it has in a lot of the Western world and a lot of the advanced economies. But at the current difficult point in their in their political cycle, it will be hard for the Bank of Japan to raise rates because it will again lead to concerns further concerns of cost of living issues. And also, if you look at the core inflation data for Japan, it doesn't really scream at you that the Bank of Japan needs to hype rates.

Yeah, the short term, I think it will impact or limit the Bank of Japan's ability to potentially raise interest rates. I mean, it already looked like the Bank of Japan was hoping that they didn't need to raise rates as aggressively as potentially what we thought a few months ago. So I still think that the outlook for Japan is one where there is a normalization to interest rates, where the Bank of Japan does have to raise rates, but that process can probably occur a bit slower because we know that a key concern for households in Japan has also been the cost of living, like it has in a lot of the Western world and a lot of the advanced economies. But at the current difficult point in their in their political cycle, it will be hard for the Bank of Japan to raise rates because it will again lead to concerns further concerns of cost of living issues. And also, if you look at the core inflation data for Japan, it doesn't really scream at you that the Bank of Japan needs to hype rates.

Right now.

Right now.

Core inflation is still sub two percent in Japan, so it's not like the same situation that we dealt with in some of the advanced economies where core inflation was running at four percent and above in annual terms. It is a lot slower in Japan.

Core inflation is still sub two percent in Japan, so it's not like the same situation that we dealt with in some of the advanced economies where core inflation was running at four percent and above in annual terms. It is a lot slower in Japan.

And finally, Diana, of course, we're just under two weeks now from the US election, And it was interesting we heard from the Vice Finance Minister of China of the weekend talking about how the dedication in terms of these new policies for stimulus to try and lift demand and lift the consumer. How much harder does that job get if we do see further tariffs and the very hawkish trade policy reenacted after that election.

And finally, Diana, of course, we're just under two weeks now from the US election, And it was interesting we heard from the Vice Finance Minister of China of the weekend talking about how the dedication in terms of these new policies for stimulus to try and lift demand and lift the consumer. How much harder does that job get if we do see further tariffs and the very hawkish trade policy reenacted after that election.

Well, the difficulty is some of those trade policies that we may get if we get a Republican president or or a red sweep which to make it easier for the tariffs to be passed, we will not get any signs of what that looks like until next year when if Trump is actually re elected. So in the short term markets will worry about what that means. But I think that Marcus will probably focus more on the potential tax cut that are likely to come under a red sweep or a Republican victory, and then that problem of tariff's will probably be something that markets focus on next year. And the same goes for the implications for China. It's hard to know what actually happens until we get concrete policies out of the Republicans. We don't know what percentage tariffs, they'll actually impose whether there'll be some deals that go with that. This training issue will extend over multiple years.

Well, the difficulty is some of those trade policies that we may get if we get a Republican president or or a red sweep which to make it easier for the tariffs to be passed, we will not get any signs of what that looks like until next year when if Trump is actually re elected. So in the short term markets will worry about what that means. But I think that Marcus will probably focus more on the potential tax cut that are likely to come under a red sweep or a Republican victory, and then that problem of tariff's will probably be something that markets focus on next year. And the same goes for the implications for China. It's hard to know what actually happens until we get concrete policies out of the Republicans. We don't know what percentage tariffs, they'll actually impose whether there'll be some deals that go with that. This training issue will extend over multiple years.

Yeah, Jan I always go to chat with you. Jennerousen, a deputy Chief Economists at AMP.

Yeah, Jan I always go to chat with you. Jennerousen, a deputy Chief Economists at AMP.

This is Bloomberg day Break Asia. You're a morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcast. Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Siriusxmtheiheartradio app, and on Bloomberg dot Com. I'm Doug Chrisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg day Break Asia.

This is Bloomberg day Break Asia. You're a morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcast. Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Siriusxmtheiheartradio app, and on Bloomberg dot Com. I'm Doug Chrisner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg day Break Asia.