Daybreak Weekend: Nvidia Preview, Germany’s Economy, Japan’s Next Leader

This is Bloomberg day Break Weekend, our global look at 0:00:05.200 --> 0:00:07.440 the top stories in the coming week from our Daybreak 0:00:07.480 --> 0:00:10.200 anchors all around the world, and straight ahead on the program, 0:00:10.200 --> 0:00:12.800 but look ahead to some key economic data in the 0:00:12.920 --> 0:00:16.599 US how it may impact pet policy in September. I'm 0:00:16.680 --> 0:00:17.960 Tom Busby in New York. 0:00:18.320 --> 0:00:21.120 I'm Stephen Kyle in London, where we're discussing the gloom 0:00:21.120 --> 0:00:24.400 in Germany and why the Europe's largest economy and shake 0:00:24.440 --> 0:00:24.880 it off. 0:00:25.079 --> 0:00:27.760 I'm Brian Curtis in Hong Kong. At least eleven have 0:00:27.880 --> 0:00:31.120 thrown their hats in the ring. Who would become Japan's 0:00:31.200 --> 0:00:32.120 next bime minister. 0:00:35.479 --> 0:00:39.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:39.479 --> 0:00:43.000 eleve on three OW New York, Bloomberg ninety nine to one, Washington, 0:00:43.080 --> 0:00:46.760 d C, Bloomberg one oh six one, Boston, Bloomberg nine sixty, 0:00:46.840 --> 0:00:51.400 San Francisco, DAB, Digital Radio London, Sirius XM one nineteen 0:00:51.640 --> 0:00:54.400 and around the world on Bloomberg Radio dot com and 0:00:54.480 --> 0:00:56.000 via the Bloomberg Business App. 0:01:00.160 --> 0:01:02.000 Good day to you. I'm Tom Busby, and we begin 0:01:02.080 --> 0:01:05.679 today's program with some key US economic data out this week. 0:01:05.959 --> 0:01:10.720 A second read on Q two GDP and core PCE data. 0:01:10.800 --> 0:01:14.400 The big question, how might this data impact the Fed's 0:01:14.440 --> 0:01:15.920 policies on interest rates? 0:01:15.959 --> 0:01:16.479 And for more. 0:01:16.720 --> 0:01:20.119 We're joined by Edward Harrison Bloomberg, senior editor and author 0:01:20.160 --> 0:01:24.000 of the Everything Risk newsletter. Well, Edward, let's start with 0:01:24.040 --> 0:01:27.240 that second quarter GDP. What you're expecting to see in 0:01:27.319 --> 0:01:30.839 growth and what signs you see that the economy may 0:01:31.400 --> 0:01:32.399 may be slowing a bit. 0:01:32.840 --> 0:01:35.720 Good question and great to talk to you. The GDP 0:01:36.240 --> 0:01:39.280 number is just a rehash of what we saw before, 0:01:39.319 --> 0:01:42.400 as you mentioned, and the prior read was two point 0:01:42.440 --> 0:01:46.400 eight percent annualized growth. We're expecting exactly the same number 0:01:47.360 --> 0:01:51.680 to come up. The interesting bid, however, is that the 0:01:51.720 --> 0:01:55.440 Atlanta Fed has a tracker for Q three because this 0:01:55.480 --> 0:01:58.919 is the growth through June. They're looking at the growth 0:01:58.920 --> 0:02:01.840 in this particular quarter that we're in and that number 0:02:01.880 --> 0:02:05.720 is two percent, and so that number is lower than 0:02:05.760 --> 0:02:09.320 the previous number, which gives the Fed some room to 0:02:09.560 --> 0:02:12.840 cut knowing that the economy is decelerating. 0:02:13.639 --> 0:02:16.800 But we won't know that a preliminary Q three number 0:02:16.840 --> 0:02:18.359 for another two months though. 0:02:18.280 --> 0:02:21.640 Right exactly. Yeah, so we're still in the midst of 0:02:21.760 --> 0:02:25.600 Q three, but we already know that the data that 0:02:25.639 --> 0:02:29.680 have come in since Q two have been weaker and 0:02:30.040 --> 0:02:33.120 just enough if as long as inflation holds, that's the 0:02:33.120 --> 0:02:34.679 PC number that we're going to talk about in a 0:02:34.720 --> 0:02:37.840 little bit. The FED has enough room to start cutting 0:02:37.840 --> 0:02:41.359 it in September. And actually, you know last week when 0:02:41.400 --> 0:02:45.880 we heard from the Fed, we heard the FED minutes 0:02:46.400 --> 0:02:49.040 basically at the July meeting, there were some officials who 0:02:49.040 --> 0:02:51.000 were saying that they would have cut based upon the 0:02:51.080 --> 0:02:55.360 data already in July if they had known, if they 0:02:55.360 --> 0:02:58.880 had prepared the market for that. So a clear majority 0:02:58.880 --> 0:03:01.480 of the FED wants to cut in September. It's priced 0:03:01.520 --> 0:03:03.519 in by the market. It's not going to be any 0:03:03.560 --> 0:03:08.720 surprise irrespective of what we might see between now and 0:03:09.840 --> 0:03:10.359 that meeting. 0:03:10.960 --> 0:03:13.440 Well, let me ask you about that GDP. We're expecting 0:03:13.440 --> 0:03:16.359 two point eight percent, same as the last read two 0:03:16.440 --> 0:03:19.320 point zero for the current quarter, no hint though right 0:03:19.360 --> 0:03:22.240 now of a recession. So what do you see the 0:03:22.240 --> 0:03:25.120 big drivers of that modest growth? But what do you 0:03:25.160 --> 0:03:26.200 see the big drivers are? 0:03:27.280 --> 0:03:29.280 Yeah, I think that the big driver for the FED 0:03:29.360 --> 0:03:32.720 in terms of it's that that slowing of growth from 0:03:32.760 --> 0:03:35.400 two point a to two percent, and really when you 0:03:35.440 --> 0:03:38.880 think about where the FED funds rate is five point 0:03:38.960 --> 0:03:41.520 three percent, and the ability to get a mortgage and 0:03:41.560 --> 0:03:45.280 things like that, we're at a restrictive level, and because 0:03:45.320 --> 0:03:49.640 that growth is slowing, they want to, you know, sort 0:03:49.640 --> 0:03:52.480 of ease the pain so that we don't tip into 0:03:52.480 --> 0:03:55.520 a recession, so that it is just slowing. And the 0:03:55.880 --> 0:03:59.480 key is is that inflation has come down enough where 0:03:59.480 --> 0:04:03.400 they think they can start doing that without having to 0:04:03.440 --> 0:04:06.120 worry about inflation being excessive going forward. 0:04:06.400 --> 0:04:09.200 Well, that of course leads us to that inflation measure, 0:04:09.440 --> 0:04:13.080 the Fed's preferred measure, the personal consumption Core price Index. 0:04:13.640 --> 0:04:15.560 What do you expect to see in that? And what 0:04:15.640 --> 0:04:17.799 did we see just last quarter? 0:04:18.320 --> 0:04:21.200 You know, what I expect to see on a month 0:04:21.240 --> 0:04:24.520 on month basis is a slight uptick zero point two percent, 0:04:24.640 --> 0:04:28.160 which correlates to about where we are roughly. But that 0:04:28.279 --> 0:04:31.680 number is going to be just enough, according to consensus estimates, 0:04:32.360 --> 0:04:36.880 to tick up the number for the PCE price index, 0:04:36.920 --> 0:04:38.960 that's the one that you were talking about. The Fed's 0:04:39.000 --> 0:04:41.880 preferred numbers, so two point five going up to two 0:04:41.920 --> 0:04:47.120 point six. The core number year on year is going 0:04:47.200 --> 0:04:49.920 to be two point six going up to two point seven. 0:04:50.000 --> 0:04:54.039 According to consensus estimates. Those numbers are in the realm 0:04:54.120 --> 0:04:57.760 where the FED can can feel comfortable to start to 0:04:57.800 --> 0:05:03.000 bring down the rate. Question now is how quickly they 0:05:03.040 --> 0:05:05.919 can do so. Two point six two point seven percent 0:05:06.120 --> 0:05:08.680 is lower than it had been in the past, but 0:05:08.720 --> 0:05:12.640 it's not low enough that you can assure that every 0:05:12.680 --> 0:05:15.800 FED member is behind cutting at every single meeting. Because 0:05:15.800 --> 0:05:18.200 you know, we have one hundred basis points one full 0:05:18.240 --> 0:05:21.680 percentage point priced into the market right now to the 0:05:21.720 --> 0:05:25.360 swaps market. I doubt that highly that that's going to happen. 0:05:25.800 --> 0:05:28.799 You might get seventy five basis points, that's my baseline, 0:05:28.839 --> 0:05:31.479 but you might only get two cuts of twenty five 0:05:31.520 --> 0:05:33.320 basis points before the year is over. 0:05:33.560 --> 0:05:36.159 And we have meetings in just a few weeks, but 0:05:36.200 --> 0:05:39.520 also early November mid December, so there's a lot of 0:05:39.600 --> 0:05:40.560 chance for the FED. 0:05:40.360 --> 0:05:43.800 To act exactly. And so you know, the baseline is 0:05:43.920 --> 0:05:46.360 that once the FED acts, it starts to go down 0:05:46.440 --> 0:05:51.800 quickly as long as that PCE number stays with us. 0:05:52.000 --> 0:05:54.600 You know, a PCE number that rises back up to 0:05:54.640 --> 0:05:57.800 three percent will stop them from cutting any more. But 0:05:57.839 --> 0:06:00.880 I think you can look at two or three cuts baseline, 0:06:00.960 --> 0:06:05.080 and likely the pricing in the market will come out 0:06:05.120 --> 0:06:08.720 slightly as a result of the Fed not moving as 0:06:08.760 --> 0:06:11.680 aggressively as the market is pricing, and that might cause 0:06:11.760 --> 0:06:15.279 yields to go up slightly, But generally speaking, because they're 0:06:15.320 --> 0:06:18.760 going to be cutting, it will provide some relief for 0:06:18.800 --> 0:06:21.280 the economy, especially for mortgage rates. 0:06:21.800 --> 0:06:24.160 Now, the FED has always maintained that any decision it 0:06:24.240 --> 0:06:26.440 makes on rates is going to be data driven, and 0:06:27.120 --> 0:06:31.000 the main factor in that has been inflation. But do 0:06:31.040 --> 0:06:34.159 you see the Fed also reacting to what looks like 0:06:34.240 --> 0:06:35.880 a cooling jobs market. 0:06:36.320 --> 0:06:36.760 Yeah. 0:06:36.760 --> 0:06:40.039 I think that that really is their crux right now, 0:06:40.360 --> 0:06:43.200 is the cooling jobs market, which is what's causing growth 0:06:43.200 --> 0:06:46.240 to come down. I think what they're looking at is 0:06:46.279 --> 0:06:50.000 that inflation's low enough that they can start to look 0:06:50.160 --> 0:06:54.120 more at their jobs mandate, and what they see is 0:06:54.480 --> 0:06:57.760 an unemployment rate which has gone up a lot. In fact, 0:06:58.040 --> 0:07:01.039 over the last twelve months, the average over the three 0:07:01.080 --> 0:07:04.080 month average has gone up a zero point five percent, 0:07:04.160 --> 0:07:07.000 which had been in the past consistent with recession. But 0:07:07.040 --> 0:07:10.400 when you look at all the other employment data, like 0:07:10.480 --> 0:07:14.320 the number of job openings, the number of initial jobless claims, 0:07:14.480 --> 0:07:18.040 all of those suggest that we're very far from recession, 0:07:18.440 --> 0:07:20.520 but the fact that the unemployment rate has gone up 0:07:20.560 --> 0:07:24.200 as much as it has really is a cause of 0:07:24.200 --> 0:07:26.000 concern for the Fed, and that's why they're going to 0:07:26.000 --> 0:07:26.720 be cutting. 0:07:26.600 --> 0:07:30.000 Second quarter gdp PCE out this Thursday, ahead of Wall 0:07:30.000 --> 0:07:33.840 Street's opening bellar. Thanks to Edward Harrison, Bloomberg Senior editor, 0:07:34.080 --> 0:07:38.720 author of the Everything Risk newsletter. Businesses have spent billions 0:07:38.720 --> 0:07:41.520 of dollars betting on a future of artificial intelligence, an 0:07:41.520 --> 0:07:44.040 AI chip maker, and Vidia, now the world's second most 0:07:44.120 --> 0:07:48.160 valuable company valued at over three trillion dollars, has been 0:07:48.160 --> 0:07:51.280 a big factor in that paradigm shift. And with the 0:07:51.400 --> 0:07:54.960 current corporate earning season winding down, and Vidia is the 0:07:55.040 --> 0:07:58.080 last of Big Text Magnificent seven to report, posting second 0:07:58.160 --> 0:08:01.119 quarter earnings on Wednesday. For more and what to expect, 0:08:01.200 --> 0:08:06.600 we're joined by kun John Sabani, Bloomberg Intelligence Senior Semiconductor analyst, 0:08:06.680 --> 0:08:08.320 Kuon John, thanks for being here. 0:08:08.200 --> 0:08:08.880 Glad to be here. 0:08:09.000 --> 0:08:11.360 In Vidio had a blowout first quarter thanks to a 0:08:11.400 --> 0:08:14.080 surge and demand for those data center AI chips. Things 0:08:14.120 --> 0:08:16.240 were so good at hiked its dividend, did a ten 0:08:16.320 --> 0:08:19.080 for one stock split, the shares sort to new all 0:08:19.120 --> 0:08:22.080 time highs. That was three months ago. What are you 0:08:22.120 --> 0:08:25.160 expecting to see in Nvidia's second quarter earnings report? 0:08:26.840 --> 0:08:29.840 Well, we again expect solid earnings bought in terms of 0:08:29.960 --> 0:08:34.720 the current quarter and the expected outlook. Nothing has changed 0:08:34.760 --> 0:08:37.920 in terms of demand signals. If anything, they've gotten even 0:08:38.000 --> 0:08:40.920 stronger as we have started this year versus last year. 0:08:41.920 --> 0:08:45.000 You know, the supply for their H one hundred and 0:08:45.080 --> 0:08:48.160 the H two hundred ramping now has continued to ease, 0:08:48.520 --> 0:08:51.520 so that means they can supply more of these chips 0:08:51.559 --> 0:08:54.040 and the demand continues to stay ahead of supply. 0:08:55.120 --> 0:08:57.280 Now you talked about those specific chips. Is that the 0:08:57.320 --> 0:09:00.440 current Hopper line? And what do you expect to hear 0:09:00.480 --> 0:09:03.600 from Nvidio about its upcoming Blackwell line? 0:09:05.240 --> 0:09:07.160 That's correct, that was a Hopper light. I mean, look, 0:09:07.200 --> 0:09:11.960 there has been some concerns around the Blackwell delay, and 0:09:12.000 --> 0:09:15.560 from our channel checks and our estimates, we now believe 0:09:16.080 --> 0:09:19.640 there will be very little volume for black Wells starting 0:09:19.679 --> 0:09:22.520 to ship in the fiscal for Q, which is their 0:09:22.640 --> 0:09:27.400 January quarter, but the real ramp is not likely until 0:09:27.520 --> 0:09:31.800 the next year. However, Look, I mean there's like I said, 0:09:31.800 --> 0:09:35.720 there's enough demand for its Hopper chips, so we believe 0:09:35.800 --> 0:09:40.079 customers who really wanted the first shipments of Blackwell because 0:09:40.080 --> 0:09:42.640 of the delay, could could substitute it for some H 0:09:42.760 --> 0:09:45.000 one hundred and H two hundred and even some B 0:09:45.120 --> 0:09:50.320 one hundred initial shipments. And and there's there's again there's 0:09:50.480 --> 0:09:54.280 enough demand continued in the pipeline that they I don't 0:09:54.320 --> 0:09:59.000 think they'll be significantly impacted from this delay. But that 0:09:59.160 --> 0:10:02.000 is a commentary an outlook that we are keen to 0:10:02.040 --> 0:10:03.920 hear about from this earning skull. 0:10:04.800 --> 0:10:08.160 Now, while it grapples with that delay in the Blackwell chips, 0:10:08.200 --> 0:10:11.319 there is more competition now for Nvidia in the AI 0:10:11.400 --> 0:10:15.760 focused chips, especially in house manufacturing, from the likes of 0:10:15.800 --> 0:10:18.040 Apple and Google. How does that factor in. 0:10:20.000 --> 0:10:22.200 I mean, like what we have said, you know, at 0:10:22.280 --> 0:10:25.840 this point, because the demand is so high, because the 0:10:25.920 --> 0:10:29.520 number of use cases and application continues to increase, an 0:10:29.559 --> 0:10:33.520 adoption of AI data center continues to increase, I think 0:10:33.559 --> 0:10:37.360 at this point that combetition is not likely to slow 0:10:37.400 --> 0:10:40.720 down in media, and media doesn't view them as a 0:10:40.720 --> 0:10:43.880 combetition because they believe they're used for a very different 0:10:44.000 --> 0:10:47.600 kind of workload and use cases and are only specific 0:10:47.640 --> 0:10:51.000 to very few customers. We do believe that in the 0:10:51.080 --> 0:10:56.760 long term, especially when this strong demand normalizes or optimizes. 0:10:57.240 --> 0:10:59.920 This is a headwind for them in a way, not 0:11:00.200 --> 0:11:04.839 directly from a useless perspective, but more of a tamp perspective. 0:11:04.880 --> 0:11:07.559 So look, in the absence of these chips that its 0:11:07.559 --> 0:11:10.319 customers are designing, they would have had to use all 0:11:10.440 --> 0:11:13.440 NBA chips right. So the way it will affect them 0:11:13.559 --> 0:11:16.360 is taking away that wallet dollar share when the wallet 0:11:16.480 --> 0:11:17.800 really gets that squeeze. 0:11:18.600 --> 0:11:20.800 And the spending on these chips is all dependent on 0:11:21.320 --> 0:11:26.439 business capital expenditure. How I mean, they have spent billions already, 0:11:26.480 --> 0:11:29.560 and I know some investors getting a little impatient, but 0:11:30.120 --> 0:11:32.920 do you see the spending continuing to grow. It has 0:11:32.960 --> 0:11:36.920 been an extraordinary trajectory in business spending on AI. 0:11:38.880 --> 0:11:41.160 Yeah. I mean, look, when we entered twenty twenty four, 0:11:41.480 --> 0:11:46.000 we didn't think this year we'll see such a huge increase, 0:11:46.200 --> 0:11:48.600 which right now seems to be in the in the 0:11:48.679 --> 0:11:51.280 range of forty to fifty percent at least for its 0:11:51.400 --> 0:11:55.840 largest hyperscaler and cloud customers. And we are seeing that. 0:11:55.960 --> 0:12:00.200 So I mean again, given the data we're seeing right now, Yes, 0:12:00.280 --> 0:12:03.200 there have been concerns in the earnings calls of those 0:12:03.320 --> 0:12:08.440 large customers. I think investors are more concerned about getting 0:12:09.000 --> 0:12:11.959 the justification of these spending, so which means we need 0:12:12.000 --> 0:12:15.520 to see better and higher monetization from these customers. And 0:12:15.559 --> 0:12:17.920 if we see that soon enough, I don't think the 0:12:17.960 --> 0:12:20.440 spending will slow, but in the absence of that, we 0:12:20.520 --> 0:12:24.559 could see some kind of normalization. But again, you know, 0:12:24.640 --> 0:12:27.240 what we have seen in these scenarios is when they 0:12:27.240 --> 0:12:29.160 do want to cut back spending. We've seen that in 0:12:29.200 --> 0:12:31.840 the sort of general purpose compute areas, but not in 0:12:31.880 --> 0:12:34.520 the AI areas. Now that still bodes well for it. 0:12:34.840 --> 0:12:37.640 Things are looking good and video earnings out this Wednesday 0:12:37.960 --> 0:12:41.400 are thanks to Koon, John so Bonnie Bloomberg Intelligence senior 0:12:41.559 --> 0:12:45.080 semiconductor analysts, and coming up on Bloomberg day Break weekend, 0:12:45.080 --> 0:12:47.840 we'll discuss the gloom in Germany and whether Europe's largest 0:12:47.840 --> 0:12:51.040 economy can shake it off. I'm Tom Busby, and this 0:12:51.320 --> 0:13:06.680 is Bloomberg. This is Bloomberg Day Break Weekend, our global 0:13:06.679 --> 0:13:08.800 look ahead at the top stories for investors in the 0:13:08.840 --> 0:13:11.880 coming week. I'm Tom Busby in New York. Up later 0:13:11.920 --> 0:13:13.959 on our program, we'll look ahead to a key political 0:13:14.040 --> 0:13:17.600 leadership election in Japan and what to expect now that 0:13:17.679 --> 0:13:21.960 Japan's Prime minister announced he's resigning. But first, Europe has 0:13:22.040 --> 0:13:25.439 been booming. The Olympic Games in Paris a big economic success. 0:13:25.679 --> 0:13:29.800 Taylor Swift's blockbuster Aerostore brought a burst of consumer spending. 0:13:30.160 --> 0:13:33.160 But despite all that, the economic performance in one of 0:13:33.200 --> 0:13:36.880 the block's largest power players remains uncertain. And for more, 0:13:37.040 --> 0:13:39.760 let's go to London and bring in Bloomberg Daybreak europe 0:13:39.760 --> 0:13:41.440 banker Steven Carroll. 0:13:41.640 --> 0:13:44.440 Tom the risk of recession in the euro Area has 0:13:44.520 --> 0:13:47.400 receded into the background, but the mood in Europe's largest 0:13:47.400 --> 0:13:51.840 economy remains gloomy. The most recent Composite Purchasing Managers Index 0:13:51.880 --> 0:13:54.960 for Germany signaled a contraction for a second month, while 0:13:54.960 --> 0:13:58.000 the manufacturing index has been shrinking for more than two years. 0:13:58.520 --> 0:14:00.599 Contrast that with a picture from frank which got a 0:14:00.640 --> 0:14:04.240 surprise boost from hosting the Olympic Games. We've been discussing 0:14:04.240 --> 0:14:06.760 the persistent weakness in the German economy with many of 0:14:06.760 --> 0:14:09.040 our guests on Bloomberg Radio. Let's get the view of 0:14:09.120 --> 0:14:13.280 Melanie Baker, senior economist at Royal London Asset Management, in. 0:14:13.400 --> 0:14:16.360 Terms of the sort of growth picture. Again, I mean, 0:14:16.679 --> 0:14:19.000 look in my focus. I haven't got recessions penciled in 0:14:19.080 --> 0:14:21.840 for either of those economies. I'm not sure that we 0:14:21.880 --> 0:14:23.640 are going to see a really big divisions in the 0:14:23.680 --> 0:14:25.480 second half of the year. I'm expecting a bit of 0:14:25.520 --> 0:14:29.320 a slower patch in the US economy for sure, and 0:14:29.360 --> 0:14:32.200 not very exciting growth in the Euro Area. But I'm 0:14:32.240 --> 0:14:34.400 still not convinced we're actually going to see a huge 0:14:34.440 --> 0:14:36.880 divergence in terms of economic picture when it comes down 0:14:36.880 --> 0:14:38.080 to it. In the second half of this year. 0:14:38.480 --> 0:14:40.360 We were hearing from Oli Rn who was speaking at 0:14:40.400 --> 0:14:43.480 event in New York, talking about particularly pointing to weakness 0:14:43.480 --> 0:14:45.960 in the manufacturing sector is bolstering, in his view, the 0:14:46.040 --> 0:14:49.240 case for rake cuts. But I wonder how, because the 0:14:49.320 --> 0:14:51.600 numbers obviously out of Germany haven't been great on a 0:14:51.600 --> 0:14:54.760 whole variety of metrics in recent months, how deep is 0:14:54.840 --> 0:14:57.720 that dip for Germany when we look towards the rest 0:14:57.720 --> 0:14:58.200 of the year. 0:14:59.480 --> 0:15:02.680 Yeah, and kind of dependent really on global growth dynamics 0:15:02.680 --> 0:15:05.560 as much as anything else. So plenty of uncertainty I 0:15:05.600 --> 0:15:10.360 think for the German economy and elsewhere. Actually, I'm not 0:15:10.560 --> 0:15:13.560 overly pessimistic about the Euro Area economy, partly because I 0:15:13.560 --> 0:15:16.000 see quite a bit of potential upside from the consumer 0:15:16.680 --> 0:15:20.160 with really quite robust real pay growth at the moment 0:15:20.480 --> 0:15:23.520 and scope for with you know what already looks like 0:15:23.640 --> 0:15:27.240 increased consumer confidence for a bit less saving from European 0:15:27.280 --> 0:15:29.800 consumers and a bit of a boost from that as well. 0:15:30.200 --> 0:15:32.240 It's very hard to read the US economy right now. 0:15:32.280 --> 0:15:33.760 Is that that's. 0:15:33.360 --> 0:15:36.400 Easier it easier to read the European economy. 0:15:36.000 --> 0:15:38.520 In some senses? Yes, I mean the US data is 0:15:38.600 --> 0:15:41.240 just very very mixed at the moment. I think in 0:15:41.600 --> 0:15:44.840 terms of Europe where I find I have most difficulties 0:15:44.840 --> 0:15:47.040 probably on the labor market. What we haven't had that 0:15:47.120 --> 0:15:48.960 increase in the unemployment rate that we've seen in the 0:15:49.040 --> 0:15:51.280 US that we've seen in the UK, where the labor 0:15:51.280 --> 0:15:53.360 market looks really tight on that measure, trying to make 0:15:53.400 --> 0:15:55.440 sense of that against the other two economies. But yeah, 0:15:55.440 --> 0:15:57.360 in terms of the US data just very mixed. 0:15:58.040 --> 0:16:00.520 With the question of real pay growth though, I mean, 0:16:00.560 --> 0:16:02.880 is that actually a concern on the flip side, because 0:16:02.880 --> 0:16:05.080 we know that Christine Leaguard has pointed in some repreaiocasions 0:16:05.080 --> 0:16:06.880 expact speaking to you and Dallas and January Front, I 0:16:06.920 --> 0:16:08.680 remember this coming up as well as the importance of 0:16:09.200 --> 0:16:12.200 wage inflation. Is that a worry or is this only 0:16:12.240 --> 0:16:13.720 really a positive story for the moment. 0:16:14.680 --> 0:16:16.800 It may become more of a worry. Absolutely, And it's 0:16:16.840 --> 0:16:19.360 the same as elsewhere. Really, it's that how sticky is 0:16:19.360 --> 0:16:21.880 inflation going to be? In particular how sticky is services 0:16:21.880 --> 0:16:24.600 inflation going to be? And again with that, what looks 0:16:24.640 --> 0:16:27.040 like quite a tight labor markets is a reason for 0:16:27.320 --> 0:16:30.600 concern looking forward to next year, thinking of the possible 0:16:30.680 --> 0:16:31.760 rate path for the year area. 0:16:31.800 --> 0:16:35.080 I think that was Melanie Baker, senior economist at Royal 0:16:35.080 --> 0:16:38.080 London Asset Management. While a sharp slowdown in the Euro 0:16:38.160 --> 0:16:42.120 Area could necessitate swift ECB action, evidence of such a 0:16:42.160 --> 0:16:45.920 scenario remains limited. There's currently a thirty percent probability of 0:16:45.920 --> 0:16:48.360 a recession in the Zone, and the year ahead near 0:16:48.400 --> 0:16:51.760 the lowest for this year. That figure suggests that expectations 0:16:51.760 --> 0:16:55.080 for aggressive easing could be premature. But a raft of 0:16:55.160 --> 0:16:58.120 data on growth, inflation and the business climate in Germany 0:16:58.240 --> 0:17:00.640 that's due in the coming days will give pub maker's 0:17:00.760 --> 0:17:04.200 food for thought. I've been discussing this with Bloomberg's Germany correspondent, 0:17:04.240 --> 0:17:06.480 Oliver Crook, and I started off by asking him what 0:17:06.480 --> 0:17:09.960 we can discern from the latest data, including those PMI surveys. 0:17:10.320 --> 0:17:12.600 Listen, it doesn't tell you anything good at all. I mean, 0:17:12.640 --> 0:17:14.399 we won't start with the sort of worst part of it. 0:17:14.440 --> 0:17:16.360 We'll sort of soften the blow by starting the services, 0:17:16.400 --> 0:17:18.480 which at least saw some kind of expansion that came 0:17:18.520 --> 0:17:21.199 in at fifty one, you know, and that was below 0:17:21.280 --> 0:17:24.760 expectations still, but that is still growing in services though 0:17:24.800 --> 0:17:27.760 albeit you know, perhaps not even close to enough to 0:17:28.280 --> 0:17:31.760 outweigh what is happening in manufacturing, where we were expecting 0:17:31.800 --> 0:17:33.960 that to come in at forty three, which is already 0:17:34.000 --> 0:17:37.040 a very very weak number, is a strong contraction. It 0:17:37.080 --> 0:17:39.800 came in at forty two. That is really not good 0:17:39.840 --> 0:17:42.879 news for the German economy. And it adds to twenty 0:17:42.920 --> 0:17:47.560 six months of consecutive manufacturing contraction within Germany. That means 0:17:47.600 --> 0:17:50.560 more than two years the manufacturing sector within Germany has 0:17:50.600 --> 0:17:53.600 been contracting, which is an even bigger deal in Germany 0:17:53.640 --> 0:17:55.960 than it is for most of the European economies because 0:17:56.000 --> 0:17:58.960 of that strong industrial base that has really generated the 0:17:59.040 --> 0:18:01.200 kind of wealth that has made it the most wealthy 0:18:01.200 --> 0:18:04.439 and most prosperous economy in all of Europe over the 0:18:04.480 --> 0:18:06.640 last few decades, and if you look at the sort 0:18:06.640 --> 0:18:09.040 of surveys ever elsewhere in the economy, it's not looking 0:18:09.040 --> 0:18:12.040 a whole lot better. Whether it's zdw EFO, there is 0:18:12.119 --> 0:18:14.840 really very widespread pessimism within this economy. 0:18:15.640 --> 0:18:18.400 Recession of probability, though in Europe is at its lowest 0:18:18.640 --> 0:18:22.000 this year. Is Germany booking that trend in a bad 0:18:22.040 --> 0:18:24.960 way and showing more signs of indicators of a downturn. 0:18:25.560 --> 0:18:27.680 I think that it is. I mean, you know what's 0:18:27.680 --> 0:18:29.840 interesting about the German economy is that it's not this 0:18:29.960 --> 0:18:33.080 sort of economy that is sort of going to implode suddenly, 0:18:33.080 --> 0:18:35.320 and that is sort of, you know, partially by design. 0:18:35.600 --> 0:18:37.320 It is a kind of economy that would go out 0:18:37.400 --> 0:18:39.199 more with a whimper than with a bang. I mean, 0:18:39.240 --> 0:18:41.040 this is kind of what we've been seeing in Germany 0:18:41.080 --> 0:18:44.280 over the last two years, particularly after Russia's invasion of 0:18:44.359 --> 0:18:46.359 Ukraine and all of the effects that has had on 0:18:46.400 --> 0:18:50.159 the industrial sector, the terms of prices for energy, the 0:18:50.280 --> 0:18:52.680 sort of even the feeding stock gas that goes into 0:18:52.840 --> 0:18:56.800 huge sort of chemical plants like for BASF, and you know, 0:18:56.840 --> 0:18:58.960 you've had a bit of growth here and there, a 0:18:59.000 --> 0:19:01.520 bit of contraction, but the reality of the situation is 0:19:01.640 --> 0:19:03.479 if you get ten basis points of growth or ten 0:19:03.520 --> 0:19:06.359 basis points of contraction, it doesn't really matter. The point 0:19:06.440 --> 0:19:08.919 is things are not really moving forward, but they're not 0:19:09.080 --> 0:19:12.800 bad enough to sort of instigate huge, really difficult changes. 0:19:12.800 --> 0:19:15.920 Because people's sort of standards of living don't fall precipitously. 0:19:15.920 --> 0:19:18.359 They just get really really worried. So you know, there 0:19:18.359 --> 0:19:19.600 are a lot of things that they need to do. 0:19:19.640 --> 0:19:22.000 They need to deal with digitalization is not a very 0:19:22.040 --> 0:19:25.080 digitized economy despite being so wealthy. They need to cut 0:19:25.119 --> 0:19:27.560 out bureaucracy. This is something that we talk a lot about, 0:19:27.600 --> 0:19:29.760 that a lot of politicians talk about, but it doesn't 0:19:29.800 --> 0:19:32.760 really happen. These are very sort of unsexy reforms in 0:19:32.880 --> 0:19:35.000 order to try to get this economy moving again. And 0:19:35.040 --> 0:19:36.880 when you also think about what's going on in terms 0:19:36.920 --> 0:19:39.520 of China, the tariff war and that sort of thing, 0:19:39.800 --> 0:19:42.920 Germany is by far the most exposed economy in Europe 0:19:42.960 --> 0:19:45.399 in terms of exports over to China and many of 0:19:45.400 --> 0:19:47.680 its companies that have businesses there. So all of this 0:19:47.720 --> 0:19:49.879 stuff culminates to a really sort of poor picture for 0:19:49.920 --> 0:19:50.760 the German economy. 0:19:51.440 --> 0:19:55.959 I mean, is this a temporary or chronic situation or both. 0:19:56.200 --> 0:19:57.919 You know, according to the IMF, it sets me the 0:19:58.000 --> 0:20:00.560 G seven slowest growing economy again this year. 0:20:00.840 --> 0:20:03.160 Yeah, I think what's really interesting with the German economy 0:20:03.200 --> 0:20:05.119 is that, again, since nothing is sort of collapsing and 0:20:05.119 --> 0:20:07.520 it sort of keeps on sort of going slowly and slowly, 0:20:07.760 --> 0:20:09.520 the question is what is going to be the actual 0:20:09.600 --> 0:20:12.160 catalyst for growth, Like things can improve a little bit, 0:20:12.200 --> 0:20:14.760 but the reality of the situation is that it's behind 0:20:14.800 --> 0:20:17.680 on some of the many traditional sectors that it's done 0:20:17.800 --> 0:20:20.760 very well in, like the auto industry. It's slow on electrification. 0:20:20.840 --> 0:20:23.400 It is obviously throwing you know, Volkswagen alone is throwing 0:20:23.440 --> 0:20:25.840 something close to two hundred billion dollars in R and 0:20:25.920 --> 0:20:27.919 D to try to deal with that. But again, these 0:20:27.960 --> 0:20:30.040 are the things that they need to get together in 0:20:30.160 --> 0:20:33.280 order for him to move forward. And there's also this 0:20:33.320 --> 0:20:36.080 other question of this sort of political dysfunction, right because 0:20:36.080 --> 0:20:39.320 many of the governing bodies have ideas about how to 0:20:39.359 --> 0:20:41.199 do this. But we have a coalition right now in 0:20:41.240 --> 0:20:44.520 Germany that have three very different parties with three very 0:20:44.560 --> 0:20:47.040 different ideas on how to do this. And by the way, 0:20:47.119 --> 0:20:49.560 two of those three parties would like to do away 0:20:49.600 --> 0:20:52.719 with the constitutional debt break, which would allow Germany to 0:20:52.880 --> 0:20:55.320 raise debt at the levels that many other countries do 0:20:55.359 --> 0:20:58.080 it that could actually finance some of the things. But 0:20:58.119 --> 0:21:01.000 again the person running the finance ministry is a hyperhawk 0:21:01.240 --> 0:21:03.040 and is saying no way that that's going to happen. 0:21:03.080 --> 0:21:04.720 So you have this sort of stalemate and not that 0:21:04.840 --> 0:21:05.840 much is moving. 0:21:06.800 --> 0:21:09.119 And that's a really interesting question to consider for the 0:21:09.200 --> 0:21:13.760 future as well. How are the politicians talking about the 0:21:14.200 --> 0:21:18.280 economic situation and is there any chance that that actually 0:21:18.320 --> 0:21:19.960 debt break could be eased. 0:21:20.480 --> 0:21:22.960 Well, listen, the Schultz and the SPD have said that 0:21:22.960 --> 0:21:25.400 they think that they need some reform. The Greens have been, 0:21:25.440 --> 0:21:28.040 you know, saying the same thing. In fact, Robert Habeck, 0:21:28.080 --> 0:21:30.560 who is the Economy minister but also the leader of 0:21:30.560 --> 0:21:33.280 the Green Party, says that basically Germany is boxing with 0:21:33.320 --> 0:21:35.959 its arms tied behind its back because this debt break 0:21:36.200 --> 0:21:38.000 is so damaging in terms of trying to get a 0:21:38.040 --> 0:21:41.280 competitive advantage that it's trying to do across the world 0:21:41.560 --> 0:21:44.240 and as sort of countries get poorer. No one likes that. 0:21:44.320 --> 0:21:46.480 But you know who really doesn't like it is rich countries. 0:21:46.520 --> 0:21:49.000 And when you feel that slowly happening in Germany, you 0:21:49.040 --> 0:21:51.520 also feel political consequences there, so a lot of these 0:21:51.560 --> 0:21:55.240 mainstream politicians are saying, be wary of what the populists 0:21:55.280 --> 0:21:57.439 are promising. And that's what we've seen in the polls, 0:21:57.480 --> 0:21:59.880 which is that the AfD, the far right, has been 0:22:00.080 --> 0:22:03.040 absolutely surging. And we have three sort of local state 0:22:03.080 --> 0:22:05.639 elections in Germany coming up over the next three weeks 0:22:05.960 --> 0:22:08.159 where you know, in the last few months, the AfD 0:22:08.320 --> 0:22:10.440 was supposed to be the number one party, taking more 0:22:10.480 --> 0:22:13.120 than thirty percent of the vote in each of those regions. 0:22:13.440 --> 0:22:15.680 Now what's been interesting that has happened is actually there's 0:22:15.720 --> 0:22:18.199 been a new party that was founded in Germany. This 0:22:18.240 --> 0:22:20.760 is the far left, the Sarah Vaganakt, who is a 0:22:20.800 --> 0:22:23.920 sort of very nationalist but left leaning party that has 0:22:24.000 --> 0:22:26.879 fractured some of the AfD momentum and taken some of 0:22:26.880 --> 0:22:29.919 the votes away. But overall it doesn't change basically the 0:22:29.920 --> 0:22:32.800 standing of this coalition in those regions. You know, the 0:22:32.840 --> 0:22:36.680 Schultz and the SPD, the Greens and FDP are all 0:22:36.720 --> 0:22:40.080 going to get basically single digit percentages and these sort 0:22:40.080 --> 0:22:42.119 of more populous groups are going to surge up. 0:22:42.400 --> 0:22:46.160 How is Germany starts are on the global stage being affected. 0:22:45.680 --> 0:22:46.119 By all this. 0:22:46.560 --> 0:22:48.280 I mean, I think it's really interesting when you think 0:22:48.320 --> 0:22:51.080 about how kind of Germany has positioned itself. Let's think 0:22:51.119 --> 0:22:53.800 about the example just of Ukraine and what's been happening 0:22:54.320 --> 0:22:58.879 sort of recently, where basically Germany's domestic budgetary concerns are 0:22:58.920 --> 0:23:01.240 basically bearing on whether or not they're going to be 0:23:01.320 --> 0:23:03.359 able to give more money to Ukraine. And this has 0:23:03.359 --> 0:23:06.280 been sort of very controversial. It seems odd that a 0:23:06.359 --> 0:23:10.040 country as important as big as Germany would basically let 0:23:10.160 --> 0:23:15.000 accounting logic govern what is really really important geopolitical signaling, 0:23:15.200 --> 0:23:17.040 which is exactly what's been happening here. 0:23:17.119 --> 0:23:17.320 Right. 0:23:17.359 --> 0:23:19.320 They're saying we're not going to give any new money 0:23:19.400 --> 0:23:21.720 to Ukraine. And even if that is the case, because 0:23:21.720 --> 0:23:24.760 they already have large commitments and they've contributed more than 0:23:24.760 --> 0:23:27.959 any other European country, doesn't tend to be something that 0:23:28.000 --> 0:23:30.640 you say out loud in quite that way, right, because 0:23:30.640 --> 0:23:32.600 it really undermines you when you say, hey, this is 0:23:32.600 --> 0:23:35.119 where our red line is, because you're sending a signal 0:23:35.160 --> 0:23:38.000 to Moscow, but you're also sending a signal to the 0:23:38.080 --> 0:23:41.040 White House and the potential Trump presidency where they could 0:23:41.200 --> 0:23:44.360 very easily. Say, listen, if Germany's not even adding more 0:23:44.359 --> 0:23:47.040 money to Ukraine, why should the United States. So it's 0:23:47.080 --> 0:23:49.520 an economic problem that is also weighing on it. Obviously, 0:23:49.560 --> 0:23:51.320 the economy is weak. That doesn't put them in a 0:23:51.320 --> 0:23:54.160 strong position. We've talked about some of the issues within 0:23:54.200 --> 0:23:56.879 the coalition, the debt break. But it's also frankly a 0:23:56.960 --> 0:23:59.840 leadership problem because Schultz just does not have the inc 0:24:00.200 --> 0:24:02.159 nation it seems to want to take that kind of 0:24:02.240 --> 0:24:05.600 leadership role in Europe, you know, not like say Macon 0:24:05.680 --> 0:24:08.439 who tried. Maybe he didn't succeed, but at least he tried. 0:24:09.119 --> 0:24:09.399 Oliver. 0:24:09.440 --> 0:24:10.920 In the coming days, we're going to get a whole 0:24:11.000 --> 0:24:15.639 raft of economic data from Germany, inflation growth, some of 0:24:15.680 --> 0:24:18.600 the measures as well, what we'll be watching out for 0:24:18.840 --> 0:24:21.639 to sort of put a data point on the broad 0:24:21.680 --> 0:24:23.240 weakness that you've been talking about. 0:24:23.560 --> 0:24:26.240 Yeah, so listen, inflation is super important for every country 0:24:26.280 --> 0:24:28.399 within Europe and really around the world. Right now. You know, 0:24:28.440 --> 0:24:31.000 the last print in Germany was a two point six percent, 0:24:31.000 --> 0:24:33.800 which was at the higher end of what analysts had anticipated. 0:24:33.960 --> 0:24:37.400 We're going to get the last reading of inflation before 0:24:37.720 --> 0:24:40.720 the next ECB meeting, so that will be absolutely crucial. 0:24:41.280 --> 0:24:43.480 But the picture really in Germany is this is one 0:24:43.480 --> 0:24:46.439 of weaker growth and really persistent inflation, which is not 0:24:46.560 --> 0:24:49.320 really a dynamic any economy wants to be dealing with. 0:24:49.680 --> 0:24:51.520 And it could also set up a kind of debate 0:24:51.560 --> 0:24:55.840 at the ECB right with Germany's Bundesbank members being tending 0:24:55.880 --> 0:24:58.920 to be much more hawkish, much more skeptical about cutting 0:24:59.000 --> 0:25:02.600 rates and really concerned about price stability, and for Germany 0:25:02.600 --> 0:25:04.400 at the time when the economy is kind of slowing, 0:25:04.600 --> 0:25:06.720 it's not you know, a great dynamic, and you can 0:25:06.760 --> 0:25:08.720 see this from the market pricing, by the way, and 0:25:08.720 --> 0:25:10.800 in terms of what is being expected at the ECB, 0:25:10.920 --> 0:25:13.760 you've seen things go from basically a ninety nine percent 0:25:13.840 --> 0:25:16.600 chance of a cut in September to you know, sixty percent. 0:25:16.760 --> 0:25:18.560 So it's been all over the place. So these data 0:25:18.560 --> 0:25:20.960 prints will be very crucial going into the coming months. 0:25:21.560 --> 0:25:25.000 Thanks to Bloomberg's Germany correspondent to Oliver Kruk, I'm Stephen 0:25:25.040 --> 0:25:27.600 Carol in London. You can catch us every weekday morning 0:25:27.600 --> 0:25:30.240 here for Bloomberg Daybreak Europe, beginning at six am in 0:25:30.280 --> 0:25:32.840 London and one am on Wall Streets. Tom. 0:25:33.200 --> 0:25:36.080 Thank you Steven and coming up on Bloomberg day Break weekend, 0:25:36.160 --> 0:25:39.720 Japan's ruling Liberal Democratic Party has set a date for 0:25:39.760 --> 0:25:43.320 its leadership election. We'll discuss what we can expect next. 0:25:43.720 --> 0:25:58.000 I'm Tom Busby and this is Bloomberg. This is Bloomberg 0:25:58.040 --> 0:26:00.000 day Break Weekend, our global look ahead at the time, 0:26:00.240 --> 0:26:03.160 stories for investors in the coming week. I'm Tom Busby 0:26:03.240 --> 0:26:06.800 in New York. Japan's ruling Liberal Democratic Party has set 0:26:06.840 --> 0:26:10.879 September twenty seventh for its next leadership election. Now that 0:26:10.920 --> 0:26:14.400 comes after Prime Minister Kashida said he plans to step down. 0:26:14.440 --> 0:26:16.800 And for more on what's next, let's get to Bloomberg 0:26:16.880 --> 0:26:18.880 Daybreak Asia host Brian Curtis. 0:26:19.160 --> 0:26:22.200 Tom whoever takes the reins at the LDP is likely 0:26:22.280 --> 0:26:26.159 to become prime minister given the party's historical dominance in Japan. 0:26:26.760 --> 0:26:29.560 The vote is held among LDP lawmakers and rank and 0:26:29.600 --> 0:26:32.879 file party members. The general public does not take part 0:26:33.000 --> 0:26:37.000 in the process. That process gets underway on September twelfth, 0:26:37.000 --> 0:26:41.080 but the jockeying is already under way. Earlier, Bloomberg's Paul 0:26:41.119 --> 0:26:44.320 Allen and I spoke with Brian Fowler, Bloomberg Senior editor 0:26:44.359 --> 0:26:47.480 for Northeast Asia. He helped us lay the groundwork on 0:26:47.520 --> 0:26:48.479 what comes next. 0:26:49.400 --> 0:26:52.520 It's going to be a really exciting month or so 0:26:52.720 --> 0:26:56.640 here in Tokyo. First, the big question is who's going 0:26:56.680 --> 0:26:59.280 to be the next prime minister. And at this point 0:26:59.680 --> 0:27:02.440 we know at least half a dozen people who are 0:27:02.680 --> 0:27:07.320 expected to submit their applications as candidates this week, and 0:27:07.760 --> 0:27:10.720 the number could get to as many as twelve or so, 0:27:11.560 --> 0:27:14.159 And so the first thing is who's going to be 0:27:14.200 --> 0:27:17.000 the front runner, And then the second thing is what 0:27:17.040 --> 0:27:20.359 do we know about these people in terms of how 0:27:20.400 --> 0:27:22.959 they view policy and what they've said in the past. 0:27:23.040 --> 0:27:25.720 And some of them have made comments, and a lot 0:27:25.760 --> 0:27:28.960 of them really haven't gone there. And I think that 0:27:29.560 --> 0:27:32.080 kind of has to do with the fact that for 0:27:32.119 --> 0:27:36.199 such a long time, Japanese interest rates were, you know, 0:27:36.359 --> 0:27:40.880 zero or on either side of zero, and prices were stagnant. 0:27:41.440 --> 0:27:44.760 So for a very long time, even up until when 0:27:44.800 --> 0:27:48.760 Kashita took office three years ago, really monetary policy wasn't 0:27:48.800 --> 0:27:51.159 something anyone ever had to talk about. But now it 0:27:51.240 --> 0:27:53.320 is a subject that matters. 0:27:53.480 --> 0:27:57.600 Yeah, and some candidates, and I'm thinking Tarakano particularly is 0:27:57.920 --> 0:28:00.400 fond of a pining on what he thinks the Bank 0:28:00.400 --> 0:28:02.280 of Japan should do. And of course the boj is 0:28:02.320 --> 0:28:04.359 meant to be a political and all the rest of it, 0:28:04.600 --> 0:28:08.200 but we have had some speculation that it does come 0:28:08.240 --> 0:28:12.280 unto political pressure. Is that separation of church and state 0:28:12.400 --> 0:28:13.359 going to continue? 0:28:13.480 --> 0:28:15.760 Yeah, well, well, let me just point out kind of 0:28:15.800 --> 0:28:20.359 an interesting historical thing going back to nineteen eighty seven. 0:28:20.640 --> 0:28:23.800 May of nineteen eighty seven, Nakasone was the prime minister 0:28:24.440 --> 0:28:26.800 and he went to the US and he met with 0:28:26.920 --> 0:28:32.040 Ronald Reagan and he promised Reagan that Japan would take 0:28:32.119 --> 0:28:35.040 interest rates lower in a move that was meant to 0:28:35.040 --> 0:28:39.800 stabilize the dollar. And so, you know, back then there 0:28:39.800 --> 0:28:42.719 certainly was not a separation of church and state. And 0:28:42.760 --> 0:28:44.760 then of course that was the peak of the bubble. 0:28:45.200 --> 0:28:48.000 A couple of years later, the bubble bursts and we 0:28:48.120 --> 0:28:52.360 enter this you know, two decade period of stagnation, and 0:28:52.800 --> 0:28:54.960 it kind of was very easy at that point to 0:28:55.240 --> 0:28:57.600 separate them, and you know, it was very clear. But 0:28:57.840 --> 0:29:01.240 I think at this point, as you said, Kono is 0:29:01.320 --> 0:29:04.840 one another one another one we expect is Toshi meets Motegi. 0:29:04.880 --> 0:29:09.400 He's the Secretary General for the LDP. He also has 0:29:09.480 --> 0:29:13.440 come out in favor of normalization of BOJ policy. We 0:29:13.600 --> 0:29:17.920 have one potential candidate, a woman, and I Takaichi, who's 0:29:18.080 --> 0:29:22.880 in the cabinet. She's actually backed keeping policy settings easy, 0:29:23.520 --> 0:29:26.720 so we do have we have some candidates on either side. 0:29:27.000 --> 0:29:29.920 Well, you probably lay the groundwork for what you were 0:29:29.960 --> 0:29:32.080 going to talk about, is that no matter who the 0:29:32.160 --> 0:29:35.240 new premiere is, there is a possibility of an election 0:29:35.480 --> 0:29:38.560 being called. And I'm curious what would be the thinking 0:29:38.720 --> 0:29:42.480 behind that given the sort of massive control that you 0:29:42.520 --> 0:29:45.560 have from the LDP, particularly with its coalition partner. 0:29:45.960 --> 0:29:49.680 Yeah, so the LDP has looked pretty weak for quite 0:29:49.720 --> 0:29:52.840 a while, but it's great advantages of course that there's 0:29:52.840 --> 0:29:56.400 nobody on the opposition side who can really thretten the 0:29:56.400 --> 0:29:59.960 oldp's leadership. So the thinking would be okay, so Kishita 0:30:00.040 --> 0:30:04.640 steps down, he takes responsibility for the political funding scandal, 0:30:05.160 --> 0:30:08.040 Maybe he takes he also tries to take some responsibility 0:30:08.080 --> 0:30:12.480 for inflation that's that's boosting costs of living, and maybe 0:30:12.480 --> 0:30:15.520 the LDP gets a new mandate to lead with its 0:30:15.600 --> 0:30:18.720 new leader. I think that that would be the idea, 0:30:18.760 --> 0:30:21.520 But of course that election would still be taking place 0:30:21.600 --> 0:30:24.560 at a period when we've had more than two years 0:30:24.720 --> 0:30:29.239 of persistent, sticky inflation at or above the boj's two 0:30:29.320 --> 0:30:33.080 percent target, So they will talk about prices. Whoever it 0:30:33.200 --> 0:30:35.240 is they're going to be talking about it, whether it's 0:30:35.320 --> 0:30:40.400 monetary policy or subsidies to offset higher utility bills. 0:30:40.920 --> 0:30:44.000 Bloomberg's Brian Fowler and joining us now for some further 0:30:44.040 --> 0:30:48.560 insight is Isabelle Reynolds Bloomberg Tokyo Bureau a Chief. So Isabelle. 0:30:48.600 --> 0:30:50.840 We can see though that the race is pretty wide open. 0:30:51.360 --> 0:30:54.960 What's interesting, I think to some is it's, you know, 0:30:55.040 --> 0:30:59.200 whoever's most popular with the public is not really always 0:30:59.200 --> 0:31:02.040 the one that winds up as party leader. It's a 0:31:02.040 --> 0:31:05.480 democratic process. But then there's a lot of old fashioned 0:31:05.520 --> 0:31:06.360 backroom dealing. 0:31:07.120 --> 0:31:10.000 Oh yes, there absolutely is. And one of the interesting 0:31:10.040 --> 0:31:12.880 things this time is that backroom dealing has often in 0:31:12.920 --> 0:31:16.560 the past involved the factions within the LDP, each of 0:31:16.600 --> 0:31:18.840 which had their own leader and would sort of jockey 0:31:18.880 --> 0:31:21.000 to get that leader into the top job, or at 0:31:21.080 --> 0:31:24.440 least into a very senior position in the cabinet as 0:31:24.480 --> 0:31:27.680 part of that horse trading process. Now, due to this 0:31:27.840 --> 0:31:31.840 massive scandal that's been ongoing for what seems like years now, 0:31:31.880 --> 0:31:34.440 that Kisha had tried and failed to put a lid 0:31:34.480 --> 0:31:37.280 on One of the things he did was to stop 0:31:37.320 --> 0:31:41.120 the factions from basically having that power of a money 0:31:41.440 --> 0:31:44.480 and from seeking positions. They should be just a kind 0:31:44.520 --> 0:31:50.080 of policy study groups, he said. So those groups maybe 0:31:50.080 --> 0:31:52.880 don't have much power anymore, so that leaves them fields 0:31:52.960 --> 0:31:56.120 even more open and the whole situation even more chaotic. 0:31:56.200 --> 0:31:58.760 Anyone could pop up from anywhere. We don't know who 0:31:58.800 --> 0:32:00.800 is going to get support from who. Several people have 0:32:00.880 --> 0:32:03.240 said they won't rely on the sort of form of 0:32:03.280 --> 0:32:07.360 factions to get those the twenty signatures that they need 0:32:07.400 --> 0:32:10.120 to run in the race. So yes, it's all to 0:32:10.200 --> 0:32:11.400 play for at this stage. 0:32:11.680 --> 0:32:14.360 So as you say the scandals really hurt Kishida and 0:32:14.440 --> 0:32:18.120 have changed politicking, what are the biggest issues at the moment? 0:32:19.080 --> 0:32:22.680 Yes, well, I think the scandals actually do remain one 0:32:22.680 --> 0:32:25.440 of the biggest issues. So I think one of the 0:32:25.480 --> 0:32:28.640 things people will be looking at is who can sort 0:32:28.640 --> 0:32:32.960 of portray a cleaner image for the LDP. And that's 0:32:33.000 --> 0:32:36.160 pretty difficult because so many of these people have been 0:32:36.200 --> 0:32:38.720 in factions. Even if they weren't directly involved in what 0:32:38.840 --> 0:32:42.160 was a slush fund scandal, it was hiding hiding income. 0:32:42.800 --> 0:32:45.280 They are sort of slightly tainted, So it's the question 0:32:45.320 --> 0:32:48.640 over whether they can sort of put a lid on 0:32:48.680 --> 0:32:52.400 that finally after all these months. Other than that, I 0:32:52.400 --> 0:32:55.320 think it's definitely going to be cost of living. Kishuda 0:32:55.440 --> 0:32:58.120 did do what he could on that. He provided a 0:32:58.200 --> 0:33:03.760 tax break over the summer. He also he provided these 0:33:04.000 --> 0:33:08.120 subsidies for household bills power bills, but that hasn't really 0:33:08.160 --> 0:33:12.960 made much difference to his support rate. So it's questionable 0:33:13.080 --> 0:33:16.440 over you know, these new candidates may promise that they're 0:33:16.440 --> 0:33:18.160 going to tackle this issue that's at the top of 0:33:18.160 --> 0:33:20.960 the people's minds, but whether they can do anything that 0:33:21.000 --> 0:33:23.400 satisfies people, that's a big question. 0:33:24.000 --> 0:33:29.000 So Brian mentioned several candidates. Could Yoko Kamikawa win and 0:33:29.120 --> 0:33:31.120 become the first woman to be prime minister? 0:33:31.840 --> 0:33:36.080 I considered that fairly unlikely, to be honest, and it's sadly. 0:33:36.320 --> 0:33:38.600 I would love to see the first female prime minister 0:33:38.640 --> 0:33:40.200 in Japan, of course, and I thought a lot of 0:33:40.240 --> 0:33:42.360 I think a lot of people would as a sign 0:33:42.360 --> 0:33:44.920 of a new era. She doesn't have a lot of 0:33:44.960 --> 0:33:48.800 personal popularity as one thing. Also, she was previously when 0:33:48.800 --> 0:33:51.280 the factions kind of existed. She was a member of 0:33:51.360 --> 0:33:54.760 Kishida's factions, so she would be seen as a continuity candidate, 0:33:55.120 --> 0:33:57.160 and if they're trying to turn over a new leaf 0:33:57.240 --> 0:33:59.840 and portray a new image, I don't think she's the 0:34:00.160 --> 0:34:00.960 than they would choose. 0:34:01.160 --> 0:34:03.520 Well, Taro Kono is an interesting one, and that he 0:34:03.920 --> 0:34:06.640 is pretty popular with the public, but he doesn't seem 0:34:06.640 --> 0:34:08.760 to be so popular with his peers in Parliament. 0:34:09.400 --> 0:34:13.520 Yes, that's absolutely right. The thing is he's very outspoken. 0:34:13.760 --> 0:34:18.080 He says what he thinks. He criticizes people publicly, and 0:34:18.120 --> 0:34:21.160 that goes down well with the public, who are often dissatisfied, 0:34:21.160 --> 0:34:24.040 obviously with what the government is doing. But when it 0:34:24.040 --> 0:34:25.799 comes to the people who are actually doing that work 0:34:25.800 --> 0:34:28.080 and who are being criticized in public, of course they 0:34:28.239 --> 0:34:30.759 don't like it at all. So he doesn't have that 0:34:30.840 --> 0:34:34.480 many friends within parliament. I mean. Having said that, could 0:34:34.480 --> 0:34:37.960 be that if they want to again create a new 0:34:38.160 --> 0:34:41.359 image from themselves, if they feel kind of desperate enough, 0:34:41.400 --> 0:34:44.080 they could turn to him. They've done that once in 0:34:44.120 --> 0:34:47.680 the past with Koizumi, the previous Prime minister, who was 0:34:47.760 --> 0:34:50.719 Prime Minister about twenty years ago. Things were going very 0:34:50.800 --> 0:34:53.399 badly for the LDP at that point, so they chose 0:34:53.400 --> 0:34:55.520 someone who was kind of a maverick and an outsider, 0:34:56.239 --> 0:34:57.880 and that worked very well at that point. 0:34:57.960 --> 0:35:00.520 So you never know what are so of the ways 0:35:00.520 --> 0:35:03.280 that the candidates will actually compete with one another. 0:35:04.920 --> 0:35:07.439 Well, they only have a couple of weeks to sort 0:35:07.440 --> 0:35:10.360 of really lay out their wares. It tends to be 0:35:10.520 --> 0:35:13.319 a whole load of televised debates, but apart from that, 0:35:13.320 --> 0:35:16.760 they're going to go out and make speeches on the street. Basically, 0:35:17.200 --> 0:35:20.120 there are a lot of restrictions that the electoral laws 0:35:20.120 --> 0:35:22.200 in Japan are quite strict, so you know, you can't 0:35:22.200 --> 0:35:23.960 be knocking on doors or anything. I mean, not that 0:35:23.960 --> 0:35:25.920 the general public are involved, but you probably would want 0:35:25.920 --> 0:35:29.000 to get them behind you. So, yes, it's televised debates 0:35:29.040 --> 0:35:31.680 and it's I guess street speeches. 0:35:32.480 --> 0:35:34.480 So we talked about some of the issues. So you 0:35:34.560 --> 0:35:38.440 mentioned the scandals, and of course inflation and the weakness 0:35:38.520 --> 0:35:42.960 in the end that has troubled many What about the 0:35:43.000 --> 0:35:46.560 issue of independence between the government and the Bank of Japan. 0:35:46.640 --> 0:35:49.360 I know that it's not quite the same as it 0:35:49.400 --> 0:35:52.520 could be in some countries, but has that been tarnished 0:35:52.560 --> 0:35:56.480 a little bit whatever sort of de facto independence there. 0:35:56.280 --> 0:36:00.359 Was, Yes, I think it's it's always been a little 0:36:00.400 --> 0:36:06.719 bit in question. Obviously under Abbe with his ebonomics program 0:36:07.080 --> 0:36:11.000 that was all about really central bank policy. So he 0:36:11.480 --> 0:36:14.080 brought in a Bank of Japan governor who would do 0:36:14.120 --> 0:36:17.480 exactly what he wanted. And although he wasn't, I mean 0:36:18.600 --> 0:36:20.799 from what the then Bank of Japan governor said and 0:36:20.840 --> 0:36:23.960 his memoirs, Abbe was not directing him or telling him 0:36:24.000 --> 0:36:27.160 to do things, it was very obvious what was wanted 0:36:27.360 --> 0:36:31.000 from the Prime Minister's side, and that's exactly what happened. 0:36:31.520 --> 0:36:33.960 So it's hard to imagine that the Bank of Jakapan 0:36:34.000 --> 0:36:36.200 governor will go in a very different direction from what 0:36:36.239 --> 0:36:40.520 the Prime minister of the time wants. So independence, I 0:36:40.520 --> 0:36:43.960 think yes or no in a way on the sort 0:36:44.000 --> 0:36:47.520 of monthly basis of the decisions that made. Yes, there's independence, 0:36:48.400 --> 0:36:51.959 but the overall direction is very much I think set 0:36:52.000 --> 0:36:52.800 by the Prime minister. 0:36:53.320 --> 0:36:56.160 We probably can't close at least without at least a 0:36:56.160 --> 0:37:00.120 little mention of the former Defense Minister, Shirou Ishida. He 0:37:00.160 --> 0:37:02.560 would seem to be one of the favorites, right. 0:37:03.440 --> 0:37:06.640 Yes, yes, he's been pretty popular with the public for 0:37:06.680 --> 0:37:08.560 a long time. But I think the main reason why 0:37:08.600 --> 0:37:11.960 he's popular is that he's always distanced himself from the 0:37:12.040 --> 0:37:16.160 current government. So anyone who's dissatisfied with the government, they 0:37:16.280 --> 0:37:19.399 don't tend to support the opposition parties. They're not seen 0:37:19.440 --> 0:37:22.480 as competent at this point, so they would throw their 0:37:22.480 --> 0:37:25.799 support behind Ishaba, who's someone who's an outsider. So he's 0:37:25.800 --> 0:37:28.879 good at criticizing, at finding the things that are wrong 0:37:28.960 --> 0:37:31.640 with the current government. But I don't know how many 0:37:31.680 --> 0:37:34.320 people would actually want him to be prime minist and 0:37:34.360 --> 0:37:36.120 people within the party would actually want him to be 0:37:36.200 --> 0:37:39.000 prime minist. So obviously he's been very critical and he 0:37:39.120 --> 0:37:41.399 hasn't really laid out a vision of how he does 0:37:41.440 --> 0:37:44.040 want things to be. You know, he's been kind of 0:37:44.480 --> 0:37:48.279 negative and critical. But on the other hand, you know, 0:37:48.440 --> 0:37:50.680 what would be his vision is my big question to. 0:37:50.719 --> 0:37:54.520 Him, Isabelle. Thank you so much for joining us. Isabill Reynolds, 0:37:54.520 --> 0:37:58.800 Bloomberg's Tokyo bureau chief. I'm Brian Curtis along with Doug Krisner. 0:37:58.880 --> 0:38:02.520 You can catch us every weekday here for Bloomberg Daybreak Asia. 0:38:02.840 --> 0:38:05.359 We begin at eight am in Hong Kong and eight 0:38:05.400 --> 0:38:06.800 pm on Wall Street. 0:38:07.040 --> 0:38:09.520 Tom Thank you, Brian, and that does it for this 0:38:09.680 --> 0:38:12.480 edition of Bloomberg day break weekend, Join us again Monday 0:38:12.520 --> 0:38:14.560 morning at five am Wall Street Time for the latest 0:38:14.600 --> 0:38:17.080 on markets overseas and the news you need to start 0:38:17.120 --> 0:38:20.520 your day. I'm Tom Buzzby. Stay with us. Top stories 0:38:20.520 --> 0:38:23.120 and global business headlines are coming up right now