Daybreak Weekend: US Tech, BOE Decision, BOJ Meeting

Bloomberg Audio Studios, Podcasts, radio News.
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we
look ahead to the next FED meeting and big tech earnings.
I'm Nathan Hager in Washington.
I'm calin Hepcoon London, where we're discussing the outlet for
the Bank of England against a backdrop of renewed conflict
in the Middle East and a new UK government.
I'm Doug Chrisner looking ahead to next week's interest rate
decision from the Bank of Japan.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, DAB Digital Radio, London, Syria,
XM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business app.
Good day to you. I'm Nathan Hager. We begin today's
program with the Federal Reserve. Kevin Warsh and company begin
their latest two day policy meeting this Tuesday with the
interest rate decision to come Wednesday here to get us
ready for it is our man in the room for
the Fed's policy moves, Bloomberg International Economics and Policy correspondent
Michael McKee. And it's really interesting, Mike. Leading up to
this decision, it seems like the market's pretty split on
which way the Fed could go. Is that the way
Kevin worsh likes it.
It's going to be interesting to see how he characterizes
all of this when he does get to the news conference, which,
by the way, he is going to have. Okay, we
were able to confirm that because they always send out
a reservation form for reporters to say, yes, we're coming,
So we got that, So we figured that he's going
to hold the press conference. Now the question is is
what's he going to say? And that's there is, as
you mentioned, a growing debate about that the markets are
beginning to get more worried about inflation. We've now got
one hundred dollars rent oil this week. We had Google
come out with a very large spend on AI, and
the Fed's been worried about short term demand caused AI inflation.
And on top of that, tariffs are back, so there's
a lot of reasons to think that in the near
term future we're going to have more inflation, which then
has people in the button markets, especially pushing yields up
to account for that.
And we've heard from Warsh himself since he took the Rains,
well even before he took the Rains, that you know,
he's not satisfied with where inflation is right now. He's
not declaring mission accomplished when it comes to getting back
to the two percent target. What does that tell us
about where the lean could be.
That's an interesting question because there's sort of two camps
at the FED right now, well three if you put
Kevin Warsh by himself, because he says he's not participating
in the forward guidance stuff. But there's the camp that
is okay with raising interest rates if they think the
inflation danger is growing, and that's a very large group
of people. And then there are people like Beth Hammock
of Cleveland, Lorie Logan of Dallas, Jeff Schmid of Kansas
City who think that the FED has been behind the
curve on inflation in terms of their target of two
percent for five years now and it's about time that
they get that done, and that the longer they wait,
the harder it just gets, and then people start to
anticipate that inflation will be higher, so they say, we're
not tight enough because inflation is not going down to
two percent, and we think we should raise rates right now.
So if there's enough of a concern in the first
group about those who are worried about if inflation picks up,
we could hike, then you could see a movement to
do that. Probably the most likely scenario is that you
get some descents, maybe Hammock, maybe Logan, maybe both. But
we could have a surprise.
And talk a little bit about what the potential economic
impact could be if we do get that surprise. If
the FED decides to deliver an interest rate hike this week,
what could the impact be in terms of economic growth?
What could the market impact be.
Well, it will probably be disparate in the equity markets.
It could certainly be a concern because we have all
these tech companies and software companies and all of the
people who are leading the markets making these big bets
on AI and the capital spend for that, and if
they have to pay more in interest to borrow or
for their dividends, then it's it's going to hurt and
you could see a decline in the equity markets and
the bond markets. What we've seen in the last week
or so is a big increase in yields, and so
the bond markets are pretty much priced in the idea
of a rate cut. They don't have to react as much.
What you'd be looking for there is in the longer end,
are they pricing in more cuts more increases after they
did one. So it's going to be a kind of
a different reaction in different markets and for the as
far as the economy is going to be concerned, it's
not going to have a big impact because twenty five
basis points that will take time to get into the economy.
The bond markets have already adjusted borrowing costs, so you
wouldn't notice it as much in your day to day life.
Oh, we've talked about the price increases around the chip
supply crunch, the tech sector inflation as well as this
growing risk of war driven inflation as well. Is Federal
reserve policy and effective tool against either of those of
price pressures.
Mike, that is kind of the counter argument to the
idea that the Fed should do something because inflation is
too high. The Fed can raise interest rates all at once.
It's not going to bring down the price of oil
unless it were to throw the economy into recession and
we didn't all go to work. The Fed can do that,
and it's not going to change the view of people
that AI is worth spending money on because there's a
payoff in the long run. So at this point it
may have an impact because over a longer period of
time that would slow economic growth and hopefully that would
bring down some inflation, but mostly inflation is supply caused
at this point, and it's difficult to have an impact
on that with monetary policy. So that's the argument for
why they might not do anything.
Well, Mike, looking forward to the FED decision. Looking forward
to seeing you back in DC this week. That is
Michael McKee, Bloomberg International Economics and Policy Correspondent. Ahead of
the Fed decision this Wednesday, two pm WAI Street Time.
We will have full coverage, of course for you throughout
the day on Bloomberg Radio. Let's take a look now
at some stocks making news in the week ahead. I'm
Nathan Hager, joined by Man Deep Saying, Global head of
Tech Research at Bloomberg Intelligence. Because it is another big
week for big tech earnings. Correct me if I'm wrong, man, deep,
but I think we're hearing from what three more of
the four major hyperscalers after we heard from Alphabet this
past week.
We are, indeed, and look, we know Microsoft hasn't done
well in the past quarter, and they will be for me,
one of the big ones. Amazon and you know Apple
and Meta as well, like all these companies have had
a decent quarter. So from that perspective, I think where
expectations are really low, I would say it's Microsoft and
for me, Google had a slight increase in their full
year capex for twenty twenty six, they raised it by
about four percent, and they said twenty twenty seven capex
would be significantly higher, and so from that perspective, it'll
be interesting to see what Microsoft and Amazon end up doing,
as well as Meta.
Absolutely well, let's start with Microsoft, as you say, probably
the biggest player of the three major hyperscalers we're going
to hear from this week. After we heard from Alphabet,
two hundred and five billion dollars that increase on the
top line in terms of their forecast for capital expenditure
for this year. If we see similar numbers from Microsoft.
What kind of a market reaction could that Sparkmandate?
Actually, I expect a negative reaction if they significantly raise
their CAPEX, and I feel the bar is now quite
high with Alphabet going over two hundred billion dollars for
this year. So with Microsoft, the challenge is they don't
have the vertical integration that Alphabet has with Gemini and
TPU Systems, which that Google has highlighted could be a
separate line of business. So from that perspective, you know,
Microsoft has to show Azure growth, and that Azure growth
has been more like around forty percent. Google posted cloud
growth of around eighty two percent in their second quarter,
So from that perspective, there's a lot that Microsoft has
to prove in terms of both the cloud growth rates
that I've been trailing and also how else they can
monetize that CAPEX beyond their cloud segment growth as Google
has shown with TPU Systems, and you know how they
are deploying their own Gemini model on top of it.
And when it comes to Meta also reporting on Wednesday,
if they see a major increase to their capital expenditure,
it's a little bit different, isn't it In terms of
how they deploy that kind of spending.
Yeah, I said it was a bigger bar for Microsoft.
For Meta, it's even higher because they don't even have
a cloud business. So in the case of Microsoft, at
least they have a cloud business, where Azure segment would
probably see accelerating sequentially accelerating growth. In the case of Meta,
it all has to show up in their top line
ads business, which we have seen from Google, the search
business didn't accelerate. It was really their cloud business that
went from you know, sixty percent growth to over eighty
percent growth. So Meta doesn't have a cloud business. And
so if Meta comes out and says they are raising
their CAPEX for second half, I totally expect a negative reaction,
going by how the market has reacted to the Google
capex increase.
How do you see Mark Zuckerberg's strategy when it comes
to AI deployment right now, particularly after all the spending
metas done just building a super intelligence team and all
the partnerships that it's gotten into.
Yeah. So, look, they've released a new model, the new
Spark model. They're looking to monetize that through API use
and also get into cloud rentals like the Neo Clouds
That would be very interesting for me who the buyers
of Meta compute could be, because we've seen SpaceX rent
their compute to Google and Google did say that, you know,
because of the third party compute rentals, the margins may
actually go down. So in effect, we expect maybe Google
may end up renting compute from Meta in the near trump.
It would be interesting if that happens, and I think
there are speculations that Meta wants to get into cloud
rental business. That's where it could be a new line
of business for them to justify any CAPEX increase that
they may have during their earnings call.
In the time we have left, Mandy, but I'd be
curious to get your view as well on Apple they
report Thursday. Maybe not a hyperscaler along the line of Meta,
Microsoft or Amazon, but how do you see Apple's results
coming out?
I mean, they have a new CEO, they have been
at the receiving end of all these memory and the
component price increases which they have passed on to their
or they plan to pass it on to their customers
in terms of higher prices. I think, you know, even
though expectations are for mid teens double digit growth, it'll
be hard for them to come up with any upside
given price increases are a big part of that top
line growth. So given the CEO change and the price increases,
I think it'll be hard to see any big positive
surprises coming out of app.
Really appreciate the perspective as we get ready for the
fire hose of tech earnings this week. Man Deep Sing
with us there, global head of tech research at Bloomberg Intelligence,
and coming up on Bloomberg day Break weekend, we look
ahead to the Bank of England's next rate decision. I'm
Nathan Hager, and this is Bloomberg. This is Bloomberg day
Break Weekend, our global look ahead at the top stories
for investors in the coming week. I'm Nathan Hager in Washington.
Up later in the program we'll look ahead to a
monetary policy decision from the Bank of Japan. But first
in the coming days, we get the Bank of England's
decision on interest rates. That says UK inflation hit a
fifteen month low in June, but the renewed conflict in
the Middle East means ever present energy price concerned. So
how will the BOE navigate it all? Let's go to
London and bring in Bloomberg Daybreak. You're a banker, Caroline
hepgar Nathan.
The Bank of England faces inflationary pressures from the Ivan Wall,
a loosening jobs market, and sluggish economic growth. It also
must get used to a new administration in ten and
number eleven Downing Street. Prime Minister Anty Burnham has promised
a new economic model for the UK and measures to
tackle the cost of living. His Chancellor, John Healey, has
signaled room to maneuver on tax and spending, but he's
also spoken about the need for fiscal credibility. He is
giving an inaugural address to staff at the UK Treasury.
I'm still burning with a passion about this institution as
a force for stability, for security, for growth, a force
for a successful Britain.
John Healey, the new UK Chancellor and former Defense Minister
speaking there. So all sunshine and roses for now, but
this Chancellor faces all manner of challenges and pressure to
deliver quickly on economic growth. And while markets widely expect
the Bank of England to hold interest rates at three
point seventy five percent on the thirtieth of July, the
energy shot from the Iran War keeps the UK's inflation
expectations elevated, So how will the Bank of England chart
a path through this period of change, conflict and volatility.
Joining me now is Bloomberg's UK Economy reported Tom Reese
and Bloomberg's Chief UK economist Dan Hanson. Dan, can I
start with you? The UK has seen inflation pretty elevated
for some three years.
Things seem to be.
Improving a little bit in June. Does that change the
picture for the Bank of England's decision next Thursday?
Well, I think it definitely makes their decision a little
bit easier because inflation has come in quite substantially below
their forecasts, and that's obviously for any central bank. That's
good news. Of course, the challenge at the moment for
the bank, and at this sort of juncture is that
you've got inflation and the data not throwing up any
red flags. Good news. On the other hand, re escalation
in the Middle East, and that is obviously a significant
issue for the Bank of England and all central banks
because all prices have risen. Importantly for European central banks,
gas prices have risen significantly as well, and you sort
of add those two things up and you've got this
picture where in the near term there's no rush to
do anything, but you've got to keep your options open
because we just do not know where this is heading
into the second latter half of this year. So I think,
you know, if you look at market pricing, they're bedding
on an interest rate hike as early as September, which
is the next meeting after July. Equally, if you look
back two months from where we are now, you know
a lot has changed, So a lot can change in
two months. That's the point. So I think big picture
is the bank can afford to stick with its wait
and see approach, but it's certainly not going to be
sort of saying it's all clear. We can think about,
you know, potentially go back to where we were prior
to the war and think about when we can next
cut interest rates. They're very much in a wait and
see holding pattern.
Okay, Tom. The Bank of England Governor Andrew Bailey I
said pretty much that to the beginning of this month
that it was too early to consider interest rate cuts
and in warning the household yet to feel the full
effects from the Iran war in terms of this conflict
and the energy shock it has resumed, and re escalated,
when do you think households are going to start to
feel that leg higher?
So they could feel it relatively soon. In terms of
petrol prices if well, they've already started increasing again in
response to what we're seeing in oil markets since that
re escalation. I think what Bailey was referring to at
that moment was the July increase in the price cup
that we've just had. You know, that price cap that
sets kind of household gas electricity bills. So we've only
had inflation data up to June so far. So because
the UK has this kind of unusual price cap that
gets updated every free months, it sort of delays the
impact of the changes that we've seen in energy markets.
So that price cup went up thirteen percent in July.
That adds about zero point four percentage points of inflation.
You know, we had some new estimates from Cornmore Insight
that showed that the price cap might go up a
little bit more later in the year, so he was
referring to that impact. But obviously there's other ways that
this walk can kind of feed through to consumers later on.
The kind of delayed effect, you know, particularly businesses you know,
start to pass on their higher energy costs back to consumers.
In terms of the other data that we've had at
in the past few days, it's also about the labor market.
Do you think that that reinforces the case for a
hold in terms of interest rates because wages obviously are
very important too.
Yeah, so that the latest laid market day was quite
interesting this week. You know, it was kind of showing
that the number of employees on company payrolls, which is
what economists are looking at most in that release currently,
has been broadly flat over the last couple of months.
You know, that could be shown that the downtown the
lad market that we've had in the last couple of
years is beginning to fade. That date, it comes with
a big caveat is revise quite often and quite heavily.
But the most important thing for the BWI is that,
you know, demand for labor is very weak. You know,
vacancies are you know, around their lowest since twenty one.
Private set to pay growth is lowest since twenty twenty.
So the BERY kind of hopes that that's enough to
contain any of those second round effects to inflation, you
know that effect where you know, workers trying to compensate
from you know, their losses from inflation try and bid
up wages. The lay market being weak sort of contains
that risk.
Dan.
The Bank of England doesn't currently have a labor market
remit though, so what do you think about the soft
job's data and what it means in terms of the
meeting for the Bank of England in July.
I mean, I agree with completely with Tom that you're right.
They don't have a labor market remit like the FED does.
They don't have a dual mandate, so they're not thinking
about full employment. But the consequence of where the economy
is relative to full employment tells you something about the
outlook for inflation, so they do take it into account,
and I think one of these it's one of these
things that people talk about in terms of adding gross
to the Bank of England's or the economy. If you
as a whole or the labour markets to the Bank
of England's mandate, would it really change the path of
interest rates. I'm not sure it would, to be honest
with you, I think they think about the labor market
a lot. The path of the labor market is very
much linked to the path of the economy, so you
sort of all of those things are interlink they all
speak to each other, and the result is inflation. Effectively.
I mean to answer your question again, it's another reason
to think they won't move the economy. As the labor
market is loose, That, as Tom rightly said, makes it
less likely that workers are able to bid up wages
in response to higher prices, and so it makes it
less likely that we get this dynamic that economists talk about,
this wage price spiral dynamics where prices go up wages follow.
That makes inflation stickier. And that's the problem we had
in following the twenty twenty two shock, is that we
experience that in twenty twenty three and twenty twenty four.
I think the chance of that happening this time are
far far lower, and not least one, because the lave
market's loose to the shock is far smaller relative to
twenty twenty two and three. Interest rates are in a
much better place the twenty twenty two shock. Interest rates
were far far too low. Right now they're in what
we call restrictive territory. So monetary policy is still bearing
down on the economy.
More broadly, Tom, with this new government coming in Andy,
Burnham and John Healey. I mean we've had a few phrases,
haven't we from Burnham about his vision a new economic model,
the biggest changes in the last forty years, a circuit breaker.
They are interesting phrases. They didn't give us that much
in terms of policy. How do you think that in
the context of the Bank of England decision and of
monitory policy, we should be thinking about Burnham.
Yeah, so we've had quite i would say, mixed messages
on how radical this government is going to be. You know, we,
like you said, we've had Burnham talk about new economic
models and rolling back you know, the last forty years,
et cetera. Then we've also had him talk about being
very prudent with public finances for the bank. It very
much depends on kind of not only what Burnham does,
but if Burnham is prudent sticks with largely kind of
small tinkering, like you know, the VAT cut on electricity
bills and he pays for that, you know, largely by
cutting elsewhere or you know, raising tax a little bit.
I'm not sure it massively affects, you know, the central
banks thinking and you know, the Bee has sort of
signaled in the past that it's minded to look through
these sort of measures on energy bills. You know, even
if it does improve the kind of mood music around
interest rate decisions, we will obviously be in different territory,
if you know, if they do push things into you know,
the more radical territory. You know, he's talked to the
idea of finding more flexibility within the fiscal wards. It's
hard to know exactly what he means by that, and
I'm not sure he knows himself, but you know, people,
I mean term of that is, you know, using a
bit more leeway provided by the debt rules, you know,
using the UK's public financial institutions like the National Wealth Fund,
that sort of thing. So yeah, it's a wait and
see on that front.
Yeah, I suppose it just depends what those policies actually are.
Dan John Heally has, though criticized previously, the Treasury is
a dead hand on dynamic government. So again it's another
phrase that has gotten people's attention. Do you think that
he's going to run treasury very differently? How do you
think about the new administration in this context?
I always find that amazing, this idea that the Treasury
doesn't want economic growth and everything it does is to
stop economic growth. The reason the Treasury acts the way
it acts is to put a break on decisions that
are politically oriented and trying to buy vote, you know,
and fiscal prudence is a very important component of a
stable economy, and therefore economic growth in any case runs over.
I think in terms of the Burnham Healey dynamic, I
think John Healy's got experience in the Treasury many years ago,
but he wasn't the Treasury before. I think the dynamic
between the two of them is very much going to
be He is going to, i would say, in act
whatever Burnham's platform proves to be, and I agree with
you both, it's not completely clear. But whatever that proves
to be, Heal's going to be charged with enacting that
through the Treasury. So the one big question I think
he has and the big tension, is around defense spending.
Of course, he quit the Starmer government because of a
lack of funding for defense. He'll need to find that
money and it looks like he's going to want to
find that money as well. And Tom alluded to there.
That means really difficult decisions because it's a lot of
cash that's needed to get defense spending up to even
three percent of GDP and then up to three and
a half percent of GDP. So that's the thing that
I think is the It's probably his biggest challenge, but
that would have been any chancellor's challenge coming in because
we knew that they have to be really, really careful.
We've already seen a bit of a response to the
using the flexibility and the fiscal rules. We've already seen
you know, this idea of a tax cut floated and
then taken back on income tax, raising the personal allowance.
So they need to get their messaging right.
So perhaps no change from the Bank of England in
terms of the rate decision, but all the focus really
on the politics and the policy of a new set
of leaders here in the UK. Dan, thank you so
much for being with us on the program. That is
Bloomberg's Chief UK economist Dan Hanson and Bloomberg's UK Economy
reported Tom Reees. Really appreciate you coming onto the program
in just the days ahead of the Bank of England's
interest rate decision.
Thank you.
I'm Calain Hepge here in London. You can catch us
every weekday morning for Blueberg Daybreak. You are beginning at
six am in London. That's one am on war Street.
Nathan, Thanks Caroline, and coming up on Bloomberg day Break Weekend,
we'll look ahead to the next rate decision from the
Bank of Japan. I'm Nathan Hager and this is Bloomberg.
This is Bloomberg Daybreak Weekend, our global look ahead at
the top stories for investors in the coming week. I'm
Nathan Haker in Washington. The Fed and the Bank of
England aren't the only central banks with rate decisions in
the coming week. We will also hear from the Bank
of Japan. For more, Let's go to Doug Prisner, host
of the Bloomberg Daybreak Asia podcast.
Thanks Nathan. You'll remember last month the BOJ raised its
policy rate to one percent. Now that's the highest in
thirty one years. We know very well that inflation in
Japan is still a problem it has been for a while. Yes,
higher rates would be a remedy, although for the moment,
the boj is widely expected to hold the policy rates
steady at next week's meeting. For a closer look, I'm
joined by Bloomberg's Molly Smith. Molly is part of the
team that covers the Japanese economy and government, and she
joins us from our studios in Tokyo, thank you for
being here. And the timing is actually perfect because as
we walk up to this BOJ meeting, Bloomberg had a
very interesting story about some officials at the BOJ being
open to raising interest rates at an accelerated rate. Give
me a sense of what's happening here.
It is interesting that the BOJ officials do seem to
be willing to move faster than this pre prescribed pace
of roughly every six months, which is not written in
stone anywhere. I think that's just come to be the
consensus among economists of the pace that the BOJ is
moving at and what they've done so far in the past.
But there does seem to be a case to now
move a bit faster than that. So since the BOJ
just moved in June, the standard formula would call for
another rate increase by December, but you have seen growing
market odds that there could be another hike by October,
and there's a couple of meetings between now in October
to consider, obviously the July one being one of them.
But no one's really calling for a move at that meeting,
So it's interesting to see the market odds be so
high for a chance of a hike by October, Whereas
we recently conducted a survey of economists here at Bloomberg
and there seem to be a bit unconvinced that the
BOJ would really move faster, And the big reason for
that is because they still see Prime Minister Takeichi's administration
as being in the way of the BOJ moving sooner.
You know, I think we can agree that the BOJ
has a reputation for being very, very cautious. Is there
the view now in Japan that the bank is behind
the curve?
Basically?
I think it's growing certainly, And I think the bigger concern, though,
is really that it's more a question of like how
independent really is the BOJ. That it's not the same
concept of independence the way we think of the Federal
Reserve and how fiercely that is debated and prized in
the US, but in Japan it's very different here that
there is a sense of BOJ autonomy. Yet, the government
recently put out its annual economic policy guideline, which usually
come out in late June, and it only just got
past in the past week, and that's because there were
so many times that the government had to go back
and revise the language, particularly around its expectations for the
BOJ and how it should work with the government in
achieving policy goals.
So I'm glad that you brought up the idea of
independence because the other big player, obviously in terms of
policy in Japan is the Ministry of Finance, which takes
us to the weakness of the end, which is I
think very much a part of the inflation story still.
I mean, we're at a forty year low against the greenback.
What is the scuttlebut in terms of the potential for
intervention on the part of the Ministry of Finance when
it comes to supporting the currency, or is the mof
basically backing away and saying this is not our problem.
The end weakness is really a reflection of BOJ policy.
It's so hard to tell right now. Honestly, this is
something that we are parsing the tea leaves here every
day for what's coming out of the Finance Minister Katayama
as well as the you know, the chair for the
Currency Chief Mimura, and whenever we get the chance to
hear from them, it is very closely watched to hear
if they are going to speak any stronger about any
references to quote bold or decisive action, which in Japan
is interpreted as intervention or you know, an allusion or
a reference to upcoming intervention. So that's what's really changed
in maybe the past like couple days from Katayama, that
she has sounded a bit more forceful with her language,
whereas in recent weeks she's kind of said, there's been
no change to our stance where we've I've maintained a
stable sense of communication. And after these last two couple
of days where she said we will take bold action
as needed or decisive action as appropriate, there hasn't really
been a subsequent reaction in the end. So I think
that tells you that markets are pretty unconvinced about at
least any form of verbal intervention. If that's what she
was trying to accomplish. You would think that since they
have the BOJ meeting next week, perhaps the Ministry of
Finance would wait until after that if there was going
to be any intervention. It's hard to say, though, So
that's definitely something that we are keeping an eye out for.
You're in a part of the world where semiconductor manufacturing
is a major industry, and we know that Japan has
companies that are very much connected to that supply chain.
And recently there has been a lot talked about as
it relates to the price of semiconductors rising not only
because of their scarcity, but because input prices are rising too.
And I'm wondering about the evidence away from let's say,
the chip industry, evidence to indicate that companies are basically
passing along higher cost across the board.
That is a very new concept here, and that definitely
is happening.
You know.
For instance, there are some economic indicators here that the
team will you know, monitor but not necessarily always right
up because sometimes they're just a bit more of the
same and nothing really happening there. And one of them
would be the Producer Price Index. But in the three
months that I've been here, we've written about that every
single time. And the PPI is a measure of wholesale inflation,
so that's more like B to B kind of pricing,
and that's where you're seeing that businesses are definitely more
willing to pass on higher costs to their customers.
So we know that the war in Iran has greatly
impacted the energy markets, and obviously Japan, being a major
energy importer, has really confronted this in a major way,
and I'm wondering how it's showing up in people's daily
lives there.
The one thing, at least for the energy cost that
is still helping out to an extent is that the
administration has put in place different energy subsidies to try
to cushion the impact on households from those cost tied
to the Middle East. So that's where you know, Takichi
and her administration put together an extra budget in recent
months to try to keep some of these subsidies in
place through the summer. But we are now finally experiencing
summer in Japan. I had been joking up until this
week that I've been warned about it for months, but
I only just experienced it, you know, in terms of
like fahrenheit. We're like roughly at like, you know, mid
nineties degrees this week, and it's fully humid and baking here.
And I did see that the Energy team had written
up the other day that power prices in Japan just
hit some sort of multi year high just based on
all of the you know, increased demand for air conditioning,
as well as the yen being as weak as it
is right now.
So anecdotally, what can you tell me about the way
in which average people are reacting to higher prices.
It's still very new for a lot of peace people
that Japan has really not experienced persistent or any meaningful
inflation in decades, and for some people this is maybe
like the first time in their lifetime they've ever seen
something like this. But I think it's really important to
note that for somebody like me, who's effectively almost like
a tourist because I'm still paid in dollars in the
short time that I'm here, I don't experience it the
same way that somebody who has lived here and works
here for a much longer amount of time will experience it.
So I was recently traveling over one weekend and met
up with a friend of a friend, and that person
is a tour guide here and she's been in Japan
for years now. She's from the US, so she's bilingual
in English and Japanese, and she was telling me how
she understands why tourists say this, but it still bothers
her when people say how cheap Japan is because it
doesn't feel that way for her, And I think that's
something to keep in mind of how these things can
be received, you know by local people, and like I
know that nobody means any harm by it, And I
think that what I said to her in response was
just something that in the US, this is just such
a foreign concept that you could have a really amazing,
full quality meal in a major city of the world
for less than ten dollars like that is just something
that doesn't compute coming from the States, and particularly me
coming from New York, where you know, we've had our
own ecosystem of inflation forever. So it is a very
different lived experience for somebody who is here and this
is their life, and especially if their wages aren't keeping
pace with inflation.
You know, as I'm listening to I'm remembering a conversation
that I had with Tara Kumura, who is the japan
economist for Bloomberg Economics. Young person relative to myself, and
I'm thinking that during this conversation about inflation, he said
that he was born into a culture, essentially a society
where he only knew disinflation or deflation. So when prices
began to rise, it was so unfamiliar. He didn't have
any sense of that concept aside from reading about it
in textbooks.
This is something that when I was writing about inflation
back in the US when it was really taking off
around like twenty twenty one and twenty twenty two, and
the idea of how psychological inflation is really started to
resonate with me then. And I think that's probably what
people in Japan are experiencing now that you have this
sort of memory or this expectation of what a price
of something should be, particularly for groceries, you know, that's
like always something we talk about that's like in your
face the most. Or if you get a particular kind
of meal at a restaurant, often like a hamburger in
the US or a bowl of ramen here, you have
a rough idea of what that should cost in your mind,
and to see something that deviates from that so much
is really quite shocking to people. That that I think
is very real, the sticker shock of what's going on.
So before I let you go, let's get back to
the BOJ meeting, and we're going to have this post
meeting news conference from Governor Uwada, and I'm wondering about
where he may place emphasis. Does he push back on
this Bloomberg report and the indication that the BOJ may
be leaning into an acceleration of rate hikes? How do
you think he may handle that?
From what I've seen of how of UDA's press conferences
so far, he and the bank as an institution, as
you said, tend to be very cautious, and especially for
somebody like Uda, who comes from an academic background, sometimes
can speak in a little bit of a roundabout way
and not be the most direct with his language. That
I think he would very much want to leave open
the possibility of the pace that the BOJ would move
at from here, and would not want to commit to
any kind of predetermined path. I think you would even
be hesitant to really open the door to the possibility
of moving sooner than every six months.
Mollie, this was a delightful conversation. Thank you so very
much for helping us set up the BOJ meeting in
the coming week. I look forward to your return to
the office in New York. We can talk more about
what your experience was like being in Japan. Bloomberg's Molly
Smith part of the team that covers the Japanese economy
and government. Joining from our studios in Tokyo, I'm Doug Krisner.
You can catch us weekdays for the Daybreak Asia podcast.
It's available wherever you get your podcast.
Nathan, Thanks Doug, and that does it for this edition
of Bloomberg Daybreak Weekend. Join us again Monday morning at
five am Wall Street Time for the latest on markets
overseas and the news you need to start your day.
I'm Nathan Hager. Stay with us. Top stories and global
business headlines are coming up right now.