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Why Inflation Could Be Good News for Japan · Trumponomics

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Sevanye Flanders, head
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Speaker 1: of Government and Economic except Bloomberg, and this is Trumponomics,
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Speaker 1: the podcast that looks at pretty much everything in the
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Speaker 1: economic world of Donald Trump. Today, I wanted to take
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Speaker 1: a bit of time to consider how the economic world
0:31
Speaker 1: of Donald Trump and the rest of US is being
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Speaker 1: affected by what's happening in Japan, more particularly by what's
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Speaker 1: been happening to Japan's currency. Five years ago, one hundred
0:42
Speaker 1: and ten yen was worth a dollar. Today that will
0:46
Speaker 1: only get you seventy cents now. We're recording this on Tuesday,
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Speaker 1: the eighteenth of August, and the yen's fallen again this morning,
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Speaker 1: the same day that global bond yields long term borrowing
0:58
Speaker 1: costs for governments have hit multi decade highs. The famous
1:02
Speaker 1: long bond, the US thirty year treasury bond, was hovering
1:06
Speaker 1: around five point four percent. That's the highest in nearly
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Speaker 1: thirty years.
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Speaker 2: Now.
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Speaker 1: Japan's falling currency isn't the only reason why borrowing costs
1:13
Speaker 1: are going up everywhere. We've discussed before. There are lots
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Speaker 1: of long term structural forces that are driving the cost
1:20
Speaker 1: of money higher everywhere. And it's not helped by the
1:23
Speaker 1: US government and lots of others borrowing a lot when
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Speaker 1: their economies are not in recession. But the US Treasury
1:30
Speaker 1: Secretary Scott Besson did care enough about the falling yen
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Speaker 1: and its impact on markets to participate the other day
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Speaker 1: in a joint intervention to shore up the currency, the
1:40
Speaker 1: first time the US has done this kind of thing
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Speaker 1: in thirty years. So what's going on after years of
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Speaker 1: tackling falling prices deflation? Isn't it good news for everyone
1:50
Speaker 1: that Japan finally has a bit of inflation, even if
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Speaker 1: that does mean a weakening currency. In these sultry August days,
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Speaker 1: that seem like just the kind of thicket of topics
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Speaker 1: that we ought to be getting into on trumpanomics. And
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Speaker 1: we have joining us from Tokyo Taro Kimura, Bloomberg's senior economist.
2:09
Speaker 1: He leads our research into Japan's economy, and he did
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Speaker 1: previously work as an economist at the Bank of Japan. Tara,
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Speaker 1: thank you so much for joining us.
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Speaker 3: Thank you for having me now, I should.
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Speaker 1: Say, unusually for Bloomberg economists, you are also something of
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Speaker 1: a social media sensation. You do lots of things online
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Speaker 1: but how many people have now viewed your very serious
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Speaker 1: Japanese monetary policy explainer from a year or so ago.
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Speaker 3: Yeah, thanks for a mentioning that my explainer for why
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Speaker 3: Japanese monetary policy matters exiting negative interris policy. I think
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Speaker 3: it's watched nearly four million Alis above three million. I
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Speaker 3: wasn't expected, but I'm super happy that people are interested
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Speaker 3: in Japanese manetary policy.
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Speaker 1: It's interested, and we have to say just a little
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Speaker 1: bit surprised. In Boston we have Chris Adds to who's
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Speaker 1: the senior editor of the global economic coverage of much else. Chris,
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Speaker 1: you're not as much of a social media staff, but
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Speaker 1: I think of you as a very kind of wise
3:03
Speaker 1: old hand on the interaction between global markets and the economy,
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Speaker 1: and you have spent various chunks of your life in Japan.
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Speaker 1: Thanks for joining.
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Speaker 3: Happy to be here, Tara.
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Speaker 1: This story I mentioned in passing, I mean it begins
3:20
Speaker 1: with some good news for Japan, which is the return
3:24
Speaker 1: of inflation. Everywhere else we've been feeling we had too
3:27
Speaker 1: much inflation and it was difficult to get rid of.
3:29
Speaker 1: But it explained very briefly why Japan is different.
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Speaker 3: Japan had experienced something called lost three decades, which is
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Speaker 3: basically after the huge acid price bubble collapse in early
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Speaker 3: nineteen nineties, we had serious banking problem and corporates need
3:48
Speaker 3: to retrench and labor union stopped requesting higher wages in
3:53
Speaker 3: order to secure employment. That kind of equilibrium continued even
3:57
Speaker 3: after a Japan is getting a better shape, And what
4:01
Speaker 3: changed was the war between Russia and Ukraine, which triggered
4:06
Speaker 3: a higher energy costs, which is very detrimental for a
4:09
Speaker 3: Japanese import costs. Corporate started to increase prices, and after
4:15
Speaker 3: corporate started to increase prices, the unions finally requested higher wages.
4:21
Speaker 3: And now we have a steady flow of information bolstered
4:24
Speaker 3: by higher wages. So now for the first time in
4:27
Speaker 3: many people's lives, workers are starting to enjoy higher wages.
4:31
Speaker 3: And that's a good thing about inflation.
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Speaker 1: We have done episodes in the past when I was
4:36
Speaker 1: in Tokyo, and it was that crucial point about the wages,
4:39
Speaker 1: that you could get a sort of short term increase
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Speaker 1: in imported inflation, but it was getting a sort of
4:45
Speaker 1: process of reflating the economy was taking a very long
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Speaker 1: time because wages were still quite low and everything that
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Speaker 1: you've described has come with the arrival of a very
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Speaker 1: kind of striking new Prime Minister, Sanai Takichi, first woman
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Speaker 1: prime minister. She declared in Washington last year, Japan is back.
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Speaker 1: The stock market has more than doubled since last year,
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Speaker 1: which you know, had a very long time in the doldroom.
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Speaker 1: So a chunk of the country is feeling good. Companies
5:14
Speaker 1: are feeling a bit more positive about the future. Is
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Speaker 1: that right, Tara, Yeah.
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Speaker 3: Generally, Takaichi started her tenure as a prime minister with
5:22
Speaker 3: a very very large political support from voters. In the
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Speaker 3: February lower house elections, she made a historic win, and
5:30
Speaker 3: with that support at her back, she's proposing a very
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Speaker 3: pro stimulus policy, including a fiscal policy. She calls it
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Speaker 3: responsible and proactive fiscal policy. Dam is forget about all
5:44
Speaker 3: the stimulus measure Japan has taken in the last three decades,
5:48
Speaker 3: you know, cash handouts or whatever, the measures to cope
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Speaker 3: with crisis. What we're doing from now is rebuild our
5:56
Speaker 3: supply capacity and government commit to a long term invest
6:00
Speaker 3: and crowded and private investment. I think the markets and
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Speaker 3: including the voters liked the idea, and that's why the
6:09
Speaker 3: stock prices are buoyant. And what's also the characteristic of
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Speaker 3: her policy stances, she doesn't like the Bank of Japan's
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Speaker 3: rate height, and that's making a weaker end issue exactly
6:21
Speaker 3: right now.
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Speaker 1: Yeah, so I was going to ask you about that.
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Speaker 1: So the byproduct of all this, although there's sorts of positives,
6:27
Speaker 1: is you have a central bank and certainly a prime
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Speaker 1: minister that's not very keen to see higher interest rates.
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Speaker 1: But because we would normally see higher interest rates in
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Speaker 1: the face of inflation, and without the higher interest rates,
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Speaker 1: the end doesn't look very attractive and it's falling. Is
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Speaker 1: that the basic that's right.
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Speaker 3: I think an underlying reason why end is so weak
6:47
Speaker 3: is many market expects even though is in a tightening cycle,
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Speaker 3: the lower rates compared to the other major economies is
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Speaker 3: going on because of the cacid pressure from Takai government
7:00
Speaker 3: to the Bank of Ship Then, and.
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Speaker 1: Chris, I didn't want to make you sound too old,
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Speaker 1: but I did mention that you had had a long
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Speaker 1: history of engagement with Japan, and you reminded us in
7:09
Speaker 1: the newsletters today that we have been here before. You know,
7:12
Speaker 1: periods where the en was sent to stage and it
7:16
Speaker 1: was changing its value pretty quickly.
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Speaker 2: Yes, that's right. My first interaction with the en was
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Speaker 2: when I was a kid moved to Japan in nineteen
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Speaker 2: eighty five, just before the Plaza Accord, which the US
7:30
Speaker 2: entered into with four of its allies to drive the
7:33
Speaker 2: dollar down. And so I saw my pocket money grow
7:38
Speaker 2: in dollar terms, at least as the months went by
7:41
Speaker 2: and the end started soaring. And as you mentioned, the
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Speaker 2: intervention that Treasury Secretary best And engaged in on July
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Speaker 2: thirty first to buy the end was the first such
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Speaker 2: operation since nineteen ninety eight, and similarly in ninety eight,
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Speaker 2: then Treasury Secretary Bob Rubin was essentially helping Japan at
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Speaker 2: a time when he wanted to endorse economic changes there.
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Speaker 2: So the big problem in Japan in nineteen ninety eight
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Speaker 2: was the financial system, and they made some pledges of
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Speaker 2: writing the financial ship with the banks that were overloaded
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Speaker 2: with all this bad debt from the burst bubble. And
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Speaker 2: in this occasion we see Besant acting most probably to
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Speaker 2: help encourage the Takaichi administration to let the Bank of
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Speaker 2: Japan move a little faster on interest rates. Bessen has
8:36
Speaker 2: been concerned since last year that the Bank of Japan
8:41
Speaker 2: is behind the curve on fighting inflation, and this has
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Speaker 2: resulted in periodic kerfuffles in the Japanese government bond market,
8:51
Speaker 2: which has spread over to the US treasuries market, which
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Speaker 2: is what ultimately he cares about and US borrowing costs.
8:57
Speaker 2: So if he can engage in from yen buying here
9:01
Speaker 2: to stabilize the currency stabilized global financial market, it seems
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Speaker 2: money well spent.
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Speaker 1: Yeah, So you talked about the Plaza record, and the
9:09
Speaker 1: plas record was about strengthening the yen. But now we've had,
9:14
Speaker 1: as I mentioned, we've had sort of a good five
9:16
Speaker 1: years where the yen has been weakening. It is something
9:21
Speaker 1: of a mixed picture, isn't it in Japan in terms
9:23
Speaker 1: of how people feel about the falling currency, and I
9:26
Speaker 1: guess there's also some people who are not particularly happy
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Speaker 1: to have inflation if their wages aren't going up, right.
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Speaker 3: I think it's a very mixed story. It's really hard
9:34
Speaker 3: to say whether weeker n is good or bad for
9:38
Speaker 3: the economy because traditionally Japan's large corporates are either exporters
9:43
Speaker 3: or very big fdi erb which means, you know, spread
9:47
Speaker 3: the business all around the world. So week er am
9:50
Speaker 3: basically it is good for profits for a large corporate
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Speaker 3: and actually the level of the profit is surging and
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Speaker 3: registering history high, and I think taka you got basically
10:00
Speaker 3: thinks that's favorable.
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Speaker 1: Because all these all these profits you make overseas are
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Speaker 1: suddenly worth a lot more in Japan.
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Speaker 3: That's right, that's right if yen's got weaker. And another
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Speaker 3: ambition of takaichi is built up domestic supply capacity. So
10:14
Speaker 3: if there's a foreign company who are interested in investing
10:18
Speaker 3: in Japan, the week are an is good for them.
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Speaker 3: So that's why Takaichu initially wasn't concerned about a week am.
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Speaker 3: But given the dollar an getting closer to one to
10:29
Speaker 3: sixty four, which is you know, the yen it's weakest
10:32
Speaker 3: since the level of the plaza out cores. So there's
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Speaker 3: always a news headline saying the end is forty year
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Speaker 3: law and that will accelerate inflation. So therefore the inflation
10:46
Speaker 3: and a week or an is becoming easier to be
10:49
Speaker 3: on top of the political issue list.
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Speaker 1: Yeah, and Chris, just going back to that, you gave
10:55
Speaker 1: us the kind of historical sweep on these big interventions,
10:58
Speaker 1: and I guess we'll get into a minute whether or
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Speaker 1: not it could be as successful this latest round of
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Speaker 1: intervention as that sort of plaza accord that slightly more coordinating,
11:07
Speaker 1: more formal agreement. But there was some pretty unusual aspects
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Speaker 1: of this intervention. We have as a treasury sector is
11:15
Speaker 1: someone who was a hedge fund trader, not someone who
11:19
Speaker 1: was sort of sitting in Goldman Saxon elsewhere and has
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Speaker 1: got used to sort of making money off the yen
11:24
Speaker 1: and other things over the years. And the way this
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Speaker 1: all went down was both the tools and some of
11:32
Speaker 1: the sort of tricks around it were rather different than
11:34
Speaker 1: we've had in the past. Not least he rather sort
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Speaker 1: of obviously showed a lowed journalist to see his notepad
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Speaker 1: at one point before he'd done the intervention.
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Speaker 2: Yes, there was definitely a theatric quality, as you say,
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Speaker 2: to this whole operation. Yes, there was a cabinet meeting
11:51
Speaker 2: actually out at Camp David, where Basant was sitting with
11:55
Speaker 2: his back to the reporters, and visible on his notepad
12:00
Speaker 2: was a to do list that had one item by
12:04
Speaker 2: Japanese yen five to ten billion. He knew full well
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Speaker 2: that this was visible to the reporters. This had happened
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Speaker 2: before he even mentioned it in a briefing at the
12:15
Speaker 2: White House several months previously, so he knew full well
12:19
Speaker 2: what he was doing. And then, of course the actual
12:22
Speaker 2: intervention itself appears to have been via the euro, not dollars.
12:27
Speaker 2: And the US Treasury has this specific kind of sometimes
12:33
Speaker 2: referred to as a little slush fund, the Exchange Stabilization Fund,
12:38
Speaker 2: which dates all the way back to the nineteen thirties actually,
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Speaker 2: and it's got over two hundred billion in it, and
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Speaker 2: it's reasonably flexible in terms of how the Treasury can
12:50
Speaker 2: use it. It has or had at least some amount
12:54
Speaker 2: of euros and a number of other assets. And it
12:57
Speaker 2: appears that Bessett decided to sell euros for yen. He
13:01
Speaker 2: hasn't kind of spelled out exactly why he did that.
13:05
Speaker 2: Some speculation has it that well, he didn't want to
13:08
Speaker 2: drive down the dollars specifically because again he doesn't want
13:13
Speaker 2: to depreciate US assets, including treasuries, and drive up US
13:18
Speaker 2: borrowing costs. One thing I wonder is, if you think
13:21
Speaker 2: about the foreign exchange market, dollar yen is super liquid.
13:26
Speaker 2: It's the number two to euro dollar, but the euro
13:30
Speaker 2: yen cross is not all that well traded in comparison,
13:35
Speaker 2: so maybe he thought he could get a little bit
13:37
Speaker 2: more bang for the buck or in this case, bang
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Speaker 2: for the euro.
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Speaker 1: There was another interpretation, which was one of the possible
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Speaker 1: reasons to do it through the Euro was a concern
13:48
Speaker 1: that if the Japanese was sort of intervening in the market,
13:52
Speaker 1: they were going to be selling their US assets, their
13:55
Speaker 1: treasury bonds, pushing up the yields on those in order
14:00
Speaker 1: to be supporting the end. That gets us into that
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Speaker 1: question of whether all of this is really feeding into
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Speaker 1: higher long term interest rates, borrowing costs for governments and
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Speaker 1: for everyone else.
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Speaker 2: Chris, what do you think the evidence suggests that indeed
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Speaker 2: Beson is concerned about the impact on treasuries. And just
14:19
Speaker 2: yesterday actually the latest US Treasury report on foreign holdings
14:25
Speaker 2: of treasuries. This is a little dated, it's backed for June,
14:29
Speaker 2: but it did show that in the month of June,
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Speaker 2: Japan's holdings fell by twenty six point four billion dollars.
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Speaker 2: Now they're still pretty hefty at one point one two trillion,
14:39
Speaker 2: so there's a lot to you know, work down, but
14:42
Speaker 2: it did show as of June anyway, the direction of
14:45
Speaker 2: travel for Japan's holdings had perhaps fed into Vesson's thinking
14:50
Speaker 2: in recent weeks.
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Speaker 1: It's a difficult topic for people who are not used
15:05
Speaker 1: to thinking about big investment flows around the world. But
15:10
Speaker 1: just those numbers that Chris has referred to, the holdings
15:14
Speaker 1: that the Japanese have, the official holdings of US Treasury bonds,
15:20
Speaker 1: and of course Japan as a whole has a lot
15:23
Speaker 1: of foreign assets that's built up, particularly in all these
15:26
Speaker 1: years where interest rates have been very low, where the
15:28
Speaker 1: economy has not been necessarily growing very fast. So what
15:31
Speaker 1: is the state of play with that, Why has Japan
15:34
Speaker 1: ended up with quite so many kind of assets abroad,
15:38
Speaker 1: and what's the possible implications if we continue to see
15:40
Speaker 1: that money flowing back now that things are looking a
15:43
Speaker 1: bit more upbeat in Japan itself.
15:45
Speaker 3: That's right. I think the starting gun was Japan's stagnant
15:49
Speaker 3: economy back in the nineteen nineties, and because of the
15:53
Speaker 3: weak domestic demand, the corporates started to seek foreign markets.
16:00
Speaker 3: And then simultaneously Japan's aging population gets more serious, and
16:07
Speaker 3: that leads to a problem of Japan's labor shortages. So
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Speaker 3: I explained ja Japan's economy is gaining vigor. We have
16:16
Speaker 3: now inflation, which is regarded a good thing for Japan.
16:19
Speaker 3: But if the Japanese corporates, which earns a lot of
16:23
Speaker 3: money from weaker and by the exports or a business abroad,
16:27
Speaker 3: if they try to invest domestically, they face labor shortages,
16:31
Speaker 3: so therefore they can't find room to invest domestically, so
16:35
Speaker 3: they ended up continue to invest abroad. They continue to
16:39
Speaker 3: reinvest in like foreign factories or r and ds, So
16:43
Speaker 3: that's going to creating a weaker trend in the end.
16:47
Speaker 3: And also the Japanese government agreed with the Trump administration
16:52
Speaker 3: that the Japanese corporate is going to make a massive
16:54
Speaker 3: investment in the United States. That's going to also enhance
16:57
Speaker 3: the trend. So therefore, I think the stronger FDI, particularly
17:01
Speaker 3: words the United States, is creating a structural selling pressure
17:06
Speaker 3: to the end that accounts a very large part of
17:09
Speaker 3: the yen weakness since twenty two. And the question is
17:15
Speaker 3: whether the Japanese corporate is going to eventually invest back
17:19
Speaker 3: in Japan, repatriate back in Japan, and that's what Takaichi
17:24
Speaker 3: is trying to do. Japan's labor shortage is something like
17:28
Speaker 3: Japanese manufacturers have machines, but they don't have operators. Japanese
17:34
Speaker 3: corporates have trucks or taxis or buses, but they don't
17:38
Speaker 3: have drivers. And what Takaichi is trying to do is
17:42
Speaker 3: invest massively in physical ai so that the machine can
17:46
Speaker 3: operate without human. If that's going to be successful, the
17:50
Speaker 3: Japanese corporate is going to resinc for what. There's a
17:53
Speaker 3: room to invest back in Japan, and that's taka is
17:56
Speaker 3: wanting to do. But there are many risks. Whether such
17:59
Speaker 3: a government investment works or not is a million dollar,
18:03
Speaker 3: billion dollar question.
18:05
Speaker 1: It's so complicated because we're talking about these long term
18:09
Speaker 1: structural things, or at least the sort of supply side forces,
18:13
Speaker 1: with real companies in Japan having their profits abroad and
18:16
Speaker 1: they're keeping them abroad, and that inevitably then still sort
18:19
Speaker 1: of feeding the pressure on the currency because they're keeping
18:22
Speaker 1: the money outside of Japan. But on the other hand,
18:25
Speaker 1: lots of people listening will have heard about the carried
18:27
Speaker 1: trade and other things. There's been these kind of shorter
18:29
Speaker 1: term flows of investment which have been for many many years,
18:34
Speaker 1: have been based on the assumption that Japanese interest rates
18:37
Speaker 1: were going to stay very low. And now potentially if
18:40
Speaker 1: we really do have self sustaining inflation in Japan, those
18:44
Speaker 1: interest rates are just going to keep going up in
18:46
Speaker 1: theory become a bit more normal relative to the rest
18:49
Speaker 1: of the world. Chris, This is something people have talked
18:52
Speaker 1: about over the years. So far, the transition has not
18:55
Speaker 1: been too bumpy. But as we move out of this
18:58
Speaker 1: very long term regime for Japan, the deflation, the very
19:02
Speaker 1: low interest rates, how worries would we be that there's
19:06
Speaker 1: going to be some real bumps on the international markets
19:09
Speaker 1: as a result of that. Well, have we already got
19:11
Speaker 1: through the worst? Could you argue?
19:14
Speaker 2: It's impossible to know, of course, and there aren't great
19:18
Speaker 2: data points on the extent of leverage trading in terms
19:24
Speaker 2: of borrowing cheaply in yen and parking it in higher
19:28
Speaker 2: yielding assets overseas. But what we do know is that
19:33
Speaker 2: the Bank of Japan over the past several years has
19:36
Speaker 2: moved from massive quantitative easing and sub zero interest rates
19:42
Speaker 2: to quantitative tightening, shrinking their balance sheet rather than expanding it,
19:48
Speaker 2: and to positive interest rates with a one percent benchmark.
19:52
Speaker 2: Now that's the highest in decades. And what have we seen.
19:56
Speaker 2: There's been no major financial crisis. They've actually, i would argue,
20:02
Speaker 2: made the transition pretty well. The transition began under former
20:07
Speaker 2: Governor Arohiko Kuroda. He started to normalize slowly but surely
20:12
Speaker 2: on its continued under Governor Uida, and every once in
20:16
Speaker 2: a while during that process people would say, you know,
20:19
Speaker 2: we don't understand Bank of Japan communications. They scale back
20:23
Speaker 2: their bond purchases, but they're saying they're still easing. I
20:26
Speaker 2: think that was all part and parcel of a calculated transition.
20:32
Speaker 2: I think the Bank of Japan was well aware of
20:35
Speaker 2: the danger of a huge unwinding of carry trades and
20:40
Speaker 2: the risk that that posed for the global financial system,
20:43
Speaker 2: and they were careful and measured in managing the transition.
20:47
Speaker 2: Now that's left them, arguably, including Treasury Secretary Vesson's view,
20:52
Speaker 2: a little behind the curve. But maybe we didn't want
20:55
Speaker 2: them to be ahead of the curve because a dramatic
20:58
Speaker 2: transition from such ultra stimulative monetary policies could have been
21:04
Speaker 2: quite disruptive. Let's see how we go going forward. What
21:07
Speaker 2: we do know is that there has been no financial
21:10
Speaker 2: crisis and Japan has managed the transition reasonably smoothly.
21:15
Speaker 1: So, as Chris describes, maybe even though there has been
21:21
Speaker 1: this kind of recent concern or discussion around the yen
21:24
Speaker 1: and the intervention by the US, it could be that
21:28
Speaker 1: the yen falling is a lot easier to cope with
21:32
Speaker 1: than sudden interest rate increases in Japan, which would be
21:36
Speaker 1: such a jolt to all of these investment trades. Both
21:40
Speaker 1: of you, I guess we could argue, you know, the
21:42
Speaker 1: big picture here is not so much the yen, nor
21:44
Speaker 1: even the inflation in Japan. It's the fact that so
21:47
Speaker 1: many governments, Japan most of all, is sitting on so
21:52
Speaker 1: much debt relative to the size of its economy, and
21:56
Speaker 1: global bond markets are really waking up to that.
22:00
Speaker 3: Right. Going back to the argument why inflation is good
22:03
Speaker 3: for Japan's economy, another reason is the inflation is good
22:08
Speaker 3: for better. It's going to reduce the real burden for
22:11
Speaker 3: better and given the Japanese government is the largest public
22:15
Speaker 3: that's issuer in the world, they really enjoy the benefit
22:19
Speaker 3: from inflation. And that's precisely the reason why Takaichi is
22:23
Speaker 3: so going boldly on her aggressive fiscal policy. So there's
22:29
Speaker 3: a communication mis much between Takaichi's view on fiscal policy
22:34
Speaker 3: and traditional market view on fiscal policy, and that communication
22:38
Speaker 3: gap is creating a yield jolt. I think Takaichi's stance
22:42
Speaker 3: makes sense and she has reason to be ambitious. But
22:45
Speaker 3: I think that all the jolts regarding the Japanese government
22:48
Speaker 3: bond yills, I think the government is struggling to communicate
22:52
Speaker 3: her understanding of the fiscal policy and what they're trying
22:55
Speaker 3: to do with the market, and that comes with a
23:00
Speaker 3: market understanding that the Takai is also reluctant to let
23:04
Speaker 3: the boj high rate. So with the pro stimulus government
23:09
Speaker 3: which pressures bog to go rate high slowly, that means
23:12
Speaker 3: there's a huge fear among the bond markets about long
23:16
Speaker 3: term inflation and long term inflation risks. So think about that.
23:20
Speaker 3: In the last decades, the bond traders in Japan were
23:24
Speaker 3: worried about deflation risks, and now they need to be
23:26
Speaker 3: concerned about the inflation risk. That's going to create a
23:30
Speaker 3: huge upward pressure on the interest rates, and I think
23:34
Speaker 3: that's the reason why markets are so spooked about the
23:37
Speaker 3: sudden surge in Japanese interest rates. But that's natural consequences
23:42
Speaker 3: of the shift from deflationary economy to inflationary economy, and
23:48
Speaker 3: the markets need some time to digest the structural shift
23:52
Speaker 3: and think about investment strategy.
23:56
Speaker 1: And we should remember you say it's the biggest issue
23:58
Speaker 1: of that. I mean, we tend to think with debts
24:00
Speaker 1: sort of around one hundred percent of GDP the equivalent
24:03
Speaker 1: of the whole output of the economy in a year,
24:05
Speaker 1: that that's a lot, but it's double that in Japan,
24:08
Speaker 1: it's two hundred percent of GDP. Chris, that feels like
24:13
Speaker 1: still the big story for the last few weeks, and
24:19
Speaker 1: even the sort of big story that's lurking in the
24:22
Speaker 1: sidelines of all of this excitement around the end, just
24:25
Speaker 1: the fact that bond markets are continuing to look at
24:30
Speaker 1: a long term increase in borrowing costs for all this
24:34
Speaker 1: debt that governments don't seem to be very worried about
24:36
Speaker 1: getting rid of.
24:37
Speaker 2: Yeah, certainly not politically popular anywhere to take on fiscal discipline,
24:43
Speaker 2: except perhaps in Greece, which I saw the other day
24:46
Speaker 2: is paying down some of it, some of its bailout
24:49
Speaker 2: money early, which is pretty striking. I'm interested at how
24:53
Speaker 2: what your perspective would be. We know that there have
24:57
Speaker 2: been discussions in Japan recently about perhaps some of the
25:01
Speaker 2: government pension money that's been plowed overseas over the past
25:05
Speaker 2: several years, moving back to Japan and perhaps helping to
25:09
Speaker 2: stabilize the Japanese government bond market. Do you think that
25:13
Speaker 2: we could get a one two punch this fall of
25:17
Speaker 2: a Bank of Japan interest rate increase and a government
25:20
Speaker 2: pension fund GPIF announcement of plowing money into the bond
25:25
Speaker 2: market in Japan.
25:27
Speaker 3: I don't think that's going to be a case, at
25:29
Speaker 3: least in the short term, because still the Bank of
25:33
Speaker 3: Japan is really cautious on its red high extents. Probably
25:37
Speaker 3: it had changed after the joint US Japan joint intervention
25:40
Speaker 3: to broke up the end, but traditionally the Bank of Japan,
25:44
Speaker 3: at least the governor with us in his tenure, he's
25:47
Speaker 3: very cautious. So there's no such signal that the Japan
25:51
Speaker 3: wants to increase the interest rate so that the Japan
25:55
Speaker 3: is investworthy for many foreign investors. That said, it's true
26:00
Speaker 3: that Japan has evacuating from lost the case and Japan
26:04
Speaker 3: is finally becoming a normal economy, and if fiscal policy,
26:08
Speaker 3: fiscal strategy ends up successfully and Japan started to reculibrate
26:14
Speaker 3: its supply capacity, probably in the long run. We noticed
26:17
Speaker 3: that many of the money are coming back to Japan
26:20
Speaker 3: that may call an end to a weaker trajectory for
26:23
Speaker 3: the Japanese yen.
26:25
Speaker 1: Well, if you've got this far, you know a lot
26:29
Speaker 1: about the current situation in Japan, but also about the
26:32
Speaker 1: issues that are enlivening conversations around global markets and also
26:36
Speaker 1: making us keep a careful eye on the US Treasury
26:39
Speaker 1: Secretary Scott Besant, Tara Kimura, and Chris ansty Thank you
26:43
Speaker 1: so much.
26:44
Speaker 3: Thank you very much, Stephanie, thank you.
26:46
Speaker 2: It's a pleasure.
26:48
Speaker 1: If you want to see. There's been a series of
26:50
Speaker 1: Bloomberg originals eight or nine minute, ten minute videos about Japan,
26:54
Speaker 1: but the one that was a real blockbuster that we
26:56
Speaker 1: were talking about the beginning is Japan's massive money experiment
26:59
Speaker 1: is over now what, which you can find on YouTube
27:02
Speaker 1: along with the others. Thank you very much, thanks for
27:15
Speaker 1: listening to Trumpomics from Bloomberg. It was hosted by me,
27:17
Speaker 1: Stephanie Flanders, and I was joined by Bloomberg senior economist
27:20
Speaker 1: Tarokimura in Tokyo and senior editor Chris Anstey in Boston.
27:26
Speaker 1: Trumponomics was produced by Samasadi and Moses and Dam and
27:29
Speaker 1: sound design was by Blake Maples with Kelly Gary and
27:32
Speaker 1: to help others find and enjoy us, Please rate and
27:36
Speaker 1: review Trumpanomics really highly. Wherever you listen,