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>> This is Bloomberg [music] Daybreak

Weekend, our global look at the top

stories in the coming week from our

Daybreak anchors all around the world.

[music] 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 Caroline Hepker London, where we're

discussing the outlook for the Bank of

England [music] against a backdrop of

renewed conflict in the Middle East and

a new UK government.

>> I'm Doug Krizner looking ahead to next

[music] week's interest rate decision

from the Bank of Japan.

>> That's all straight ahead on Bloomberg

Daybreak weekend on Bloomberg 1130 New

York, Bloomberg 99.1 Washington D.C.,

Bloomberg 92.9 [music] Boston, DAB

Digital Radio London, Sirius XM 121,

[music]

and around the world on Bloomberg

radio.com and the Bloomberg Business

App.

>> Good day to you. I'm Nathan Hager.

[music] 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 Warsh 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.

>> Uh 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 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

$100 Brent 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 bond markets especially

pushing yields up to account for that.

>> And you will we've heard from Warsh

himself since he took the reins, well

even before he took the reins, 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 2% 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

Hammack of Cleveland, Lorie Logan

of Dallas, Jeff Schmitt of Kansas City,

who think that

the Fed has been behind the curve on

inflation in terms of their target of 2%

for 5 years now, and it's about time

that they get that done. And that the

the longer they wait, that 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's not going

down to 2%, 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

to do that. Probably the most likely

scenario is that you get some dissents,

maybe Hammack, 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

AI and the capital spend for that. And

if they have to pay more in interest to

borrow or

for for for their

dividends,

then it's going to it's going to hurt.

And you could see a decline in the

equity markets. In the bond markets,

what we've seen in the last week or so

is a big increase in yields. And so the

bond markets have 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 it's going

to be a kind of a different reaction in

different markets. And as for the as far

as the economy's going to be concerned,

it's not going to have a big impact. Cuz

it's 25 basis points. It'll take time to

get it 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.

>> Well, you've talked about the the price

increases around the the chip supply

crunch, the the tech sector inflation,

as well as this

growing risk of war-driven inflation as

well. Is Federal Reserve policy an

effective tool against either of those

kinds of price pressures, Mike?

>> That is kind of the counterargument to

the idea that the Fed should do

something because inflation is too high.

The Fed can't 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 it over a longer period of time

that would slow economic growth and

hopefully that would bring down some

inflation but most of the 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 2:00 p.m.

Wall 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 Mandeep Singh global head of tech

research at Bloomberg Intelligence

because it is another big week for big

tech earnings. Correct me if I'm wrong

Mandeep 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. Uh all and and meta

as well like all these companies have

had a decent quarter so from that

perspective I I think

their expectations

are really low. I would say it's

Microsoft and for me Google had a slight

increase in their full year capex for

2026. They raised it by about 4% and

they said 2027 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,

$205 billion, 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

spark, Mandate?

>> 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 $200 billion

for this year. So, with Microsoft, the

challenge is they don't have the

vertical integration that Alphabet has

with Gemini and their 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 40%. Google

posted cloud growth of around 82% 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 have 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.

>> Now, 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, 60%

growth to over 80% 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 Meta's done just building a

superintelligence 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 computer rentals, the

margins may actually go down. So, in

effect, we expect maybe Google may end

up renting compute from Meta in the near

term. 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, you know, justify any CapEx increase

that they may have during their earnings

call.

>> In the time we have left, Mandeep, I'd

be curious to get your view as well on

Apple. They report Thursday, maybe not a

hyper scalar along the lines 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 I

think it'll be hard to see any big

positive surprises coming out of Apple.

>> Really appreciate the perspective as we

get ready for the firehose of tech

earnings this week. Mandeep Singh with

us there, Global

>> Head of Tech Research at Bloomberg

Intelligence. [music]

And coming up on Bloomberg Daybreak

Weekend, we look ahead to the Bank of

England's next rate [music] decision.

I'm Nathan Hager, and this is Bloomberg.

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>> This is Bloomberg Daybreak Weekend, our

global look ahead at the top stories for

investors in the coming [music] 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's as UK inflation

hit a 15-month low in June, but the

renewed conflict in the Middle East

means ever-present energy price concern.

So, how will the BOE navigate it all?

Let's go to London and bring in

Bloomberg Daybreak Europe anchor,

Caroline Hepker.

>> Nathan, the Bank of England faces

inflationary pressures from the Iran

war, a loosening jobs market, and

sluggish economic growth. It also must

get used to a new administration in

number 10 and number 11 Downing Street.

Prime Minister Andy 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 3.75%

on the 30th of July, the energy shock

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 reporter Tom Rees

and Bloomberg's chief UK economist Dan

Hanson. Dan, can I start with you? The

UK has seen inflation pretty elevated

for some 3 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 that's good

news. Of course, the challenge

at the moment for the bank 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 oil 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 betting on a 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

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 might have said pretty much that

at the beginning of this month, that it

was too early to consider interest rate

cuts, and then warning that households

are 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

um 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 cap that we've just had, you know,

that price cap that sets kind of

household gas and electricity bills. So,

we've 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 3 months, it sort of

delays the the impact of the the changes

that we've seen in energy markets. So,

that price cap went up 13% in July. That

adds about .4 percentage points to

inflation. You know, we had some new

estimates from Cornwall Insight that

showed that the price cap might go up a

little bit more later in the year. So,

he was he was referring to that impact,

but you know, obviously there's other

ways that this war 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 their higher energy costs

back to consumers.

>> In terms of the other data that we've

had out 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 the the latest labor market

data is was quite interesting this week.

You know, it was kind of showing that

the number of employees on company

payrolls, which is what economists were

looking at most in that release

currently, has been broadly flat over

the last couple of months. You know,

that could be showing that the downturn

in the labor market that we've had in

the last couple of years is is beginning

to fade. That data comes with a big

caveat. That's revised quite often and

quite heavily. But the most important

thing for the BOE is that, you know,

demand for labor is is very weak. You

know, vacancies are, you know, around

their lowest since '21. Private sector

pay growth is is lowest since 2020. So,

the BOE kind of hopes that that's enough

to contain any of those second-round

effects to inflation, you know, if that

effect where you know, workers trying to

compensate from, you know, their losses

from inflation try and bid up wages. The

labor 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 jobs data and 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 growth to

the Bank of England's or the the economy

if you as a whole or the labor market 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

are are interlinked. 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 is

weak, 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

that was the problem we had in following

the 2022 shock.

>> Mhm.

>> Is that we experienced that in 2023 and

2024.

I think the chance of that happening

this time are far, far lower. Not least,

one, because the labor market's loose.

Two, the shock is far smaller um

relative to 2022, and three, interest

rates are in a much better place.

The 2022 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 40 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 monetary policy,

we should be thinking about Burnham?

>> Yeah, so so we've had quite, I would

say, mixed messages on how radical this

government is going to be, you know,

we've like you said, we've had Burnham

talk about new economic models and

rolling back, you know, the last 40

years, etc. 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 bank's thinking and,

you know, the BOE has sort of signaled

in the past that it's minded to look

through these sort of measures on on

energy bills,

you know, even if it does improve the

kind of mood music around interest rate

decisions. I We would obviously be in

different territory if he, you know, if

they do

push things into, you know, the the more

radical territory. You know, he's talked

up the idea of finding more flexibility

within the fiscal rules. It's hard to

know exactly what he means by that, and

I'm not sure he he knows himself. But,

you know, people have interpreted that

as, you know, using a bit more leeway

provided by the debt rules, you know,

using the UK's public finance through

institutions like the National Wealth

Fund, that sort of thing. So, yeah, it's

it's a wait and see on that front.

>> Yeah, I suppose it just depends what

those policies actually are, Dan. John

Healey has though criticized previously

the Treasury as a dead hand on dynamic

government. So, again, it's another

phrase that's 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 brake

on decisions that are politically

oriented and trying to buy votes. You

know, and and fiscal prudence is a

is a very important component of a

stable economy and therefore economic

growth. In any case, run's over.

>> I think in terms of the Burnham-Healey

dynamic, I think John Healey's got

experience in the Treasury. Many years

ago, but he he was in 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 enact whatever

Burnham's platform proves to be and I

agree with you both it's not completely

clear, but whatever that proves to be

Healey'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.

>> Yeah.

>> He'll need to find that money and it

looks like he's going to want to find

that money as well.

>> Yeah.

>> And Tom alluded to that, that means

really difficult decisions cuz it's a

lot of cash that's needed to get defense

spending up to the even 3% of GDP and

then up to 3.5% of GDP. So,

that's the thing that I think it's 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 in the

fiscal rules.

We've already seen the 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

reporter, Tom Rees. Really appreciate

you coming on to the program in just the

days ahead of the Bank of England's

interest rate decision. Thank you. I'm

Caroline Hepker here in London. You can

catch us every weekday morning for

Bloomberg Daybreak Europe beginning at

6:00 a.m. in London. That's 1:00 a.m. on

Wall Street. Nathan.

>> Thanks, Caroline. And coming up on

Bloomberg Daybreak weekend, [music]

we'll look ahead to the next rate

decision from the Bank of Japan. I'm

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>> This is Bloomberg Daybreak weekend, our

[music] global look ahead at the top

stories for investors in the coming

week. I'm Nathan Hager 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 Krizner, host of

the Bloomberg Daybreak Asia podcast.

>> Thanks, Nathan. You'll remember last

month the BOJ raised its policy rate to

1%. Now, that's the highest in 31 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 rate 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 6 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

more growing market odds that the that

there could be another hike by October.

And there's, you know, a couple of

meetings between now and 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

they seem to be a bit unconvinced that

the BOJ would really move faster. And

the big reason for that is because they

still see

uh Prime Minister Takaiichi'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 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 guidelines, which

usually come out in late June. And it

only just got passed um 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 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 yen, which is I I very much a

part of the the inflation story still. I

mean, we're at a 40-year low against the

greenback.

What is the scuttlebutt 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 yen

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 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. We're

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

yen. So, I think that tells you that the

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 write 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 B2B 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 costs tied to the Middle East so

that's where you know, Takaichi 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

it, you know, in terms of like

Fahrenheit where like roughly at like,

you know, mid-90s 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 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, you know, 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 $10.

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.

>> as I'm listening to I'm remembering a

conversation that I had with Taro

Kimura,

uh 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.

>> I This is something that when I was uh

writing about inflation back in the US

when it was really taking off around

like 2021 and 2022. 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 like

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.

But 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 Ueda, 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? What How do you think he may

handle that?

>> From what I've seen of how of Ueda's

press conferences so far,

he and, you know, the bank as an

institution, as you said, are tend to be

very cautious, especially for somebody

like Ueda 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 I [snorts]

think he would even be hesitant to

really open the door to the possibility

of moving sooner than every 6 months.

>> Molly, this was a delightful

conversation. Thank you so very much uh

for helping us set up uh 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 Krizner. 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 5:00

a.m. 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 [music] are coming up

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