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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 to the next policy

decision from the Fed. I'm Nathan Hager

in Washington.

>> I'm Caroline Hepket in London where we

discuss how Europe's inflation battle

may not be over just yet.

>> I'm Doug Krer looking ahead to the

meeting between President Trump and

Japanese Prime Minister Son Takichi.

That's all straight ahead on Bloomberg

Daybreak Weekend on Bloomberg 1130 New

York, Bloomberg 991 Washington DC,

Bloomberg 929 Boston, DAB Digital Radio

London, SiriusXM121

and around the world on

Bloombergradio.com

and the Bloomberg Business app.

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

begin today's program with the Federal

Reserve. The central bank begins its

March policy meeting on Tuesday and

issues its decision on interest rates

Wednesday. For more on what to expect,

we're joined by Anna Wong, chief US

economist for Bloomberg Economics. And

um Anna, just looking at expectations in

the market. Seems like investors are

thinking a whole lot of nothing, but um

what are you expecting under the

surface? Um, I'm expecting the the Fed

to sharply revise up the PCE inflation

forecast. So, in the uh December SEP, it

was in in the mid2s. I think that given

where oil price is right now, and it

looks like it's quite likely oil price

would stay elevated at around $80 at

least on average for the rest of this

year. And that would mean that headline

PCE should be going all the way up to

threeish. So that would be a quite a

sharp upward revision. And

>> is that the kind of revision that would

cause you to revise upward your

expectations for interest rates? Are you

thinking that there could be a chance we

see an interest rate hike? Maybe not at

this meeting, but sometime this year.

>> A hike is not in my baseline. We are

still expecting multiple rate cuts.

Although the chance of a large 100 bips

rate cut this year in total that has

decreased the the chances for that. Uh

nonetheless um I still think that on the

whole the Fed would be easing because an

oil shock tend to boost headline

inflation but it tends to lower core PCE

inflation. Our estimate is that $80 oil

would add $650

on average for the household this year.

And so that's $650 less that they could

spend on other core goods and services.

It's very similar to the tariff shock we

saw last year. Recall that when Trump

announced the liberation day tariffs,

the stock market plummeted and all the

services inflation went down because

tariffs are an income shock, a

contractionary income shock. An oil

shock is very similar. It's also a

contractionary income shock. They have

less money to spend on movie theaters,

on sports admission tickets. The stock

market is going to to respond by falling

and all that is going to shave off uh

some uh a couple bips from core PCE

inflation. So the only time when the Fed

should be responding to the higher

headline but not the lower core measure

is if they fear that inflation

expectations are an anchoring. And so

far, I think the majority of the FOMC

members don't think that's happening.

Even the most hawkish FOMC member, Beth

Hemock, in her latest speech at the

monetary policy forum last Friday, for

which I was in, she also talked about

how rates could stay on hold for a

while. So, even the most hawkish member

is not talking about a hike as in a

baseline. So I think in uh on the whole

the median FOMC member would write in

one rate cut for this year.

>> But even the markets are dialing back

their expectations for any rate cuts

this year. What is the market getting

wrong and what do you see that's

informing your expectation that we could

still see multiple cuts this year?

>> I mean I I would be hesitant to say the

markets was wrong. I mean the markets

oftent times is very sharp on this. But

I think where I defer from the markets

is that I still think that core PCE

inflation will go down. I mean recall

last year when again the tariff

announcement. I keep referring to

tariffs because tariffs and oil shocks

are very similar. They are both supply

shocks and they're both transitory if

inflation expectations are anchored just

like last year. Last year the markets

was also thinking that the tariffs are

going to boost core PC inflation and it

didn't happen because it is an income

shock and it actually lowers core PC

inflation. Same for core here. Even the

Fed's own model. So the Fed has a a

workhorse model called the Furbus. It's

a general equilibrium model. A $10 shock

on oil tends to boost headline PCE by.3

percentage point. So that's this is why

$30 shock with the um 0.9 percentage

point on the headline. However, that

model also see that core PCE should be

decreasing. It should be deflationary on

core PC and and the Fed should be

actually easing, not hiking.

>> So are you thinking that the bigger risk

to the Fed's dual mandate is on the the

labor market side as opposed to the

inflation side, particularly after that

surprise drop in uh non-farm payrolls

that we saw for February? Absolutely. So

I think about, you know, as a

forecaster, I think about what the Fed

will do, not the Fed should do. I just

told you that I think the Fed should be

thinking about easing rather than

hiking. But I think what what they would

do is that first of all, the hawks have

the upper hand right now. And so they

are not going to be pushing for any cuts

in the first half of this year. And what

likely will happen is that the labor

market will deteriorate rather rapidly

in the spring and going into the summer

we are likely to see the unemployment

rate climbing very much like the last

two years. And so by June when they have

seen that the worst of the oil shock

should have happened also by June

because the oil price should show up in

CPI in March and April and then by June

it should be already kind of coming

down. So by June they would be more

concerned. The focus should be shifting

to labor market as the unemployment rate

climbs.

>> Thanks Anna. Great having you on with

us. That's Anna Wong, chief US economist

for Bloomberg economics ahead of the

Fed's March rate decision this Wednesday

and Powell news conference. We will have

full coverage for you on Bloomberg

radio. Let's take a look now at some

stocks making news in the week ahead.

I'm Nathan Hager joined by Bloomberg

News crosset reporter Denita Sakova.

Earnings Denita. Let's start with the

one that's coming on Thursday. A pretty

big bell weather uh on economic

activity. What are we expecting from

FedEx?

>> FedEx definitely a big one. We actually

had a great story this week on the

terminal. FedEx has eclipse their rival

UPS and it has become the largest US

parcel carrier by market value for the

first time. Definitely an interesting

thing going into the earnings. Uh what

we're seeing for this earning season is

that the company raised the low end of

its fular adjusted EPS. So now currently

it's about $17.80

but it increased the fourear revenue

growth range to 56%. Uh so definitely

some optimism there. The company is

actually up 24% this year. The ticker of

course is FDX

for FedEx. has been the latest sign that

the company's management has won

investors over with plans to trim costs,

boost margins, and spin off its fried

business. I'm sure investors will be

looking for all that. Another

interesting metric analysts were

expecting is FedEx is expected to face

approximately 600 million headwinds in

the second half of the year. About 265

million are attributed to higher

variable compensation. So that's one

interesting number that could perhaps

weigh on this super positive outlook

going into the earning season.

>> Yeah, to your point, I mean the outlook

has been strong and this stock has been

on a tear as well. Does that set the bar

even higher for FedEx to outperform?

>> For sure. And obviously we're in very

high market volatility reporting. Even

just a basic earnings reports in the

current market environment is hard.

Obviously, we talked about UPS and the

FedEx competition and investors have

been reacting way more positively to

FedEx and have been quite punishing to

UPS. So, I'm sure those tides could turn

quickly, but for now, you know, up more

than 20% this year.

>> Yeah, on a tear like we say. And a day

before FedEx, we're going to get results

from Macy's on Wednesday. Of course, we

saw this stock drop after Kohl's

reported its results this past week. So,

what should we expect from Macy's this

week?

>> Quite the opposite story on Macy's. The

company is down 22% this year. Of

course, the ticker is M. The last time

reported they reported earnings shares

declined rapidly. Their forecast their

profit forecast for the quarter was

disappointing. Even though the earnings

reports was pretty solid. What we're

expected this time is net sales are

projected to be around 7.5 billion.

Comparable sales are expected to

increase about 1 or 2% potentially

exceeding the consensus. So we're

obviously coming into this earning

season with pretty bearish pricing of

the company. Blooming del is expected to

be a strong performer. Sales are

projected to rise approximately 7%.

Everyone be looking for the earnings

call. It's expected to focus on the

progress of its makeover. And one thing

we've been talking a lot about is the

potential sax store acquisition. So I'm

sure everyone will be listening about

that as well.

>> Oh, definitely. Uh that's one to scoop

up after their bankruptcy for sure. And

before uh both those names report,

Denita, we're going to hear from

Lululemon on Tuesday. Talk about

struggles, this company seems to

exemplify it.

>> Yeah, the company has really suffered a

lot. Anything from just so many scandals

about different leggings and whether

they're transparent or not to just kind

of broader challenges. Lulle Lemon's

stocks are down almost 70% since the

start of 2024. activist investor Elliot

Investment Management has amassed a more

than 1 billion stake in the company. Uh

we had the company founder Chip Wilson

stepping up his campaign against the

company's board in the midst of um

search of a new CEO. So we have all this

tension going into the earning season.

The of course uh the ticker is Lulu

Lululemon updated guidance in January

indicating that net revenue and diluted

earnings per share for uh the fourth

quarter will be towards the higher end.

So definitely some optimism there. They

expect between 3.5 billion and a little

bit higher than this. Uh tariff risks

which what everyone has been looking at.

Uh analysts are saying that tariff risks

have been reduced. So that could support

the company. Uh but we have that CEO

surge. We have all those scandals this

year. So it's a high bar uh for

investors to be impressed.

>> Yeah. you know for all these companies

uh Denita you might think that there's a

risk around tariffs as well as uh you

know some of the the geopolitical risk

that we're seeing on the war in the

Middle East as well I mean how could all

that play out into some of these

earnings that we're expecting this week

>> for sure that's adding a lot of tension

I feel so now tariffs has take taken a

step back and everyone's worried about

others saying the consumers are not

doing so well for example Macy's in

their last reports it was all about the

consumer they said that those lowincome

consumers are stepping back But still,

they're seeing a lot of support from

their middle- inome to high income

consumer. Uh, and I'm sure a lot of

those brands and companies we talked

about are dealing with the same thing.

Are our low-income customers coming

back? Uh, our middle income and

high-inccome customers spending enough

uh to um to compensate for that loss of

low-inccome spending.

>> Yeah, a lot of reason to keep attention

on the earnings this week. Thank you for

this, Denita. Really great having you on

with us. That's Denita Sokova, cross

asset reporter for Bloomberg News. And

coming up on Bloomberg Daybreak Weekend,

we'll discuss how Europe's inflation

battle may not be over just yet. 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 week. I'm Nathan

Hager in Washington. Up later in the

program, we'll discuss what to expect

when Japan's prime minister meets with

President Donald Trump in Washington.

But first, Europe's inflation battle may

not be over just yet. After months of

progress, central bankers have begun to

signal the worst of the price shock was

behind them. But a renewed surge in oil

prices driven by conflict in the Middle

East is complicating that narrative.

Next week, the Bank of England and the

European Central Bank both set interest

rates facing fresh questions about

whether they've really done enough to

tame inflation, especially with the

memories of the last inflation shock

still fresh. Let's get more from

Bloomberg Daybreak Europe anchor

Caroline Hecker in London. Nathan, at

the beginning of this year, the focus

had been on the euro rivaling the dollar

and whether Europe would try to leenroof

institutions including the ECB. But

those issues have been overtaken by

worries about an inflation shock that

could hit Europe harder than elsewhere.

The Bank of England and the European

Central Bank go into next week's

meetings facing different domestic

backdrops but the same global

uncertainty. Earlier this week, we asked

Paul Markham, investment director and

head of global equities at GAM about

what separates the two. Generally the

Eurozone inflationary environment is

much more benign than the UK. The UK

historically has always been uh quite a

cyclical economy actually and one where

you know the the the potential for

inflation has always been a little bit

higher. Um and of course because of

certain labor policies that we now have

uh you know around you know the minimum

wage and that kind of thing and you know

the the impacts that that has I think

that's exacerbated the problem. business

costs have risen as well and there you

know we had never really completely

squeezed out the inflationary impacts

that came around as a result of COVID

and and the Bank of England had never

really quite got on top of that. So I

think yes it does have another problem

now and I think that the expected rate

cuts that were due to come through this

year are much less likely to do so now

as a result of the um this spike in

energy prices.

>> That was GAMS Paul Markham speaking to

Bloomberg radio. Well, I'm joined now by

Bloomberg's chief UK economist Dan

Hansen and Jana Randal who runs our

coverage of the Western European

economy. Thank you to both of you for

being with me. Jana, can I start with

you? Firstly, really, how is the war in

Iran now affecting the Eurozone economy?

How are people thinking about it?

Confidence of course is down everywhere

across across the Euro zone across the

wider continent which is bad for

consumption for investment and and those

of course are the drivers of growth that

the ECB um had been counting on to drive

the recovery much will depend on how

long the conflict lasts but it's

probably fair to say that because of

higher oil prices higher gas prices that

energy reliant countries and sectors are

more affected than others and you can

add one and month and that puts the

spotlight on the German economy yet

again. We've seen some terrible data

recently about uh about January and I

really wouldn't hold my breath that

things will bounce back quickly after

after what we've seen in the Middle

East. But more importantly, I I want to

talk quickly about inflation because the

memories of the last inflation shock

2022, they haven't really faded. Um so

the threshold for businesses to pass on

higher costs for consumers to ask for

wage increases that is much lower now

and and of course those are the famous

second round effects that uh that turn

an external shock into very domestic

problems for for the central bank. Yeah,

indeed. Of course, what's happening in

the Middle East is, you know, hugely

disturbing and distressing to so many

people on a human level, but we also

have to think about it economically too

at this major shock, as you say, Jana,

where do you think it will leave the

European Central Bank and therefore the

outlook for interest rates really as as

leaders around the world kind of grapple

with this this huge war? So, the ECB was

essentially done with with rate cuts, uh

it had been on hold for for a couple of

months. And while some people left the

door open to to another move uh down, uh

I think it's fair to say that now rate

cuts are off the table. And the

president herself, Christine Lagard, was

among those saying that the ECB won't

allow inflation to take hold. Now, you

could say that's her job, but in the

current situation, that contains a very

clear policy message. The upcoming

meeting is probably too soon for for

specific decisions, but it's very fair

to say that hikes uh rate increases are

moving onto the agenda. And now it's

difficult to say when how many if we've

looked at market pricing over the past

couple of days, traders price between

not quite one and two. It moves around

um you know almost on an hourly basis.

So it's very difficult to project. But I

had a chance to speak to Peter Kajimir,

the head of the Slovak central bank,

just before the blackout period starts

um before the ECB meeting and and he was

saying a rate hike is potentially closer

than than many people think and uh that

is of course very different language

than than just a couple of days and

weeks ago when when it was very much

about we're in a good place, we'll need

to see the data. So a lot of people

worry Kajimir is not alone. um we have

heard similar similar language from from

other policy makers. So an interesting

meeting we will learn a lot even though

we will probably not see action at that

point but yeah rate hikes is is where

the ECB is headed.

>> Okay so quite a big rethink as you say

then for Europe. Where does that leave

the UK then and the Bank of England? Dan

turning to you the main focus for the

Bank of England had been the strength or

the lack of strength in the UK economy.

How has that changed since the start of

the conflict?

>> So, I mean, if you go back to February,

you you had a Bank of England that was,

I think, more doubbish than almost

everyone expected. Um, you had a much

tighter vote split around whether or not

to cut interest rates. And you

essentially had a central bank calling

victory on inflation and signaling that

there were probably one maybe two more

rate cuts coming over the course of the

year and getting down to a neutral

level. Now, of course, that means that

the Bank of England has started from a

different place to the ECB coming into

this. The ECB arguably has had got

itself to a neutral policy setting. The

Bank of England, I think the majority on

the committee would argue that policy

was still somewhat restrictive. As you

say, things have changed dramatically

and in a similar way to the to the

trade-off facing the ECB. Inflation, all

else equal, if we look at market price,

inflation is going to be quite a bit

higher than the Bank of England thought.

We had the Bank of England thought

inflation would get to 2% in the spring

and stay there essentially for the whole

of its forecast period. If you take

market pricing now, you're looking at

around a percentage point somewhere

between half and a percentage point

higher depending on when you when you

take a snapshot of the market prices for

oil and importantly gas as well. So

that's a much different picture to the

one we had in in February. um we haven't

really heard from any policy makers as

around you know what this may or may not

mean for the outlook but I would just

echo one thing that Jana said there is

that the jobs market in the UK is in a

very different place and that means what

the bank of England is facing now is

very very different to what it faced a

few years ago where you had I think it's

not an exaggeration to say a red-hot

jobs market and inflation going much

much higher so the trade-off is

different and so the policy response is

likely to be different as well. I think,

you know, given where the bank's policy

rate is starting, you know, it's much

easier to see the bank staying on hold,

I think the the bar to hiking rates is

is pretty high at the moment.

>> There's a great deal of uncertainty

about how the war plays out and what it

means in terms of the straight of Hormuz

and energy supplies, but we know that

the UK is perhaps more exposed to an

energy shock than Europe is. How would

you kind of contextualize that? I mean,

we know this this war is an exogenous

shock, how much could it affect

inflation through energy?

>> It's really important to, you know, you

draw the the path of the natural gas

price. The increase we've had has been

tiny compared to what happened in 2022.

We're not in the same those comparisons

are just not fair. Nonetheless,

you know, the central bank's job or the

Bank of England's job, its mandate is 2%

inflation. So if inflation is going to

end the year closer to 3% rather than

2%, you know, it requires it to to

change course somewhat. So you know,

you're going to the inflation impact is

at least the first order inflation

impact is pretty easy to measure on the

assumption that you get the path of the

organ gas price correct. Of course,

that's a there's quite a bit of

uncertainty around that. The thing that

the bank will be really worried about is

whether this spills into wage

settlements because that's what drove

and has been driving I should say the

inflation process in the UK and why it's

been so persistent. I'm going back to

what I said in the first question. Why

might we think that's different now to

2022 the jobs market is a lot looser.

So, yes, there is going to be this I

think there's going to be this reaction

on the MPC where they worry that there's

they're going to make a mistake, similar

mistake to the one they made in 2022

where they didn't recognize what was

going to happen and didn't react quickly

enough. The thing with all central banks

though is that they always run the risk

of fighting the last war and every shock

is different. And this one, I think

there are reasons to argue that yes,

it's an inflation shock again, but the

risk to it spiraling like it did before

are somewhat lower. And I think that's

an important distinction.

>> Just briefly then, in the next few days

at the March Bank of England rate

decision, what are you expecting?

>> They signaled in February that a cut was

coming either in March, either in April.

We thought prior to the start of the war

that they would move in March. The labor

market data has been a bit weaker than

they they'd expected. Now, I think the

level of uncertainty speaks to them

staying on hold. I mean the given how

close they are to neutral, they've got

time on their side. They can assess the

situation. So I think a hold and just

sending the message that they're going

to keep an eye on things and rates. I I

still think rates will fall. It's just

as you said, what matters is how long

the war lasts and then they can sort of

get the all clear in terms of the

inflation picture and and think about

their next move.

>> Jana, I want to bring you back in then

with a final thought really on the

European Central Bank. You know, we're

thinking about leadership. Just before

the war broke out, there was a lot of

discussion and questions to ECB

president Christine Lagard about how

long she would stay on in that role. And

she was insistent that she would, you

know, complete her mandate,

but I suppose that is still in the

background.

>> It is. And and in fact, it's interesting

that you say she was insistent because I

I wasn't so convinced. uh she used the

phrase you know it's her baseline to

stay and being uh among economists uh we

all know that baseline is just the

baseline is just one scenario so those

rumors are still holding on um I

wouldn't say they're dominant anymore

but but they're still there um she's

probably still going to face questions

on whether she will stay or whether she

will leave early but I I also judge her

as a person that recognizes uh that now

leadership is in demand and leaving in

the middle of a crisis that would be

extremely bad form. I I don't take her

as a person that that would do such a

thing. So for now, as long as the crisis

lasts, as the challenges last and the

situation is what it is, I I would

expect her to to be there to lead. For

me, the question of her departing before

October next year, that continues to

linger in the background and it it might

well pop up again. I mean, this also

wasn't the first time that we had those.

It'll it'll remain interesting.

>> Yeah, indeed. And it is always about,

you know, passing what people say very

carefully, you know, the subtle as well

as the sort of overt things that they

happen to say. Jana, I trust you to do

that. Thank you so much for being with

me. Jana Randau, who runs our coverage

of the Western Europe economy, talking

us through what to expect from the

European Central Bank, and my thanks

also to our chief UK economist, Dan

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Caroline Hepka and you can catch us

every weekday morning here for Bloomberg

Daybreak Europe beginning at 6:00 a.m.

in London. That's 2:00 a.m. on Wall

Street. Nathan,

>> thanks Caroline. And coming up on

Bloomberg Daybreak Weekend, we'll look

at what to expect when US and Japanese

leaders meet in Washington. I'm Nathan

Hager and this is Bloomberg.

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This is Bloomberg Daybreak Week and our

global look ahead of the top stories for

investors in the coming week. I'm Nathan

Hager in Washington. One of the top

stories this week will be Japanese Prime

Minister Sana Etaka's meeting with

President Donald Trump in Washington.

For a closer look, let's get to

Bloomberg's Doug Krer, host of the

Daybreak Asia podcast. Thanks, Nathan.

Japan is now in a tough position given

the strikes on Iran from both the US and

Israel. And Prime Minister Takahichi

will attempt to balance Tokyo's strong

support for the rules-based global order

on one hand with its need to maintain a

robust alliance with Washington on the

other. And to help me preview this

meeting, I'm joined by Bloomberg's

Alistair Gail. Alistister is the EcoGV

reporter for Japan. He also covers

security in Asia. Alistister, thank you

so much for being here. I'd like to

begin by having you give me a sense of

what the reaction has been like in Japan

to what's unfolding in the Middle East.

>> Well, the reaction has been obviously

surprised at the scale of what's been

happening in the Middle East and concern

that this may drag on. Japan's priority

in all of this is really energy supplies

because it imports almost all of its oil

and gas and much of its oil comes from

the Middle East and goes through the

straight of Hormuz. So that's an issue

that has been top of mind and we've seen

Prime Minister Takahichi already come

out uh ahead of the international

community and say Japan's going to

release its own oil reserves to deal

with potential spikes in oil prices. So

that's really the priority here.

>> And to that point, crude oil prices have

jumped since the war to about the

highest level in 42 months. Obviously

this has inflationary implications. Even

before the war though, Japan was facing

very high inflation and I'm curious

Alistister as to how Prime Minister

Takiichi will address this situation.

>> I mean, this is really the top of the

agenda in terms of economic policy. Now,

inflation is kind of rare for Japan.

There's been a few decades of uh falling

prices and over the last few years

that's changed to inflation, which has

been um the thing that voters have been

most concerned about. So, as you would

expect, the prime minister has focused

on that. You know, she's already talked

about other steps that she's going to

take to rein in high prices. You know,

helping consumers perhaps with uh cash

handouts and things, but you know, this

potential oil shock and an increase to

oil prices is something that they really

didn't want. It's is in a way it's kind

of the worst timing as she's trying to

show that she's able to keep control of

inflation. So, I think that's why she's

moved quickly on this. And speaking of

timing, it was just in the last week

that we had a solid upward revision in

Japan's fourth quarter GDP figure. So it

seems as though Japan is growing above

its potential rate despite the fact that

the country has had to deal with those

US tariffs and we've had a few rate

hikes from the Bank of Japan. Is there

still a fair amount of optimism or is

the potential oil shock really kind of

put most everyone on the back foot so to

speak? Well, people have long memories

here of the oil shock in the 1970s which

was really devastating for Japan. We

saw, you know, a big blow to the economy

there. We saw people hoarding even

things like toilet paper cuz they were,

you know, concerned about supplies of

basic goods because of the um the

problems with the oil supply. So,

there's this kind of fear that we're

going to see a reprisal of that. And I

think that's why she's moved quickly and

that's why, you know, this is the thing

that is leading all the newspapers. It's

what she's talking about in parliament

every day. Uh, and it's really top of

mind for, you know, average Japanese

people.

>> So, when it comes to the prime

minister's conversation with President

Trump, give me a sense of how Takahuchi

is going to have to thread the needle

here.

>> This will be her first trip to the White

House as uh, prime minister. Trump was

here in November last year. They got off

on a, you know, very strong footing. You

know, they seem to have personal

chemistry. It's important for her to go

to the White House. Most Japanese prime

ministers go early in their terms. She's

just won this big mandate. We had an

election here in February which she won

by a landslide. So, she's she's well

placed politically to go there, you

know, with confidence. But for her, it's

important really to make sure that the

alliance that Japan has with the US

stays strong. As you mentioned, you

know, the trade issue is a is a thorny

one for Japan because it's been hit by

tariffs like everyone else. is trying to

find a way through that with uh this

commitment to invest 550 billion US

dollars in the U in the US. We've seen

three initial projects which have been

announced by Japan on that front. So I'm

sure that when she's talking to the

president, you know, they'll be going

over this and uh you know, she may have

some new things that she wants to

provide that show that Japan is still

committed to investing in the US because

the relationship is really important.

You know, the US is Japan's only

security ally. You know, there's large

military bases, uh, US bases here in

Japan, and of course, the US is a major

trading partner for Japan. So, it's

important really to make sure that she

has continues that good strong start to

the relationship and tries to find a way

to navigate through this uh trade issue

and also Iran because, you know, Japan

has not come out and and said it

supports the what the US is doing. it's

tried to kind of avoid giving a clear

position on this. So that's something

that uh you know is going to be hanging

over the meeting with President Trump as

well.

>> So if war in Iran has really put the

spotlight on geopolitical risk not just

in the Middle East but on other areas of

the globe. I'm recalling that Prime

Minister Takichi wanted to increase

defense spending. give me your sense of

what's going on right now in the

geopolitical risk side of the equation

across the Asia- Pacific and how Japan

is dealing with that.

>> So, she has a background in national

security. She has strong views on

building up Japan's military, ensuring

that Japan has stronger economic

security, which of course is related to

uh energy supplies. So she's basically

now said that Japan is going to move

faster on defense spending. There is a

target of reaching 2% of GDP on defense

spending which she's uh moved up by two

years and uh the government is now um

committed to spending that amount this

fiscal year. Uh she's talked about a new

plan uh that's now under discussion. I

think we can expect that you know uh

spending is going to go up. Um so she

wants Japan to have a more robust

military. She wants it to be equipped

with all, you know, the modern

equipment. She wants it to be a

contributor to regional security. Uh,

obviously the big concern here in Japan

is what might happen over Taiwan. Um,

she sees Japan as being part of the

deterrence to, you know, deter China

from, uh, making moves such as, you

know, on Taiwan. Um, and so, you know,

that's really something that she takes a

deep personal interest on. uh she also

wants to have you know the the US

military presence uh to remain strong

here. Um we've seen in the US national

security strategy there has been a

commitment to having a strong focus on

East Asia as well of course you know as

as uh the western hemisphere. Um so I

guess you know in some sense you know

what's happening in the Middle East may

be something of a concern uh because

we're seeing the focus of obviously US

military power now is very much around

Iran. Uh so she I think she'll be

seeking some reassurances that the US is

still strongly committed to East Asia

but that's something that you know she

enjoys talking about uh and you know she

is really putting her money where her

mouth is in terms of what Japan is

doing. So to what extent would that

increase in military spending benefit US

defense contractors? Or are there enough

players in the Japanese market for

defense um that she could be a little

bit more reliant on domestic companies

or is it necessarily the case that you

have to be partnered with the US if

you're looking to build up uh more

hardware? That's a really interesting

question because Japan does spend a lot

of money on US defense equipment and I

think we'll continue to do so. Uh but

one of her goals is to increase uh the

scale of the defense uh industrial

sector here in Japan which is relatively

small which is a legacy of World War II

where Japan has not really focused on

investment uh in defense business uh

businesses. There are some companies

here which you know obviously make

equipment for the Japanese military but

it tends to be a peripheral part of

their uh business portfolio. They're

mainly focused on other things. So what

she wants to do she's talked about

government investment uh in the defense

sector. So providing government money to

encourage companies to to build up their

capacity and do more R&D and sort of you

know get into things like AI and all the

uh you know all the modern developments

in in terms of military technology. But

Japan is starting from a relatively low

base. So she will uh you know no doubt

Japan will continue to spend a lot of

money on American equipment but the

long-term goal is for Japan companies to

be having a bigger slice of that pie.

I'm wondering as I'm listening to you

where the BOJ fits into all of this. I

mean, we started the conversation by

addressing higher oil prices and the

inflationary impact of that. Now, Japan

has been well above the BOJ's inflation

target for it feels like many years now.

Do you have a sense of given everything

that we're describing where the BOJ may

go from here?

>> Right. So, the BOJ has a meeting on

March 19th. Um they are of course on a

policy normalization course which you

know is another way of saying raising

interest rates because they have been

very low for a long time and it is

looking for an opportunity to raise

rates again but there's essentially a

consensus that it will hold off in

March. You know the obviously the

developments in the Middle East and the

impact on uh oil prices and what that

might might mean for inflation. You

know, you would think it would be an

incentive to raise interest rates, you

know, to deal with um uh rises in

prices, but the BOJ has made mistakes in

the past where it's raised interest

rates too quickly. Uh and the economy

has contracted as a result. So, it's

being it's signaling that it's, you

know, it's going to pay close attention

uh to the situation, you know, uh around

prices and in the Middle East. But the

expectations amongst economists is it

for the next meeting in March 19th it

will hold off and people are really

looking to perhaps the following meeting

in April when we'll have a better sense

of what the you know the feed through of

uh the you know the oil price um is

going to be and the overall inflation in

picture. The BOJ will have obviously

have a lot more data on you know the

overall economy. So, we're looking at um

you know the months ahead really for the

next moves for the DOJ

>> and we know that Takahuchi had great

success in the recent snap election. I'm

wondering about the level of public

support that she enjoys right now. Are

her approval ratings at a high level?

>> They are. They've come down from the,

you know, the peaks around election

time. Uh that was now over a month ago.

So, uh some of the the excitement around

her during the election campaign has

worn off, I think. But she still has

Yeah. a very strong hand in terms of

public support, you know, and uh I

think, you know, with this uh huge

majority that she has in parliament, you

know, that gives her a lot of bandwidth

to push through her policy objectives.

She's talked about lots of, you know,

spending. That's been some of something

of a concern particularly to the bond

market, but she now has a very strong

hand to do what she wants to do. And I

think going back to her meeting with

President Trump, the expectations may be

higher on the US side for her to do

more. Certainly in terms of defense

spending and being ambitious about Japan

having a larger regional role because of

course you you know that's a message

that President Trump has given to its

allies that you know we want you to do

more of the heavy lifting around the

world. So I think you know he will have

high expectations of her uh doing things

along those lines but she does have the

mandate to do that now.

>> Alistister will leave it there. Thank

you for helping us look ahead to the

meeting between President Trump and

Prime Minister Takichi. That's

Bloomberg's Alistair Gail Ecov reporter

for Japan. He also covers security in

Asia. I'm Doug Krer. 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.

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