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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Wall Street closed at record highs on Thursday. We had the s and p eking out a small gain and in the process notching its tenth record in the last nineteen trading days. The Nasdaq Composite also closed at an all time high. Global markets appear to be finding encouragement from President Trump signing a number of trade deals, and in a moment, we'll get the market perspective of Janet Henry.
She is the Global Chief economist at HSBC. You know, we're a week away from the Trump administration's August first deadline for those trade agreements. Now, officials from the US and South Korea are set to meet this week. Now, Trump has hailed the deal with Japan as a potential model for other countries. That deal, by the way, sets tariffs at fifteen percent across the board, including on autos. Now, Tokyo also agreed to a whopping five hundred and fifty
billion dollars in investments in American industries. Bloomberg Opinion colonist Garod Redi says this deal maybe Prime Minister Shiguri Ishiba's final act. And I'm pleased to say that Garod joins us now from the Japanese capital. Thank you so much for making time to chat with me on this. Make the case that this, in fact, this trade agreement is Ishiba's final act, that this is basically the last thing that he will be known for.
Well, in terms of Ishiba, We've just had an extraordinary couple of days here in Tokyo where pretty much as soon as this deal was agreed, almost all of the mainstream Japanese media outlets were reporting that Ishiba was soon to announce his resignation. Of course, this follows the elections on Sunday where Mishiva's Liberal Democratic Party lost their majority
in the Upper House. They already lost majority in the lowerhouse and election last year, and this is the third successive election with Ishiba as head where voters have essentially rejected him. Normally you would see a prime minister step down after such results. And the suspicion was, and the case that I was making, was that the threat of the tariffs from Trump had essentially given his premiership artificial life.
Already he had christened this tariff threat as a national crisis in a sense that gave him breathing room where he could say, look, things are too tense right now. This is too important to worry and bicker about internal politics now. By agreeing to this deal with Trump, he has essentially given away his last piece of leverage. And he has a lot of rivals and a lot of people were not happy with his performance as leader, and they're going to be coming for him.
So if it is some sort of capitulation, I'm wondering about what the feeling within the diet, the Japanese parliament may be about what Ishiba agreed to in this trade deal.
I do think there is a sense of relief, certainly within the markets. You've seen, you know, the market reaction to this deal has been you know, one of sort of the uncertainty has lifted around, certainly Japanese stocks, and we saw the topics yesterday reach a new record high within the country. I think there is a bit of a sense that this is about as good of a
deal as they were likely to get. I think the question is the question I have is why did we spend three months with Ishiba Isshba had this this red line essentially that he said he was never going to accept tariff's on auto's and he has a you know, basically, as soon as the election was over on Sunday, he crossed that red line. And now he's saying fifteen percent
tariff on everything, including autos is fine. However, that still is better than what they had already, which was twenty five percent on autos, with an additional twenty five percent to come on all of the exports that are not autos at the start of next week if they hadn't agreed this deal.
So give me a sense of what you think is at work, because it's not just the fifteen percent levey across the board on exports from Japan into the United States. There's a five hundred and fifty billion dollar investment that is being pledged to the US. Makes sense of that for me?
I wish I could, but I can't, and I'm not sure anyone can make sense of the five hundred and fifty billion dollar investment. The short answer is, we really don't know what form that's going to take. It would seem quite unusual to be investing that much in projects that, you know, according to President Trumpet, the US is going to retain ninety percent of any of the profits from
these projects. I guess what it's looking like is that it's going to look something like, you know, I guess sort of like financing agreements for projects within the US that would be strategically important to Japan, So semiconductors, possibly, you know, the energy projects, got the LNG project that's going in Alaska. Possibly, you know, rare earths that that kind of thing. To a certain extent, that makes sense. What form this takes? Is it? You know, is it
low is it debt? Is it loans? Is it equity investment? We don't really know who's giving that money. Does it need to be paid back? All of this we don't know, essentially, And the figure of the five hundred and fifty billion dollars itself seems quite unusual, and I don't think anyone knows really where it's coming from. Presumably it includes a lot of spending that maybe is already happening or was already planned. We just don't know.
I think I'm reminded of Trump agreeing to allow the Nippon Steel acquisition of US Steel to go forward, and there was some investment that was a part of that deal. Maybe that could have been a bit of a leading indicator that something in this order would be a part of any trade agreement.
That's right, I mean the Nipon Steel agreement was I think a positive step forward for both countries. I have other issues with the deal as a deal for Nippon Steel, but it was good I think that and certainly good for US Japan relations. The President Trump essentially backtracked on his opposition to that in return for more promises of investment. That was I think fourteen billion dollars of additional investment that they promised to kind of get that over the line.
Soft Bank is also promising to invest, you know, one hundred billion in the US, and presumably that includes you know, their various Vision Fund investments and semiconductor investments than AI investments that they're making.
Now.
Are all these figures in the five hundred and fifty billion possibly we saw there was there was a leaked a leaked photo from the last round of negotiations where Japan seemed to be presenting a figure of four hundred billion, and by the time that meeting was over it had increased to five hundred and fifty billion in the space of I think that meeting went on for seventy five minutes, so I think the exact figure probably has a lot
a lot in it. And you know, the fact that we haven't really seen any clarification from either side of what this figure actually is, I think shows that that maybe neither side really knows well.
So let's remember that the US and Japan have been allies for decades. I'd like to get your view as to whether or not this trade deal does anything to alter that relationship in the slightest I.
Think Japan at the start of this obviously, you know, Japan was quite taken aback that, you know, not just an ally, but probably their most important ally in Asia, and certainly their most important ally to at least the China Hawks within the Trump administration. If they wish to contain China, they need Japan on board. So the fact that you know, Japan was not given any sort of exemption or preferential treatment when the taris were first announced
in April did come as a shock. However, I think Japan has been pretty pragmatic, and they said very early on that they wanted to separate out, you know, the economic negotiations, the tariff negotiations and any defense negotiations, they put them on to depletely different tracks, and I think that probably was a smart move, and I think both sides recognized that there are, you know, fundamental ties within the security alliance that short term there's just no way
of getting around them. You know, Japan needs Japan needs the US from a security perspective, and the US needs Japan, and I think they were able to separate out that part of the relationship from the trade negotiations.
Goroth, thank you so much for your perspective. Goode Reedy Bloomberg opinion columnists joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. Earlier today in South Korea, Yon Happ reported the country's top trade negotiators have held a joint meeting with Commerce Secretary Howard Lutnik and Washington. The two sides reportedly reaffirmed their commitment to reach a teriff agreement before that August
first deadline. Let's take a closer look now at the ongoing economic impact of these negotiations. We heard earlier from Janet Henry. She is the Global Chief Economist at HSBC. Janet spoke with Bloomberg TV host Cherry On and Heidi Stroud Watts on the Asia trade.
Jannet, really great to have you with us at time of enormous uncertainty, but also i'd imagine quite a bit of fun for economists trying to model around all of the different scenarios. Are you feeling as sanguine as financial markets seem to be that things are only going to progress when it comes to trade and at the very least we're not going to go back to sort of so called liberation day rates.
Good morning, and it's a pleasure to be here. As you say, it's fun time for economists. It's certainly keeping us busy, giving us plenty to talk about. But the key point is one of uncertainty. And it's interesting you
mentioned financial markets. Equity markets. The US equity market, at least for dollar investors, and global equity markets are taking a pretty sang Win view because the fact is the global economy has been relatively resilient relative to expectations just a couple of months ago, and they do seem to be taking the view that the worst case scenarios regarding tariffs and trade now have a much lower probability also they've priced in some expectation of quite a lot of
rate cuts. You know, the market's still expecting about five feder rate cuts by the end of twenty twenty six. So if one of those factors change, if we do get worst case scenarios on tariffs, we do get some higher tariffs, or if the US economy slows down more materially but perhaps with higher inflation, so you don't get the rate cuts, then obviously even equity markets would have
to question the outlook and actually maybe the dollar. Maybe bond markets aren't quite a sanguine as equity markets seem to.
Got at the longer end of bond markets at the moment. But when it comes to not quite seeing the economic impact, get is that just to pass through situation? Do you think the risk is that in the coming months and data will start to show, both in terms of confidence and inflation, that there is an impact.
What to some extent we saw it in the June inflation data. The headline number, if anything, was lower than expected, because actually, what you're finally seeing in the US is the housing component of inflation is starting to moderate. But when you look in the weeds of the consumer goods data finished goods, particularly those from China. You saw it in household appliances, you saw it in audio equipment. And these are prices that have been persistently falling for the
last few years. Suddenly they rose on the month by about ten percent. So you are seeing some signs of certain items where there is a pass through, particularly or finished goods. But some of the uncertainty regarding towerists relates to intermediate goods components. The tariffs on aluminium and steel, potentially on copper, maybe on certain areas of pharmaceuticals that could be quite hefty, and they tend to pass through
over time. So you've seen it in the data already, the front loading anticipation of tariffs, you buy a lot more consumers have been front loading. And now the question obviously is whether the labor market slows down or indeed you see more of the inflation numbers actually squeezing, squeezing spending power but also pushing up inflation expectations, putting the fad in that very difficult position. But I think we
will see it. Calling the exact timing both in the US and what it means globally is the really difficult call. We think you'll see it before the end of the year. You probably will see it in the coming months.
Do you have any indications of where the Bank of Japan might go given what the Federal Reserve is doing, and now that we have a trade deal with fifteen percent tariffs on Japanese goods too, it's interesting.
To say, now we have a trade deal with fifteen percent tariffs some on goods, tariffs are a lot higher.
Than they were.
They're just not as bad as have been feared back on April the second. So we find, you know, everyone celebrating the fact that we've only got fifteen percent tariffs on Japan. But I think you know, what you've seen in Japan is higher inflation, a lot of it driven by the doubling of rice prices, and people hate those kind of inflation releases, those everyday items that they tend to buy. It feeds through to their inflation expectations, So it's kind of the wrong kind of inflation.
Obviously.
What we've been hoping for, and there are some signs of it coming through, are a more self sustained improvement in inflation, particularly on wages, and there are signs of that coming through. So the Bank of Japan can normalize policy. So yes, we do expect the Bank of Japan obviously not imminently, but before the end of the year, most likely in October, we'll be able to.
Raise rates once more this year.
So you know, it's still getting there gradually, but it will be helpful obviously if rice price inflation continues to moderate and you get more of the sustainable inflation rather than a cost shock.
Jen And when you talk about, of course the tier of rate here in Japan being fifty percent, which yes, to your point is higher than it was. But do you also consider perhaps a relative impact, say as opposed to South Korea. The Koreans are trying to lower their tariffs to the rate of Japan because they compete in similar goods, right, so if they have a competitive disadvantage in automaker auto sales to the US, for example, that
would be comparatively not as great. Is that something that as an economist you keep an eye on these relative tariffs as opposed to just the net impact of what the levees do to one economy.
Yes, absolutely, that's a really important point. I mean, the fact is different countries compete with each other, but there are other factors of them in tariffs that relate to that currency moves. The level of the exchange rate can
matter as well. Also the position of different countries relative performance even before the tariffs take effect, and Korea's exports certainly haven't been quite a strong on a number of items than for instance, Taiwan areas of Japan's exports, So all of these factors come into play.
But you're absolutely right.
Fifteen percent is the new aspiration, rather than getting back to just a couple of percentage points.
But when you look at the.
Data, it's still going to be very, very hard to read, and it's still going to be very difficult for companies to plan in advance if they don't know what tariffs are going to be tomorrow next week.
And don't forget on the tariffs.
We've still got this court challenge that's underway in the world regarding the use of emergency powers to impose these reciprocal tariffs altogether, and that could go all the way to the Supreme Court. And it seems like we're constantly waiting for the next deadline. Now it's August first, there are other deadlines that are later in August. There are others that might extend in the course of the year.
So all of that does play into the uncertainty angle and the difficulty for companies trying to navigate the course shipping things that they don't know what the tariff will be when by the time it actually arrives in the United States. But you're right, relative performance between economies in similar goods can make quite a big different, and we've.
Seen from the first Trump administration that taras tend to compound and endure. Right, Have we sort of taken a look at what the longer term impact is going to be, even perhaps with the changing government.
Well, it's a good question regarding the longer term impact because you know what you saw for you know, a couple of decades or more. Certainly up until twenty eighteen, with the first Trump administration, there was quite a big relative price change because you were reducing frictions in world trade. The US saw persistent declines in goods prices of one, two, sometimes three percent per year, and that was a boost to real incomes.
They were spending so much less on goods prices.
They had strong growth and in many ways that supported their spending on domestically produced most services in what is largely a service sector.
Economy the United States.
The industrial sector is less than ten percent of GDP in the US, So the longer term implications would be that people perhaps will buy less on goods. Goods are more expensive because the US.
Can't produce all of these goods.
Themselves immediately, and so actually it can dampen the ability to spend on other areas of the economy service sector spending in particular, and also the more macro sense, it means lower growth, higher inflation, and interest rates being higher than they would have otherwise been.
Janet Henry, here's a Globe wal Chief economist at HSBC.
Here with us.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg