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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It's the final trading day in November, and earlier we got several key data points for the Japanese economy. First, there was Tokyo CPI. Core inflation in the Japanese capital was up in the month of November at an annual rate
of two point eight percent. Now, core excludes fresh food, but the forecast was only for an increase of two point seven percent, So a bit hotter than expected in that regard, and this obviously would support a potential rate hike from the Bank of Japan. For a closer look now at markets in the Asia Pacific, I'm joined by Bloomberg's Paul Dobson. Paul is Executive editor for Asia Markets.
He joins from our studios in Singapore. So what do you think is this enough, this reading on core CPI for Tokyo enough to move the needle when we were considering a boj raid hike in December.
It still feels to me a little bit, Doug, like it's too early for the Bank of Japan. You know, they've backed down, they've been reticent they've taken their time so far. Yes, there's plenty of evidence that there's an opportunity here to raise interest rates, but the market expectation really isn't there, and they tend not to move when that isn't priced in. And I think that there's a
couple of reasons. One, they don't want to get away, get in the way of the politics and let Takaichi kind of set out her plan and her course before they make their next move. They don't want to slow the economy too much while she's still bedding in, as it were. And I think that the other reason is that their longer term outlook for inflation is that it's going to slow and come back towards target as well, so they want to be a little bit careful on
that too. Now. You know, that's despite the evidence that actually, you know, the inflation is still quite high in the cost of living is rising, and food price inflation, which isn't included in the core number, is also high at the moment. And one of the things that Takaichi actually wants to do is to put in place measures to kind of counter that on the fiscal side rather than
on the munetar site. So My view is, and I guess the market view is that the Bank of Japan isn't getting ready to move in December, but probably at the start of next year would be a more realistic kind of a timeline. And you can see that by the way in the yen in particular, which remains kind of weakened under pressure rather than starting to appreciate again.
From what I understand, Governor Uda will be speaking next week and we'll see whether or not he endorses the notion of a rate hike. I found it interesting that some of the other data points for Japan were far above forecast. Industrial output at a gain of one point four percent the street was looking for contraction, and the retail sales number, with an annual increase of one point
seven percent, was almost double forecast. So there is a lot to be said about the health of the Japanese economy despite this situation with tariffs that have been imposed by the US.
And that week, that yin that I was talking about suddenly helps that as well, kind of gives the exporterers in particular a little bit more of a boost. It's an interesting situation in the economy at the moment sort of half looks good half doesn't look quite so good, and you know, kind of a little bit like we see in the US with that case shaped economy. You know, there's there's pockets where where things are looking better than
in other places there. So you know, we've seen in the stock market pretty decent signs of strength as well, but there's lots of tensions playing out under the surface, particularly in the currency market and also of course in the Japanese government bond space. Really importantly, this week we heard some more about the extra spending plans from the government, what it plans to do, how it plans to finance it.
They haven't yet told us exactly how they plan to allocate the extra cash that they need to raise, and that will include some extra sales of government bonds. The market is asking them to put that in the short end of the year yield curve and to actually slow the issue and so of the back end of the
yeal curve where there really isn't that demand. And you've seen that in the very big increase in longer term interest rates, which is bad news for Japan because it raises that over the overall cost of financing on the long term tea.
What about tension between Japan and China, particularly after Prime Minister taka ICHI's comments on Taiwan.
It's been a fascinating thing to watch, hasn't it. I think from a market perspective, it's hard to read too much into it just yet, but certainly this idea that China had that call with Trump and then Trump had the call with Takaichi and apparently asked her to just call things a little bit does talk a lot to policy between US and China relations, how important it is for Trump to sell these agricultural products into China, and also what it means for the long term future viability
prospects and so on in Taiwan itself. And so we heard this week Taiwan talking some more about their own spending plans for defense and how you know there's going to be lots of long term investment going in to try to protect the island, but it probably is feeling a little bit more vulnerable at the moment. So I was watching, actually the implied volatility on the Taiwan dollars see if there's any pickup in stresses in financial markets there.
So far hasn't really registered too much, but I do think that it's worth monitoring, particularly if you look at what the contours of the deal for peace in Russia and Ukraine might look like and what that might mean as well for how safe and secure Taiwan feels from investor's point of view and from a policymakers point of view as well.
So as long as we're talking about China, Paul I think we have to tease out what's been happening in the real estate sector. Guess it suffered another blow recently after China Von Kah proposed delaying repayment on a local bond. Is this just kind of reinvigorating the anxiety that existed or has existed for years now when it comes to the property market.
It is, but it's prising, I think on three fronts. Maybe one Thanka itself was one of the biggest property developers in China, and it was seen as a bit of a bell weather as one of the last kind of companies standing without having defaulted for the market's potential recovery. Not only that it has sort of semi or quasi state links because of some of its shareholders being state owned companies as well. And yet you know the idea that it also is struggling to repay local debts, wants
to extends some bond payments. Maybe heading into a more of a crunch for the bond market is a sign that, you know that really the real estate market has not been sorted yet, is still in a great deal of pain, and it's bad news for bond holders in that company and in any other company which has yet to default.
It sort of tells you that repayment risks are still out there and is bad, you know, in terms of consumer confidence in the wealth effect, because what would really help reinvict right the consumer in China would be a little bit more confidence in property given that so much of the household wealth is tied up in real estate investments and house ownership. So that sort of wigs as
a cloud on the economy. I think that there's one other thing that you can look at, though, which is this idea that actually that might not be such a terrible thing for the stock market. And it goes like this one for years and years, the first thing that Chinese people would look to invest in would be the real estate market because they saw the chance for continuing capital appreciation, and that's not been there for several years now.
So that kind of confidence has gone to trusting corporate bonds, and the bond market in general, where yields are very low, is not so good at the moment. So three, what's the viable alternative. Maybe it's the equities market, which has had a really strong year this year, starting to look a little bit more appealing for people that are trying to find somewhere safe to put their cash get some capital appreciation where they can't go in the real estate and can't go in the bond markets.
Paul, when we continue the conversation in a moment, I'd like to focus a little bit on the FED cutting interest rates faster than the market previously thought, and maybe we can talk a bit about Bitcoin above ninety one thousand for the first time in a week. Speaking here with Paul Dobson, Executive editor for Asia Markets, on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Prisner speaking with Paul Dobson, Executive editor for
Asia Markets, joining from our studios in Singapore. So much of what we have seen stateside, Paul, in terms of this recovery or stability in the US equity market has been tied to kind of further betting on the FED cutting interest rates at the December meeting. I think the probability right now if you look at money markets about eighty percent. How does that filter into what you're seeing in the price section in Asia.
Asia's markets have also been buoyed by this. What we have is a week a dollar as a result of the prospects of LOFE US interest rates, and so that's been boosting currencies in the region, and you have that sort of knock on effect from the recovery in US
equity markets also feeding into Asia. I think in particular, obviously the tech market, which has had more of a wobble than most, starting to find a bit more stability in because Asia's tech heavy gauges, particularly South Korea, Taiwan and Japan, are so dependent on those global supply chains and the prospects for AI development in the US and globally that the recovery stateside has definitely had a beneficial
impact on Asia's markets as well. So interesting, you know, it's been such a wobbly month, and yet getting towards the end of it, I think on a global gauge, we're only point five percent or thereabouts away from erasing all of the losses for November, So turning it into a positive month after all of the question marks that we've had would definitely be, you know, kind of an interesting.
Development, particularly when you look at how highly correlated the AI trade here is in the US, with let's say, the South Korean equity market and names like sk Heinix and Samsung and also Taiwan and TSMC.
Absolutely absolutely this kind of integral kind of part of the supply chain. I do think there's one interesting sort of additional thing that we saw over the past week or so, which is just a little bit of a fragmentation in terms of how people are viewing a future of AI, more concerns and doubts about one stack and
more favorable for the other. The Google emergence, the strength of its new AI programs and the prospect of its selling some of its chips it's TPUs rather than NA video chips, has quite of caused a little bit of a consternation I think among investors who are thinking, hang on a second, you know, this looks like maybe there's some viable alternatives to the video and that supply chain and to open AI and that supply chain, and so you're starting to see just people thinking about, you know,
where's the best opportunity within tech rather than just trading. Tech has one big unanimous blot.
When we look for signs of kind of the risk appetite returning, you don't have to look any farther than bitcoin. And right now we're above ninety one thousand for the first time in about a week in your neck of the woods, and I'm speaking to you from Singapore. How is the crypto market used as a leading indicator of appetite for risk?
It's really interesting, isn't it. Just how much it feels a bit like the tail wagging the dog or something like that at the moment, But how much those movements in crypto fast trigger movements give you that sort of insight into which way the wind is blowing. And so all of this draw down that we've seen has certainly had more of an impact on mainstream markets than we
might have seen in previous crypto booms and busts. I do think, you know, it's more of a sentiment driven thing rather than a particular big wealth effect or anything like that thing. But I do also think that more of the real economy is invested in crypto now than it was previously, so there is some more direct read across and people have been paying attention to it. Crypto itself, though, doesn't have that many fundamentals, so it is about sentiments.
So I suppose if you're looking to discern the feel for the market, then that is a pretty true indicator.
So I mentioned the data points for Japan earlier Tokyo CPI along with industrial production and retail sales. What are the other important data points that you're going to be looking for on this final trading day in November?
Oh, good question. We have ECB minutes. People are wondering are they going to try and squeeze another cutout at some point. We've seen so many policymakers being adamant that they're done, and yet maybe some arguments might start to come on to the horizon again pointing in that direction. But otherwise I think you know, what's going to be really interesting just is to see where we get to
a month end. Can markets close out in November in positive or is it going to be the first down month that we've had for several months, and what does that tell us about the prospects for that Santa Ralli that everybody who's bullish on equities is hoping for it.
There. It's always a pleasure. Thanks so very much. Paul Dobson, a Bloomberg Executive editor for Asia Markets, joining from our studios in Singapore here on the Daybreak Asia Podcast. 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 Chrisner, and this is Bloomberg