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Welcome to a special edition of Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from all of our Daybreak anchors, including Tom Busby. This is not Tom Busby, it's Tom Kean McKee out of tantrum and said, I'm only going to talk to Tom Keen about next week. It's just so so exciting. Michael McKee joins now driving all of our economic work here, of course off a blowout two hundred and seventy two thousand job statistic. Once again, it's morning in America except
for inflation. Inflation is out there and to drive Daybreak forward into next week. Am I right that we have an inflation report at eight thirty in a Fed report at two pm.
Yes, the Fed will be getting the inflation numbers just before they vote. However, they've probably done most of the math, and generally economists are pretty good at forecasting the price indexes, so there might be a surprise. But if there's no surprise, then not going to change anything in their outlook. They will have submitted their views on what they think is going to happen going forward, and we'll get the dot plot and we'll see what they say.
Is this a two hour conversation you and I could have it? I mean, there's so much going on. Yeah, my head's absolutely spinning about this from the jobs report, and we can look back at that. We'll touch on that in a moment, but let's stay on inflation now. I was making a joke with Claudia Sam about the lift in cat food prices, which is tangible. Are we still seeing the shock in goods prices like Claudius Sam saw with Puffy the cat.
Not the same way food prices and I'm sorry her cat food went up, But food prices have been flat for the last.
Couple of months.
They haven't been rising, when one of the bright spots for inflation. Overall goods inflation has gone up a little bit in the last two months, but very little. It's still services price inflation that is rising, and that's been the Fed's worry because labor is such a big part of service price costs. Labor went up, and we saw an increase in average hourly earnings.
Well, let's span the globe as they used to do on Wide World of Sports. Claudia Sam's got the cats, cat food up. I got vet Bill and Kennel Fee, and let me tell you. I can tell you service sector online is up, and it's not up modest like these are real jumps. Let's talk about service sector inflation that we're gonna see the same day as the Fed. It's still tangible, isn't it. It's not disinflation, right.
Well, it's disinflation, but it's not deflation. Certainly, it's not flat. It's been going up at a slightly slower pace. Give me a note. Well, it's been rising about four tenths a month, and the Fed wants to see that down around two tenths or or lower. The question is how fast do they get there? How fast do we see this stuff squeeze out?
Now?
We had the big rise in average hourly earnings last month, and some of that may have been the rise in California's minimum wage, which mostly affects service industry workers. So you have that service industry inflation still coming through because I'm sure restaurants raise their costs to try to recoup some of what they had to pay in the additional wages. But then it's a one off. Do we then see next month that it drops back that's the guess the FED has to make.
Let's go to the FED meeting, and I'm going to start with something I believe I've never seen. We had an ECB rate cut last week, inflation forecasts up by the ECB. I believe I've never seen that. The Fed's not going to do that. When they cut, They've got to have an inflation forecast coming down, don't.
They Yes, absolutely, and we get a new forecast from them. They'll put out their summary of Economic Projections with the dots with the dot plot, and they will have new inflation forecasts. Whether they'll change it or not is a question, because these are forecasts where we're going to be at the end of this year, at the end of next year, and they've already forecast that inflation is going to drop
and drop slowly, but it's going to get there. So we may not see a big change in the inflation forecast. It's pretty clear now that we will see a change in the dot plot because everybody, including City Group, on Friday after the Jobs report, priced out their July rate cut. So you don't have three rate cuts anymore. You're going to have two or one. That's going to be the issue for the beneficials submitting their guesses.
Tom Buzby would be polite on Bloomberg Daybreak, I'm not going to be polite. Do you have a question yet for the chairman?
Well, the question that presents itself following what we've seen in the last week, and we saw stronger than expected ism numbers, stronger than expected hiring, is are you tight enough? Does the Fed have enough restraint on the economy to bring inflation down? And we'll get a partial answer to that from the CPI numbers, But there have been questions about whether the Fed is restrictive enough and if we're still getting jobs reports like this, one could argue maybe
they're not. Their argument has been we just haven't waited long enough.
Is our international economics and policy correspondent, Michael. Thank you so much, and now we dash to big tech. Of course, to Apple, Tom Busby, I'll look at the Worldwide Developers Conference in Cooper.
Tino on Monday. Apple kicks off it's week long Worldwide Developers Conference event for twenty twenty four, but this year is different. It is all about a for more on the event and what to expect. We're joined by Mark German, Bloomberg's chief correspondent on Global Technology Now Mark, there may be a lot going on at Apple's Worldwide Developers Conference, but it looks like it's AI strategy and a rather unlikely AI partnership will be the big focus. So what do you expect to see.
It's all going to be about artificial intelligence at Apple for the foreseeable future, and at the conference on Monday, they're going to introduce new versions of iOS, macOS, Ipedos with AI at the very forefront, and the big idea is to integrate artificial intelligence in a way that syncs with your day to day capabilities in your applications, with a strong privacy focus, So you're not going to see
whizbang features like image generation. Things like open AI and Google gem and I have shown and they're really intricate demos recently. You're going to see things like summarizing incoming notifications, automatically replying to text messages and emails, the ability to quickly edit photos using AI. But there's also going to be an interesting partnership with OpenAI for an integrated chatbot because Apple knows that some consumers want that functionality as well.
So it's going to be a very broad AI strategy here for Apple to set the stage for the next three years at the company.
Now, Apple a little late maybe to the AI boom, Microsoft Alpha Bit, even Amazon way ahead. Is this partnership with open ai. Do you see it as temporary? How soon will Apple have its own AI chatbot?
Apple certainly is very late to the game here regarding generatord AI or these modern sets of artificial intelligence based on technology known as a large language model. It's so interesting. Apple was ahead of the game for many years with Siri, which was introduced at the end of twenty eleven, but they got lapped very quickly by Amazon Alexa and Google Assistant, and then they got lapped again with the introduction of open AI's chat GPT in November of twenty twenty two.
So it's fair to say they were caught absolutely flat put it. They spent the last year and change trying to reverse that and integrate as much AI as possible through a program known internally as Project gray Matter. Now, the OpenAI partnership is interesting because this is specifically for a chatbot component and the generation of text messages and different things that you can use check GPT for, such
as writing email. Now. I anticipate this partnership to be long term in the sense that it will exist for the next few years or so. But in an even longer term, maybe five to ten years, you're going to see Apple shift to its own chatbot, but it's going to take a while for Apple to get there. There are still concerns with chatbots and generative AI. There's the idea of what's known as a hallucination, which is AI and generative AI reporting incorrect information, to taking information from
the Internet and presenting it in an incorrect way. And that's what Apple's trying to avoid, and by using open AI, they're pushing the onus on them rather than taking responsibility for those incorrect information suggestions.
Now, aside from those incorrect incorrect information, those hallucinizations, is there is there a danger of outsourcing It's AI to Open Eye right now? I mean that CEO Sam Altman, controversial figure, ousted from the company for a short time last year. Reasons not quite clear. Are you getting into bed with someone maybe you shouldn't.
I think the only concern with partnering with open ai is actually its corporate structure, right who owns the company? How's the company operated. Can that board take out their executive team again like they did at the end of last year, right? Can that company fall flat on its face? Can it fall apart? Does it have the necessary agreements in place to keep that chat GPT server infrastructure up for the hundreds of millions of Apple customers? So those
are my real concerns with the Open Ai partnership. Right, I'm not concerned with how controversial Sam Altman has become. I think that you and I care about it. I think a lot of our readers care about it. I think Wall Street cares about it, and tech fans care about it. But don't forget there's over two billion Apple
devices in use. Right, I would venture to say that ninety nine percent of people who use an iPhone don't know or care who Sam Altman is, and they certainly don't care about his controversies, his arguments with Scarlett Johansson, or any of those issues. But Apple wants is a product that functions, and Open AI at this point offers the best technology in terms of a chatbot, in terms of providing generative AI technology, So that's why they went
with them. Now, the good news here is that Microsoft is a big backer of Open Ai, and obviously Apple can trust Microsoft. They've been partners on many different initiatives for a number of years. In addition to rivals and chat GPT runs on Azure. Do you do have sort of that adult in the room perspective there of Microsoft to make sure this thing remains up and running.
So you have these billions of devices, what changes will the iPhone user or iPad user expectancy and when will they see them? This new leap in AI with Chad GPT, So the.
Big changes you're going to see are going to begin rolling out in September, right, that's going to be as part of iosaighteen, iPadOS eighteen, and Macros fifteen. And you're going to see things like, if you missed a bunch of notifications, you'll get a summary of everything you missed. If you record a voice memo, you'll get an instant transcription. If you're using the notes app to record a meeting, you'll get a summary of what happened in that meeting.
If you want to reply to your text message or emails, you'll get suggested full length applies that are based on what the incoming email or text message was. If you get a bunch of emails coming in. You'll get Gmail AI like classification, putting your emails in folders for you based on if something's important, work related, personal, or maybe it's spam right, you'll get a higher level of email classification. So there's a lot of AI coming in a deeply
integrated fashion across all of Apples apps. Not only a partnership with open Ai to power some of this, but it's an in house on device large language model from Apple as well as an in house large language model that runs on Apple Cloud servers. So a ton of AI based functionality coming here. This is AI everywhere for Apple. It's code named Project gray Matter. That's the part of a brain that there's a lot of the processing. So this is going to be a very big initiative for the company.
Well, a lot to look forward to at Apple's Worldwide Developers Conference. It kicks off on Monday, and our thanks to Mark German, Bloomberg chief correspondent on global technology, coming up on Bloomberg day Break weekend to look ahead to London Tech Week. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break Weekend, our global look ahead at the top stories for investors in the coming week.
I'm Tom Busby in New York. Up later in our program to look ahead to India's inflation and trade data following its faithful elections. First, the tech sector is booming, fueling all time highs on Wall Street thanks to artificial intelligence. Giants like Nvidia and the rise of AI will be front and center at the upcoming London Tech Week conference,
bringing together industry leaders from all over the world. And for more, Let's go to London and bring in Bloomberg Daybreak eurobanker Caroline hepgar Tom.
As the world contemplates the tech sectors phenomenal growth and transformation, many will be asking questions about the future. Are the gains sustainable, is the progress ethical? And perhaps more crucially, what comes next? Not everyone is convinced. Recently, economics professor and Nobel laureate Paul Romer told Bloomberg that confidence in artificial intelligence risks repeating the mistakes of the crypto bubble
of only two years ago. A tech sector bubble popping moment is certainly a fear shared by others in the industry. Some investors are wary that AI in particular has been overhyped, and regulators are fearful of abuse of the technology concerns about the future aside, though, tech is also a sector that presents enormous opportunities right now for market players who are willing to take on risk. It's one of the reasons that Apollo Asset Management is so keen to do
even more deals in the space. After an eleven billion dollar collaboration with Intel, the firms co president Scott Kleinman told Bloomberg to expect more ventures like it in the future.
I think you're going to see more and more of this coming because absolutely more from a follow but in general just the need for this type of capital is insatiable, which really, I mean.
We saw on the earnings report right all these tech giants having an insane amount of capex to try to get their AI capacity up.
Intel obviously is one of them.
They did, though, say that their manufacturing won't be profitable until twenty twenty seven, So how much of this also is not just apollow backing AI, but apollow backing Intel for the long term.
Absolutely, this is all about partner select structuring. Every situation is going to be different. That's the beauty of private capital. It doesn't have to fit one single box. You can really be creative to meet the needs of the project, the needs of the counterparty. And this is just a great example of how you're going to see more and more of this.
If you're going to see more of it, I mean, does Intel need more They're trying to take a crack at video that is no easy feed, right.
Well, I think Intel's announced over one hundred and fifty billion dollars a project, So that's just one of I think many companies across lots of different industries that really need this type of capital.
We're talking to other companies to besides Intel for this type of thing.
Well, no comment, but you can probably assume, well is the last.
Thing on this, Scott, because I mean, we are here in Europe, this is a europe deal. It's a plant in Ireland and Europe has been behind on manufacturing.
Is there some way that this is almost.
A test tube, that's a test trial and if this works, maybe you do more in Europe like this?
Well, I think just zooming out a little bit. I do think you touch on an important point, which is if you compare the growth rates in hero versus the growth rates in the US, obviously, it's undeniable.
What's happening.
A big part of that is companies access to capital. Right in the US, in addition to the banking system, you have a very robust capital markets, a securitization market, a very deep private capital market. In Europe, all of those things either don't exist or are very very small, very fragmented, very nascent, And I think you need to see more and more of this and you will start to see private capital play a bigger role here in Europe.
Yeah, it's a tougher environment though, because there does feel to be more regulation here.
So how does that impact your global.
Allocation That there's opportunities here, but they're a little bit harder to execute.
Well, it just makes it more complicated. But you're seeing it.
I think European leaders are starting to recognize that Europe is choked for capital, that that is limiting the amount of growth that Europe is falling behind, and it.
Needs this type of capital.
It needs to encourage private capital, it needs to encourage securitization in order.
To make that happen.
And you know, I know you're been talking about it for a while, but you know, hopefully this is a bit of the wake up call it needs to get going.
There's also a rate divergent story happening in the first cut of this cycle from the ECB. Does that make a difference to it all that maybe there's easier policy here.
No, I think that's more indicative of the need of the economy needs to get boosted by i'd say artificial lowering of rates, as opposed to the US, where we've been saying for some time the economy is so strong rate cuts probably don't make sense yet, right.
Do you think that there's some people in the US then that just have been doing the extend and pretend that they bought deals at high valuations and have just been hoping for a rate cut. So what happens if we don't get one this year and maybe only a few next year?
Oh? I think that's absolutely right.
I think you're going to see a lot of gps and LPs coming to the recognition that it's going to be a pretty dry spell for the next few years.
Visa VIV the old portfolio of private equity companies.
It's going to take longer to monetize valuation gap between where folks loaded up on deals versus where where the market is today is just there's a big gap and it's going to be I think a little bit tougher for private equity firms to see the type of returns that they were looking for versus years past.
What does that actually look like or what causes that dam to break? And then what does it look like when it does.
Yeah, I don't know that it's so much a dam.
I think the reality is private equity loaded up at the top.
Of the market using very inexpensive debt.
Valuation environment has fundamentally changed, and as a result, private equity sponsors are just going to have to hold companies longer, have to grow into those capital structures, are going to need to take on equity to get some refinancings done, and all that means it's just math that returns are going to be lower over the next few years.
Well, I'm sure LP's investors who hear the idea that they need to hold on for companies longer are not going to be happy with that. They've been clamoring to get their cash back. So how do they do both at the same time.
They generally don't. They generally don't.
I think you're going to see sponsors looking for creative ways to return and capital, whether that's through structured equity investments or other things into these portfolio companies. But eventually sponsors are just going to have to accept the valuation environment is lower.
And start selling companies.
So you're getting ready to buy some deals so you get absolutely absolutely.
Are you hiring to match that?
No, we have a pretty robust We have you know, several hundred people already here in Europe and feel like we have a good footprint down.
Okay, so you're ready, You're ready for the deals of what they come. Absolutely, Look what kind of valuation.
Discounts do you think we're talking? How hefty could they get?
Well, I don't think it's so much discounts as it is. The current environment is just you know, repriced. When deals are purchased at a zero percent rate, that implied a valuation environment of x at a five percent rate, you know, rich free rate. You know that valuation environment is lower. And whether marks reflect that or not tbd. But the reality is it's coming.
That was Apollo Asset Management's co president Scott Kleinman speaking to Boombak's Danny Berger at the Super Return International Conference in Berlin. Well, the future of tech is just one of the many issues that will be discussed at London Tech Week in the next few days, and I've been looking ahead to the conference with Bloomberg's EMEA technology reporter Amy Thompson.
If you look at the lineup so far this year, we're seeing a lot of discussion in the industry about the ethics around how AI is being developed and used, but also how it's already reshaping entire industries. There's keynotes and discussions set up around healthcare and the creative industries
for example. You know, there's also a big election year globally, and with our own election in the UK just weeks away, kind of the question of where we stand here on the global stage and what needs to be done to support the tech ecosystem.
Yeah, absolutely, So how important do you think then this event will be for that to think about that as we are, I mean we're fully in kind of election mode, election fever.
Yeah, And so the pace of technological developments moving really fast, fast than lawmakers can write regulations or legal cases can make their way through the courts. So are there were in this period with things like AI where there's a lot of gray areas and industry meetings can be a really good place for companies and investors to get together, to come to some you know, mutual understandings where hard
rules don't exist. And you know, right now we've got super Return going on in Germany, the big financial show we had Viva Tech in Paris a couple of weeks ago, the can Advertising Conferences a few weeks from now. Founders Form is another really interesting UK event coming up this month, So you know, before everybody breaks for the summer, there's this real push to get together and it'll be interesting to see how these different discussions inform each other as the year goes on.
Okay, so then I mean that there's a lot of interest, as you say, but there's also a lot of hype, there is opportunity. Where do you think the balance is between those which one is kind of winning out at the moment? Do you think amongst investors like hype around AI versus real tangible opportunity for my AI.
We had just come out of this big pullback and investment in the tech industry where we had maybe five or six years of record breaking VC investment growth in the UK every year. Then we came out of the COVID nineteen lockdowns and growth and digital services and platforms that we'd seen during the pandemic just weren't holding up.
The economy suddenly looked really shaky. Investors hit the brakes and then came opening I and chat GPT, and it ignited this, you know, absolute fire for AI investment and all of the infrastructure around it, data centers, chip manufacturing plants, anything with AI and the name pretty much you mentioned in video's market value at the beginning of the of the segment hitting three trillion this week. Startups are raising tens of millions or hundreds of millions of dollars when
they're just a few months old. So it's really tempting to look at this and see potentially the makings of a bubble. But you know, I guess the two main questions for tech though, are, you know, will all the investment that we're seeing companies and the backbone to support them, which is enormous, will the demand materialize to support that? And will people be willing to pay for these new services to the extent that you can actually get a return?
And are the valuations more established tech companies that had big run ups during the pandemic, are they actually realistic?
Now?
Having said that, what about regulation? I mean you mentioned, you know, the particular focus here in the UK. We obviously had the Safety AI Safety Summit last year. How quickly is regulation keeping up? You know, talk us through some of the issues that companies in this space are actually facing now.
Yeah, I mean there's a few big themes there. When we just saw the Dada scrutiny around Microsoft's the ord ANAI company called Inflection, regulators have also had a look at Microsoft's relationship with open Ei, though I think it's probably important to say that you ruled out a merger probe recently on that one. But in this sort of race to dominate bleeding EDGEAI tech, how do you make sure that you're maintaining competition? And you mentioned the AI
Safety Summit. There's also the question of laws regulating AI in its uses. A few governments have kind of taken a swing at it. That you use AI Act from last year is probably considered the standard, But we don't really have a comprehensive global framework in the industry, and everyone's sort of picking their way through how to prevent the worst case scenarios or misuse the technology while you know, supporting innovation. And then sort of finally, there's a question
of who owns the data. Media companies, for example, are deciding whether or not to strike deals with companies like Opening Eye and share their data. But there's also some pretty high profile lawsuits happening.
So that was our EMEA tech reporter Amy Thompson. My thanks to her for joining me. I'm Caroline Hepger here in London. You can catch us every weekday morning for Blueberg Daybreak. Youre at the beginning at six am in London. That's one am of woll Street.
Tom, thank you, Caroline, and coming up on Bloomberg day Break weekend to look ahead to inflation and trade data out of India. I'm Tom Busby and this is Bloomberg. I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. This week, investors will get the latest inflation and trade data coming out of India, and it comes after that country's national elections. Let's get to Bloomberg Daybreak Asia co host Brian Curtis for more on what it all means.
Tom, India's inflation has come down to a four percent handle from around seven and a half percent last year, but it's still too high. Certainly, high levels of inflation were a part of the election story that saw Prime Minister or Under Mody lose a majority in Parliament. Modi's still Prime Minister and still wields a lot of power, but his mandate has been weakened. We look ahead to India's May inflation report in the coming week and what policymakers can do to help people who are missing out
on India's incredible growth story. Mody has just one backing from two key allies in his coalition, allowing him to form a government. Earlier, we asked Tanvi Madon, senior fellow at the Brookings Institution, what's next for Modi?
You will need to think about how to ensure more inclusive growth. The message from voter seems to be that India is shining for some but not for many. It doesn't mean that you won't see the same direction. But I think there will have to be some tweaks and adaptations. But I don't think this is necessarily a bad thing. It shows that at the end of the day, the ultimate guarant of Indian democracy are Indian voters and they want choice and the exercise choice.
Well, joining us now is Rucci Batiya Bloomberg South Asia Economy Editor for more insights somewhat comes next. So just out of curiosity, Rucci, how can the Prime Minister provide more inclusive growth?
Well, that's going to be his big challenge as he takes on the next term because India is a country we'll be seeing almost an eight percent growth, but this eight percent growth is leaving out many. There's wide inequality in the country. Prime Minister Inari movie talks about making India a developed economy by twenty forty seven, but that
is not going to be easy. While India will be on a six and a half to seven percent growth path over the next decade, for it to really punch above its way to all get to a developed country status by twenty forty seven, it will have to grow consistently at about an eight percent growth level for the next quarter of a century and that will not be easy.
That will need structural reforms, reforms in the farm sector, reforms with respect to land and labor, and it will need more countries to come into India to set up a manufacturing base. To do all of that, to be able to provide jobs for its vast young population is going to be a tall order. It's a task cut out for private misternary in Remo, the.
Already richie so much to talk about there. I note from Moodies that they said the slim margin of victory might actually delay some of these far reaching economic reforms. Will people see it that way?
Oh?
Well, yes and no, because you know, coalition government comes with its own set of challenges. The remember, in the last one decade, Prime Minister Inner in Remoti has never had to rely on allies, and relying on allies now would also mean that they would also seek a pound of flesh from him. They would ask for chunkyre portfolios.
On the other hand, I must not forget that some of the biggest reforms that have happened in India, case in point being the nineteen ninety one liberalization reforms, happen under a coalition government. So it will be a ti trope walk, certainly for Prime Minister in a Range Remodi. While in the last couple of years we have seen that India has been able to reduce it's a fiscal deficit quite a lot from the pandemic heights of nine point two percent to about five point six percent in
the last fiscal yer. Away from here is the big question, and that is something that rating agencies from Moodies to S and B will be watching out. Remember S and B recently has put India on a path for a ratings upgrade. So what really has to watch out as to how this is going to play out. Having said that, I must also caution our viewers and tell them that that India's debt to GDP ratio is a point of concern that various rating agencies and also the multinational Multilateral
Lender IMF keeps talking about. So that's something that India still needs to fix.
So for some of the policies like Hindu first for Prime Minister Modi, I've heard people say that that's not really going to be in question here, But then they've also said Hindu first is fine, but it doesn't put food on the table.
And you know that's quite visible this time around in the Indian election results as well, because a Prime Minister Modi in the month of January inaugurated the Ram Temple and quite interestingly his candidate has lost from that constituency. So yes, you know, the Hindu first policy or the Hindu nationalist policies does not put food on the table.
The ground reality is very different. People are concerned about high unemployment, people are concerned about high inflation in the country, which are some of the things that he will have to focus on in his text term. Having said that, given the fact that now he's going to be in a coalation, you will have to walk a very fine line between pushing economic growth and also pushing his Hindu
First agendas. Some of the things that he talked about out in the VJP manifesto, including a uniform civil code, it doesn't look like that the coalation partners would be okay in pushing such controversial and contentious ideas.
Rouchie, thanks so much for joining as we do appreciate it and sharing your insights with us. Ruchi Bantia, Bloomberg South Asia Economy Editor. Next up, we turned to Japan. We get more from Doug Grisner.
Thanks Brian. The Bank of Japan has a policy meeting in the week ahead, and the most favored view among economists we polled in April was that the boj would wait until October before raising rates. However, since that polling expectations for an earlier move have risen, and that is partly due to continued weakness in the Japanese end, which threatens to stoke import price growth. Here so Yuri Sharai,
professor of economics at Ko University in Tokyo. She's addressing the YenS level against the dollar.
Mohney fifty five. One fifty six is a too chi way. A too chi compares to Japan's fundamental So that's why Ministeria Financing tad in a forign exchange market at end of April and the beginning May. So I think there is some kind of consulted action between a Ministry of Finance and Banko Japan to present the assurance about further recreation to one sixty.
She is so Yurisarai, professor of economics at Ko University. So the question becomes whether the boj mindful of that weakness in the Japanese currency, will adjust monetary policy. Joining me now from our bureau in Tokyo is Paul Jackson. He is Bloomberg Economy Editor.
Paul.
It's always a pleasure. I got to ask you right out of the gate. I mean, she has a point about the weakness in the end, the degree to which we've already seen intervention. Do you think this is adding a bit of pressure to the BOJ.
I think it most certainly is. We saw governor who had pulled into the Prime Minister's office earlier where he had a chat with Promister Fumyo Kishida, and we think it was highly likely that they touched on the yen weakness and a government who waders comments which clearly we're fueling further weakness as he kept underscoring his cautious approach
to interest rates. So since that meeting with the Prime Minister, mister Huida has been far more cautious in his comments on the end, and we are expecting them to do something at this meeting in June. However, I think it's more likely that it will come in the form of cutting back on bon buying rather than the actual short term interest rate.
So we talked about the intervention on the part of the Ministry of Finance separate from the BOJ. Perhaps they work a little hand in glove, and I think the mof spent something greater than sixty billion US to intervene in support of the currency. But what would allowing bond yields to drift higher mean for the EN? Are we to understand it? Even that speculation in the market is one reason the END has come off its lows against the dollar.
We reported that the likelihood of the Bank of Japan cutting back on bond buying this meeting is a distinct possibility,
and I think the END has responded to that. Just to give you some feel for how how much these yields impact at the end, if you go back to last year when there was still like a zero point five percent cap on ten year yields, and since then they've been allowed to move more freely and at one point reached one point one percent, that movement in the ten year yield now means that the differential between securities in ten year securities in Japan and the US has narrowed.
I would say that the effect of that is probably about about nine YenS worth in terms of the exchange rate. That means instead of it being around one five to five now, if the BOJ was still keeping that ceiling of zero point five percent on yields, I think the END would be closer to one six ' four now.
I think it's important to point out that a weaker currency has helped import inflation, and that's been a welcome outcome for the Bank of Japan after decades of being in a deflationary trap. And I noticed that for the month of April, in terms of other influences on inflation, wage data was much stronger than expected. Is that solid now? I mean, is a durable the increase that we have seen in Japanese wages?
That is the big question, because the Bank of Japan has made very clear that if it wants to move forward with the normalization of policy, this is the key thing that must emerge. And what it's talking about is a positive inflation cycle. Yes, good inflation, that's what it's looking for. It's inflation that's driven by rising wages and
that drives consumption and drive growth. And this has really been the national objective of Japanese economic policy for more than a decade now, and they seem to be getting closer to it. But the fact that the matter is is that real wages are still falling. That means that the wage gains that we've seen, yes they are bigger, but they're still lagging inflation. And for the average voter, they're still seeing their pay in real terms falling, and they have done for the last two years.
Away from monetary policy. I'm curious as to whether or not there are other programs targeted at trying to deal with this pickup in Japanese inflation. Is there anything in the pipeline that's working well.
The government for some time now has been offering subsidies on energy prices. At one point that was as much as twenty percent of your electricity bill was essentially being paid by the government. That is a lot of help for the average household. But they are pulling the plug on that, so that kind of help is getting removed and in place. Prime Minister Kishida has introduced a tax rebate. This is going to be a one off thing for
this year. It's going to be worth about two hundred and fifty bucks per person, and he's hoping that there'll be a good feel good vibe factor from that and that that might leave households purchasing power in positive territory in real terms in the month of June, and that sets him up nicely for an internal leadership party then could even lead to an early election after that.
Paul, it's always a pleasure thanks for helping us set up the Bank of Japan meeting in the week Ahead. That is Bloomberg's Paul Jackson, our Economy editor from our bureau in Tokyo. I'm Doug Krisner. You can join Brian Curtison myself weekdays here from Bloomberg Daybreak Asia, beginning at eight am in Hong Kong eight pm on Wall Street.
Tom, Thank you, Doug, and thank you Brian Again. That does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzby. Stay with us. Top stows and global business headlines are coming up right now.