October 7, 2025 • 21 mins
Spot gold prices climbed above $4,000 an ounce for the first time, as concerns over the US economy and a government shutdown added fresh momentum to a scorching rally. Bullion climbed as much as 0.4% to $4,001.01 an ounce on Wednesday. It’s a milestone moment for the metal that traded below $2,000 just two years ago, with returns that now well outstrip those for equities this century. Gold has jumped more than 50% this year in the face of uncertainties over global trade, the Federal Reserve’s independence and fiscal stability in the US. At the same time, geopolitical tensions have boosted demand for haven assets, while central banks have continued to buy gold at an elevated pace. For more, we spoke to by Bill Adams, Chief Economist at Comerica Bank.
Plus, Bank of Japan Governor Kazuo Ueda will likely face a tougher political environment in the second half of his five-year term starting Thursday after the ruling party leadership victory of Sanae Takaichi, a critic of interest rate increases. Ueda already faces a dilemma. The central bank appeared to be laying the groundwork for its first interest rate hike since January later this month. Now, following Takaichi's win, if Ueda goes ahead with an increase he risks antagonizing a premier who might then seek more sway over the BOJ's decisions going forward. For more, we spoke to Bloomberg's Paul Jackson.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. The government shutdown in the US,
combined with speculation on the FED cutting interest rates, push
the price of gold to roughly four thousand dollars. Announced
(00:23):
today in New York Trading, we heard from billionaire investor
Ray Daalio. He said gold is certainly more of a
safe haven than the US dollar.
Speaker 2 (00:32):
Gold is a very excellent diversifier of the portfolio. So
if you would look at just from the strategic acid
allocation mixed perspective, you would probably have something like as
the optimal mix, something like fifteen percent of your portfolio
in gold because of the fact that if you didn't
(00:53):
even have a tactical because it is the one asset
that does very well when the typical parts of your
portfolio FOLEO go down.
Speaker 1 (01:01):
Ray Dally are there speaking earlier to Bloomberg today. Goldman
Sachs raised its price forecast for gold in December twenty
twenty six to forty nine hundred dollars. Now that prior
estimate was forty three hundred. For a closer look, I'm
joined by Bill Adams. He is senior VP, also the
chief economist at Comerica Bank. Bill appreciate you taking time
(01:21):
to chat with me. Give me your take on what
you see happening in the gold market right now.
Speaker 3 (01:26):
I think markets are buoyant and they are searching for
new diversifiers. And I think also markets are anticipating a
pretty significant pivot to lower interest rates from the FED.
When interest rates fall, the opportunity cost of holding assets
like gold that don't deliver a yield goes down, and
(01:49):
so that often is a boost to the price of gold.
Speaker 1 (01:51):
We talk a lot about this debasement concern where the
US dollar is concerned. Do you share that that concern,
that worry over basement.
Speaker 3 (02:02):
I think about debasement in terms of inflation, right that's
measuring whether the dollar is maintaining its purchasing power. And
I think inflation is likely to edge up a bit
into the turn of the year, but probably stay around
that three percent plus or minus zone by the CPI,
maybe a bit less by the PCE index. And so
(02:23):
that's inflation that's going to be frustrating for American consumers.
It's certainly above the Fed's target, but we're not talking
five percent inflation. We're definitely not talking one hundred percent inflation,
So this is not hyperinflation. This is merely inflation that
is over target. Now it's been over target for a while,
so I think it's it's fair for markets to start
(02:46):
becoming impatient for when inflation we'll get back to the
FEDS target. But I don't think that there is a
debasement crisis happening in the US right now.
Speaker 1 (02:55):
It's interesting you make that point. It was kind of
mixed when it came to the day's FED space. Governor
Stephen Myron was saying that he expects limited tariff impact
on inflation and that means that the FED can keep easing. However,
we heard from Neil Kashkari, and he is the head
of the Minneapolis FED, and he was warning that any
drastic rade cuts would risk stoking prices. Does he have
(03:18):
a point, cash Car?
Speaker 3 (03:21):
I think if the economy were growing robustly right now
and the unemployment rate we're still at four percent or
under four percent, then I would be more worried about
wage price pressures being sparked by rate cuts. But given
that the unemployment rate was four point three percent a
(03:41):
lifetime ago in August the last time we had a
jobser for it, and that it looks like the labor
market from the spotty data that we have in hand,
probably softened or at least stayed soft in September. I
think the risks of rate cuts pushing the US into
that sort of domestically of an inflation spiral seem less
(04:02):
than they did three or six months ago.
Speaker 1 (04:04):
So you mentioned the absence of the latest jobs data
as a result of the government shutdown. There's a big
question mark over whether we're going to see the CPI
report on the fifteenth of the month. Give me a
sense of how you are flying blind right now without
government data.
Speaker 3 (04:22):
We're not exactly flying blind, we certainly. I think it's
more that we're you know, we're playing with one hand.
We're boxing with one hand tied behind your back. To
choose your analogy. There are data sources for the US economy,
a variety of private sector price data and economic activity data,
(04:44):
labor market data. They're not real substitutes for what we
got from the government, but they are good compliments to it.
And so those data point to the economy being still
in this low higher low fire low gear mode code.
And certainly the AI sector is going gangbusters. There's investment
(05:05):
in software and computing equipment and data centers in the
electricity generation to fuel AI, but the rest of the
economy is softer, and I think that probably is what's
continuing to happen into early October. I think if we go,
the longer we go without official data, the further we
(05:29):
have walked with the blindfold on, and so the further
we may be from where we.
Speaker 1 (05:33):
Think we are.
Speaker 3 (05:34):
But right now, a week into the shutdown I think
the uncertainty created by it is still fairly manageable.
Speaker 1 (05:44):
So Bill, today, we had the survey from the New
York Fed on consumer expectations, and there wasn't a lot
of movement when it came to the outlook for inflation or,
for that matter, the intention for household spending. I'm curious,
given the fact that we're talking about a government shut down.
If this becomes protracted, how might the consumer be affected.
Speaker 3 (06:06):
Most macroeconomics shops that do estimates of the impact of
government shutdowns will tell you that it's a zero point
one to zero point two percentage point drag on annualized
real GDP growth in the quarter of the shutdown. When
you have a shutdown for every week that the government
is shut down, So to put in concrete terms, the
(06:27):
shutdown has lasted a week so far. That would shave
off about a tenth of a percent from your forecast
of annualized GDP if there hadn't been a shutdown in
the current quarter. And some of that activity will probably
be made up after the shutdown ends and government employees
get their salaries again, contractors get paid and catch up
(06:48):
on delayed work, etc. So I think the shutdown is
likely to translate into a softer fourth quarter of the
year then we would have seen otherwise in terms of
real GDP. But I think it's shutdowns they don't unless
there's some new, big shock to the economy. I don't
think the shutdown would necessarily make the difference between an
(07:10):
expansion or a contraction. I think this is another hiccup
in the road or a bump in the road. I
guess I should say on the way to an economy
that's likely to regain traction in twenty twenty six, given
lower interest rates and fiscal policy, that's going to turn
more expansion.
Speaker 1 (07:28):
Are so if your belief is that the economy will
begin to recover given the benefit of lower rates. I'm
curious about how you read the bond market right now,
particularly at the longer end of the curve, when we've
got a ten year four to twelve Where do we
go from here.
Speaker 3 (07:44):
I think the bond market is pricing in significant cuts
from the Fed over the next eighteen months, and also
pricing in the dollar retaining its purchasing power. To come
back to where we started our conversation, financial markets, despite
the run up in goal, financial markets do not price
a lot of direct concern about the credit worthiness of
(08:07):
the federal government or the soundness of the dollar. You
would not see the ten year Treasury bond trading at
a four point one percent yield if there were significant
concerns about that priced into market. So I think that's
a sign of confidence in the outlook for the US
economy over the longer run.
Speaker 1 (08:26):
So we know what the performance of the equity market
has been lately. Many large cap tech stocks have surged
by in some cases double digits, and this has happened
in pretty quick succession, and there has been some concern
expressed on the street that this could be assigned that
valuations have become disconnected from underlying fundamentals. I know you're
(08:47):
an economist, Bill, but I'm wondering what could happen if
there is some corrective behavior in the equity market, and
how that may filter through to the economy's performance.
Speaker 3 (09:01):
So if we see a stock market correction, I think
a ten percent correction without other economic shocks is probably
something that the economy can take in stride. I think
if there's a twenty percent sell off and it's sustained,
then we might see those more affluent consumers who've been
driving consumer spending and growth of the domestic side of
(09:25):
the economy for most of the last two years, they
could start to pull back, and then we would see
some softening in the parts of the economy that really
have been in slow growth mode but have been growing
and supporting the demand for labor and kind of keeping
the flywheel of the economy moving forward. So it's a risk,
(09:47):
but I think it's an area where AI is this
new technology. It looks like there will be applications of
it that are very productive and profitable in the future
and create a lot of new innovation and advances. We
can't know precisely what they are today, and financial markets
(10:08):
are pricing in a lot of optimism, pricing, a lot
of exuberance about it. Is it is that exuberance irrational
or is it just exuberance and confidence about the future.
I think, well, we'll have to wait and see. But
the technology itself looks like it'll it'll be transformational for
at least sectors of the economy in years to come.
Speaker 1 (10:29):
And I think we got to include banking and financial services.
We heard from Jamie Diamond today, they head of JP
Morgan Chase. He was saying the bank is spending two
billion dollars a year on developing AI technology and currently
the technology is saving the bank around the same amount
from that annual investment, and he went on to say
(10:50):
that this is basically the tip of the iceberg. So
if you track that what that trajectory seems to be,
they're going to get a lot more bang for the buck,
so to speak. Would you say that banking and financial
services is going to be one of the bigger beneficiaries
of AI.
Speaker 3 (11:07):
Financial services has been a technology industry for I'd say
ten twenty years now, and that trend continues. There's so
much data in financial services that it is a really
ripe round for applications of technologies that process data more efficiently,
(11:27):
and so I think financial services is going to be
a big adopter of AI technology. I think real estate
as well, that's another industry where technology has a large rule.
And I think we'll also see AI technology applied to
the more labor intensive sides of the economy, like healthcare,
(11:47):
like food services, and I think that could help to
enhance productivity in the sectors that have been more resistant
to the penetration of technology over the last ten and
twenty years.
Speaker 1 (12:01):
So I'm curious Bill, as a chief economist, how are
you using AI technology to help your forecasting?
Speaker 3 (12:09):
A great question. I would say, we're using it gingerly.
We are looking at a lot of AI technologies, but
we are being very careful in how we apply them
so that we're not taking technology within the walls of
our institution that would create risks for our customers, their accounts,
(12:29):
or how our institutions run. So we're looking at a
lot of opportunities here, but we're being very careful in
our approach.
Speaker 1 (12:36):
Bill will leave it there, always a pleasure with Bill Adams,
Senior VP, also chief economist at Comerica Bank, joining us
here on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia podcast. I'm Doug Krisner, the new leader of
the ruling Liberal Democratic Party in Japan. So at Take
(13:00):
has been a critic of interest rate hikes from the
Bank of Japan. Well, now take Ichi is on track
to become the country's next prime minister. So the question
is whether BOJ Governor Uwaida will face a tougher political
environment and whether that will be at some point reflected
in BOJ monetary policy. For a closer look, I'm joined
(13:21):
by Bloomberg's Paul Jackson. Paul covers the economies and governments
of both Japan and South Korea, and he joins us
now from our studios in the Japanese capital. Paul, it's
always a pleasure. Give me your sense of where things
are right now. First, in the political environment before we
get to BOJ policy.
Speaker 4 (13:41):
Well, we have the election of Sanaia Takaichi, as he's
mentioned as leader of the ruling party. The ruling party
has been in big trouble. It's been bleeding voters in
recent national elections. It's needing a kind of rebranding, a restart,
and they've chosen her. She's on the hawkish side diplomatically.
(14:05):
On the economic side, she's very much in the ebinomics mold,
which means easy money and flexible spending. So this is
going to be a bit of a change from the
administrations we've seen recently that have been kind of moving
more to the central ground and looking at pairing back
(14:28):
the stimulus, especially from a Bank of Japan and keeping
spending tight. But ultimately the voters are saying, look, we've
got inflation, we've got a cost of living crunch, and
you're not doing enough well.
Speaker 1 (14:42):
Inflation is you, and I both know you better than
me been well above the target of two percent for
the Bank of Japan, and it appeared as though, at
least for a while there markets were anticipating a raid
hike this month. Is that somewhat endowed at this point.
Speaker 4 (14:57):
Well, I think the governor of the ban Japan's in
a very awkward spot now because I think he'd been
teeing things up, kind of lining up the ducks for
a rate hike later this month. I mean, we've got
plenty of positives. You know, the economy has been growing
the last five quarters. As you've mentioned, the inflation, I mean,
(15:19):
we've been above target for three and a half years.
Those real wages have been going down most of that time.
So in terms of you know, orthodox policy, they should
raise they should raise interest rates and get on with it.
We've even had Scott Bess saying boj risks falling behind
(15:40):
the curve. But if you've got a new prime minister
coming in and she's very cautious about rate hikes, do
you go ahead with that without some initial consultation with
the government. We spoke with one of Takhi's advisors earlier
this week that sort of on who's one of the
(16:01):
architects of abinomics, and he said that an October rate
hike was too soon.
Speaker 1 (16:07):
We like to think of governments and central banks as
being independent of one another. Give me a sense of
what that relationship is like in Japan.
Speaker 4 (16:17):
Well, the Bank of Japan got its independence enshrined in
law in the late nineteen nineties, and it is independent
to a certain degree. I think what we saw in
the early part of abinomics in twenty thirteen was there
was a joint accord between the government and the Bank
(16:38):
of Japan issued which both sides agreed to target certain goals,
and that's where the two percent inflation target was put
in writing for the Bank of Japan. Now, the accord
says it's down to each side to decide how it
carries on with its policy goals, So you know, you've
got the independence of how you do it. Target is
(17:00):
pretty much agreed between the Bank of Japan and the government.
So yeah, it's it's independent, but it's to a certain degree.
Speaker 1 (17:09):
So do we need to understand now that the boj
is likely going to be forced to consider a lot
more in the way of fiscal stimulus from this new government.
Speaker 4 (17:21):
Well, I mean, I think it's going to be First
of all, is it's going to be a tougher political
environment for the Bank of Japan. It's had pretty much
free reign under the previous couple of administrations. If we
do have more fiscal spending or loosening of fiscal policy
under TAKH, that's going to kind of like, you know,
(17:43):
add to the inflation, which you know actually might mean
the Bank of Japan has going to raise rates more
quickly to kind of keep the inflation you know, under control.
So it's going to be very interesting dynamics to see
how things go, you know, looking for But the thing
that you know lies right in front of Ewada as
(18:04):
he starts the second half of his turn as governor,
is can he go this month or not?
Speaker 3 (18:11):
So?
Speaker 1 (18:12):
Since taki ICHI's win, we have seen dramatic weakness in
the Japanese currency. Right now, we're trading on the week
side of one point fifty two, and given the fact
that Japan and the US have yet to resolve their
trade deal, this is still an open question. Anytime you
have a week currency, obviously it's going to favor the exporters,
but at the same time it contributes to an importing
(18:33):
of inflation. Is there something that we need to discuss
here as it relates to the currency where taki ICHI's
win is concerned.
Speaker 4 (18:41):
Yeah, I mean, I think the currency could be the
kind of deciding factor that makes the BOJ go later
this month. That it could be, because if they don't
move in October, we've got to wait until mid December
till the next meeting, So you've got, you know, like
two months of quite a long time. If the currentsy
(19:04):
is in that one five zero range against the dollar,
and remember that Japan has had to intervene multiple times
in recent years to prop up the yen, and I
would say that one sixty mark is certainly territory that
policymakers do not want to go in. And how is
it going to look for Donald Trump? Well, it's going
(19:24):
to feed into all his views that Japan is, you know,
weakening the currency to get some kind of favorable trade advantage.
Now that might not actually be the case. But is
Donald Trump going to avoid saying that? Well, I think
we know the answer to that one.
Speaker 1 (19:39):
But at the same time, the equity market in Japan,
the Nike at least, is it a record high. Does
that give for anything that we can kind of call
maybe goodwill?
Speaker 3 (19:51):
Yeah?
Speaker 4 (19:51):
No, I think you know, from the investor's point of view,
they're thinking, hey, this probably means weakly and so that's
good for export profits, so that helps stocks. There also
the idea that there could be more spending, some kind
of help to consumers, maybe in tax rebates or some
(20:13):
kind of handout, so that that means that they'll be
spending more. They're going to spend more. Well, that's going
to lead to more sales, more profits. So I think
there's reasons there for the stocks to be going up.
The question is is whether that becomes a longer term
trend or whether we're just looking at the kind of
initial kneeja reaction to her election.
Speaker 1 (20:33):
Paul will leave it there. It's always a pleasure. Thanks
so very much, Bloomberg's Paul Jackson. He covers the economies
and governments of Japan and South Korea. Joining us 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
(20:55):
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast Tube 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
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. The government shutdown in the US,
combined with speculation on the FED cutting interest rates, push
the price of gold to roughly four thousand dollars. Announced
(00:23):
today in New York Trading, we heard from billionaire investor
Ray Daalio. He said gold is certainly more of a
safe haven than the US dollar.
Speaker 2 (00:32):
Gold is a very excellent diversifier of the portfolio. So
if you would look at just from the strategic acid
allocation mixed perspective, you would probably have something like as
the optimal mix, something like fifteen percent of your portfolio
in gold because of the fact that if you didn't
(00:53):
even have a tactical because it is the one asset
that does very well when the typical parts of your
portfolio FOLEO go down.
Speaker 1 (01:01):
Ray Dally are there speaking earlier to Bloomberg today. Goldman
Sachs raised its price forecast for gold in December twenty
twenty six to forty nine hundred dollars. Now that prior
estimate was forty three hundred. For a closer look, I'm
joined by Bill Adams. He is senior VP, also the
chief economist at Comerica Bank. Bill appreciate you taking time
(01:21):
to chat with me. Give me your take on what
you see happening in the gold market right now.
Speaker 3 (01:26):
I think markets are buoyant and they are searching for
new diversifiers. And I think also markets are anticipating a
pretty significant pivot to lower interest rates from the FED.
When interest rates fall, the opportunity cost of holding assets
like gold that don't deliver a yield goes down, and
(01:49):
so that often is a boost to the price of gold.
Speaker 1 (01:51):
We talk a lot about this debasement concern where the
US dollar is concerned. Do you share that that concern,
that worry over basement.
Speaker 3 (02:02):
I think about debasement in terms of inflation, right that's
measuring whether the dollar is maintaining its purchasing power. And
I think inflation is likely to edge up a bit
into the turn of the year, but probably stay around
that three percent plus or minus zone by the CPI,
maybe a bit less by the PCE index. And so
(02:23):
that's inflation that's going to be frustrating for American consumers.
It's certainly above the Fed's target, but we're not talking
five percent inflation. We're definitely not talking one hundred percent inflation,
So this is not hyperinflation. This is merely inflation that
is over target. Now it's been over target for a while,
so I think it's it's fair for markets to start
(02:46):
becoming impatient for when inflation we'll get back to the
FEDS target. But I don't think that there is a
debasement crisis happening in the US right now.
Speaker 1 (02:55):
It's interesting you make that point. It was kind of
mixed when it came to the day's FED space. Governor
Stephen Myron was saying that he expects limited tariff impact
on inflation and that means that the FED can keep easing. However,
we heard from Neil Kashkari, and he is the head
of the Minneapolis FED, and he was warning that any
drastic rade cuts would risk stoking prices. Does he have
(03:18):
a point, cash Car?
Speaker 3 (03:21):
I think if the economy were growing robustly right now
and the unemployment rate we're still at four percent or
under four percent, then I would be more worried about
wage price pressures being sparked by rate cuts. But given
that the unemployment rate was four point three percent a
(03:41):
lifetime ago in August the last time we had a
jobser for it, and that it looks like the labor
market from the spotty data that we have in hand,
probably softened or at least stayed soft in September. I
think the risks of rate cuts pushing the US into
that sort of domestically of an inflation spiral seem less
(04:02):
than they did three or six months ago.
Speaker 1 (04:04):
So you mentioned the absence of the latest jobs data
as a result of the government shutdown. There's a big
question mark over whether we're going to see the CPI
report on the fifteenth of the month. Give me a
sense of how you are flying blind right now without
government data.
Speaker 3 (04:22):
We're not exactly flying blind, we certainly. I think it's
more that we're you know, we're playing with one hand.
We're boxing with one hand tied behind your back. To
choose your analogy. There are data sources for the US economy,
a variety of private sector price data and economic activity data,
(04:44):
labor market data. They're not real substitutes for what we
got from the government, but they are good compliments to it.
And so those data point to the economy being still
in this low higher low fire low gear mode code.
And certainly the AI sector is going gangbusters. There's investment
(05:05):
in software and computing equipment and data centers in the
electricity generation to fuel AI, but the rest of the
economy is softer, and I think that probably is what's
continuing to happen into early October. I think if we go,
the longer we go without official data, the further we
(05:29):
have walked with the blindfold on, and so the further
we may be from where we.
Speaker 1 (05:33):
Think we are.
Speaker 3 (05:34):
But right now, a week into the shutdown I think
the uncertainty created by it is still fairly manageable.
Speaker 1 (05:44):
So Bill, today, we had the survey from the New
York Fed on consumer expectations, and there wasn't a lot
of movement when it came to the outlook for inflation or,
for that matter, the intention for household spending. I'm curious,
given the fact that we're talking about a government shut down.
If this becomes protracted, how might the consumer be affected.
Speaker 3 (06:06):
Most macroeconomics shops that do estimates of the impact of
government shutdowns will tell you that it's a zero point
one to zero point two percentage point drag on annualized
real GDP growth in the quarter of the shutdown. When
you have a shutdown for every week that the government
is shut down, So to put in concrete terms, the
(06:27):
shutdown has lasted a week so far. That would shave
off about a tenth of a percent from your forecast
of annualized GDP if there hadn't been a shutdown in
the current quarter. And some of that activity will probably
be made up after the shutdown ends and government employees
get their salaries again, contractors get paid and catch up
(06:48):
on delayed work, etc. So I think the shutdown is
likely to translate into a softer fourth quarter of the
year then we would have seen otherwise in terms of
real GDP. But I think it's shutdowns they don't unless
there's some new, big shock to the economy. I don't
think the shutdown would necessarily make the difference between an
(07:10):
expansion or a contraction. I think this is another hiccup
in the road or a bump in the road. I
guess I should say on the way to an economy
that's likely to regain traction in twenty twenty six, given
lower interest rates and fiscal policy, that's going to turn
more expansion.
Speaker 1 (07:28):
Are so if your belief is that the economy will
begin to recover given the benefit of lower rates. I'm
curious about how you read the bond market right now,
particularly at the longer end of the curve, when we've
got a ten year four to twelve Where do we
go from here.
Speaker 3 (07:44):
I think the bond market is pricing in significant cuts
from the Fed over the next eighteen months, and also
pricing in the dollar retaining its purchasing power. To come
back to where we started our conversation, financial markets, despite
the run up in goal, financial markets do not price
a lot of direct concern about the credit worthiness of
(08:07):
the federal government or the soundness of the dollar. You
would not see the ten year Treasury bond trading at
a four point one percent yield if there were significant
concerns about that priced into market. So I think that's
a sign of confidence in the outlook for the US
economy over the longer run.
Speaker 1 (08:26):
So we know what the performance of the equity market
has been lately. Many large cap tech stocks have surged
by in some cases double digits, and this has happened
in pretty quick succession, and there has been some concern
expressed on the street that this could be assigned that
valuations have become disconnected from underlying fundamentals. I know you're
(08:47):
an economist, Bill, but I'm wondering what could happen if
there is some corrective behavior in the equity market, and
how that may filter through to the economy's performance.
Speaker 3 (09:01):
So if we see a stock market correction, I think
a ten percent correction without other economic shocks is probably
something that the economy can take in stride. I think
if there's a twenty percent sell off and it's sustained,
then we might see those more affluent consumers who've been
driving consumer spending and growth of the domestic side of
(09:25):
the economy for most of the last two years, they
could start to pull back, and then we would see
some softening in the parts of the economy that really
have been in slow growth mode but have been growing
and supporting the demand for labor and kind of keeping
the flywheel of the economy moving forward. So it's a risk,
(09:47):
but I think it's an area where AI is this
new technology. It looks like there will be applications of
it that are very productive and profitable in the future
and create a lot of new innovation and advances. We
can't know precisely what they are today, and financial markets
(10:08):
are pricing in a lot of optimism, pricing, a lot
of exuberance about it. Is it is that exuberance irrational
or is it just exuberance and confidence about the future.
I think, well, we'll have to wait and see. But
the technology itself looks like it'll it'll be transformational for
at least sectors of the economy in years to come.
Speaker 1 (10:29):
And I think we got to include banking and financial services.
We heard from Jamie Diamond today, they head of JP
Morgan Chase. He was saying the bank is spending two
billion dollars a year on developing AI technology and currently
the technology is saving the bank around the same amount
from that annual investment, and he went on to say
(10:50):
that this is basically the tip of the iceberg. So
if you track that what that trajectory seems to be,
they're going to get a lot more bang for the buck,
so to speak. Would you say that banking and financial
services is going to be one of the bigger beneficiaries
of AI.
Speaker 3 (11:07):
Financial services has been a technology industry for I'd say
ten twenty years now, and that trend continues. There's so
much data in financial services that it is a really
ripe round for applications of technologies that process data more efficiently,
(11:27):
and so I think financial services is going to be
a big adopter of AI technology. I think real estate
as well, that's another industry where technology has a large rule.
And I think we'll also see AI technology applied to
the more labor intensive sides of the economy, like healthcare,
(11:47):
like food services, and I think that could help to
enhance productivity in the sectors that have been more resistant
to the penetration of technology over the last ten and
twenty years.
Speaker 1 (12:01):
So I'm curious Bill, as a chief economist, how are
you using AI technology to help your forecasting?
Speaker 3 (12:09):
A great question. I would say, we're using it gingerly.
We are looking at a lot of AI technologies, but
we are being very careful in how we apply them
so that we're not taking technology within the walls of
our institution that would create risks for our customers, their accounts,
(12:29):
or how our institutions run. So we're looking at a
lot of opportunities here, but we're being very careful in
our approach.
Speaker 1 (12:36):
Bill will leave it there, always a pleasure with Bill Adams,
Senior VP, also chief economist at Comerica Bank, joining us
here on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia podcast. I'm Doug Krisner, the new leader of
the ruling Liberal Democratic Party in Japan. So at Take
(13:00):
has been a critic of interest rate hikes from the
Bank of Japan. Well, now take Ichi is on track
to become the country's next prime minister. So the question
is whether BOJ Governor Uwaida will face a tougher political
environment and whether that will be at some point reflected
in BOJ monetary policy. For a closer look, I'm joined
(13:21):
by Bloomberg's Paul Jackson. Paul covers the economies and governments
of both Japan and South Korea, and he joins us
now from our studios in the Japanese capital. Paul, it's
always a pleasure. Give me your sense of where things
are right now. First, in the political environment before we
get to BOJ policy.
Speaker 4 (13:41):
Well, we have the election of Sanaia Takaichi, as he's
mentioned as leader of the ruling party. The ruling party
has been in big trouble. It's been bleeding voters in
recent national elections. It's needing a kind of rebranding, a restart,
and they've chosen her. She's on the hawkish side diplomatically.
(14:05):
On the economic side, she's very much in the ebinomics mold,
which means easy money and flexible spending. So this is
going to be a bit of a change from the
administrations we've seen recently that have been kind of moving
more to the central ground and looking at pairing back
(14:28):
the stimulus, especially from a Bank of Japan and keeping
spending tight. But ultimately the voters are saying, look, we've
got inflation, we've got a cost of living crunch, and
you're not doing enough well.
Speaker 1 (14:42):
Inflation is you, and I both know you better than
me been well above the target of two percent for
the Bank of Japan, and it appeared as though, at
least for a while there markets were anticipating a raid
hike this month. Is that somewhat endowed at this point.
Speaker 4 (14:57):
Well, I think the governor of the ban Japan's in
a very awkward spot now because I think he'd been
teeing things up, kind of lining up the ducks for
a rate hike later this month. I mean, we've got
plenty of positives. You know, the economy has been growing
the last five quarters. As you've mentioned, the inflation, I mean,
(15:19):
we've been above target for three and a half years.
Those real wages have been going down most of that time.
So in terms of you know, orthodox policy, they should
raise they should raise interest rates and get on with it.
We've even had Scott Bess saying boj risks falling behind
(15:40):
the curve. But if you've got a new prime minister
coming in and she's very cautious about rate hikes, do
you go ahead with that without some initial consultation with
the government. We spoke with one of Takhi's advisors earlier
this week that sort of on who's one of the
(16:01):
architects of abinomics, and he said that an October rate
hike was too soon.
Speaker 1 (16:07):
We like to think of governments and central banks as
being independent of one another. Give me a sense of
what that relationship is like in Japan.
Speaker 4 (16:17):
Well, the Bank of Japan got its independence enshrined in
law in the late nineteen nineties, and it is independent
to a certain degree. I think what we saw in
the early part of abinomics in twenty thirteen was there
was a joint accord between the government and the Bank
(16:38):
of Japan issued which both sides agreed to target certain goals,
and that's where the two percent inflation target was put
in writing for the Bank of Japan. Now, the accord
says it's down to each side to decide how it
carries on with its policy goals, So you know, you've
got the independence of how you do it. Target is
(17:00):
pretty much agreed between the Bank of Japan and the government.
So yeah, it's it's independent, but it's to a certain degree.
Speaker 1 (17:09):
So do we need to understand now that the boj
is likely going to be forced to consider a lot
more in the way of fiscal stimulus from this new government.
Speaker 4 (17:21):
Well, I mean, I think it's going to be First
of all, is it's going to be a tougher political
environment for the Bank of Japan. It's had pretty much
free reign under the previous couple of administrations. If we
do have more fiscal spending or loosening of fiscal policy
under TAKH, that's going to kind of like, you know,
(17:43):
add to the inflation, which you know actually might mean
the Bank of Japan has going to raise rates more
quickly to kind of keep the inflation you know, under control.
So it's going to be very interesting dynamics to see
how things go, you know, looking for But the thing
that you know lies right in front of Ewada as
(18:04):
he starts the second half of his turn as governor,
is can he go this month or not?
Speaker 3 (18:11):
So?
Speaker 1 (18:12):
Since taki ICHI's win, we have seen dramatic weakness in
the Japanese currency. Right now, we're trading on the week
side of one point fifty two, and given the fact
that Japan and the US have yet to resolve their
trade deal, this is still an open question. Anytime you
have a week currency, obviously it's going to favor the exporters,
but at the same time it contributes to an importing
(18:33):
of inflation. Is there something that we need to discuss
here as it relates to the currency where taki ICHI's
win is concerned.
Speaker 4 (18:41):
Yeah, I mean, I think the currency could be the
kind of deciding factor that makes the BOJ go later
this month. That it could be, because if they don't
move in October, we've got to wait until mid December
till the next meeting, So you've got, you know, like
two months of quite a long time. If the currentsy
(19:04):
is in that one five zero range against the dollar,
and remember that Japan has had to intervene multiple times
in recent years to prop up the yen, and I
would say that one sixty mark is certainly territory that
policymakers do not want to go in. And how is
it going to look for Donald Trump? Well, it's going
(19:24):
to feed into all his views that Japan is, you know,
weakening the currency to get some kind of favorable trade advantage.
Now that might not actually be the case. But is
Donald Trump going to avoid saying that? Well, I think
we know the answer to that one.
Speaker 1 (19:39):
But at the same time, the equity market in Japan,
the Nike at least, is it a record high. Does
that give for anything that we can kind of call
maybe goodwill?
Speaker 3 (19:51):
Yeah?
Speaker 4 (19:51):
No, I think you know, from the investor's point of view,
they're thinking, hey, this probably means weakly and so that's
good for export profits, so that helps stocks. There also
the idea that there could be more spending, some kind
of help to consumers, maybe in tax rebates or some
(20:13):
kind of handout, so that that means that they'll be
spending more. They're going to spend more. Well, that's going
to lead to more sales, more profits. So I think
there's reasons there for the stocks to be going up.
The question is is whether that becomes a longer term
trend or whether we're just looking at the kind of
initial kneeja reaction to her election.
Speaker 1 (20:33):
Paul will leave it there. It's always a pleasure. Thanks
so very much, Bloomberg's Paul Jackson. He covers the economies
and governments of Japan and South Korea. Joining us 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
(20:55):
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast Tube 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
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