May 18, 2025 • 17 mins
The dollar edged lower along with US equity-index futures after Moody's Ratings stripped the US government of its top credit rating, citing a ballooning budget deficit it said showed little sign of narrowing. US stock futures declined 0.7% after the ratings were slashed one level to Aa1 from Aaa Friday. A gauge of the dollar weakened 0.3% and Treasuries were little changed at the open Monday. Shares in Japan, Australia and South Korea were weaker at the open. We get reaction from Larry Tentarelli, Chief Technical Strategist at Blue Chip Daily Trend Report.
Plus - holding longer-term Treasuries and importing Japanese cars manufactured in the US are among the possible bargaining chips for Tokyo in its talks with Washington over President Donald Trump's sweeping tariffs, according to the leader of a small but influential opposition party. Yuichiro Tamaki, head of the Democratic Party for the People, said in an interview last week that Japan could offer to reinvest proceeds from maturing US Treasury holdings into super-long bonds in return for concessions on tariffs. Those comments come ahead of the G7 Finance Ministers meeting in Canada this week. We get more on Japan's outlook from Tobias Harris, Founder and Principal at Japan Foresight. He speaks with Bloomberg's Yvonne Man and Avril Hong.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. This
is going to be the first opportunity for markets in
Asia to react to a downgrade of the US credit
rating by Moody's. It was last Friday, after the New
York close that moody stripped the US government of its
top credit rating, cutting it to double A one from
triple A. Bloomberg's Michael McKee says this may not mean
(00:33):
a lot for US markets.
Speaker 3 (00:34):
But there could be some portfolio rebalancing based on this.
But most contracts say usment reference US government debt rather
than specific ratings for it, so that could prevent forest selling. However,
it does mean likely higher interest rates. We'll have to
keep an eye on the yield curve, and that raises
(00:57):
the costs that the US government is going to have
to pay to service.
Speaker 2 (00:59):
Its Yes, that is Bloomberg's Michael McKee. Now Moody cited
the failure of successive administrations to deal with rising US
debt and deficits. The firm also cited interest payment ratios
at significantly higher levels than similarly rated sovereigns. I guess
you could say the move was hardly surprising since both
(01:20):
S and P Global and Fitch have already taken similar steps.
Joining me now for a closer look at this and
other stories in the marketplace is Larry Tantarelli. He is
the chief technical strategist at blue Chip Daily Trend Report. Larry,
thank you for making time to chat with me about this.
Give me your reaction to the Moody's downgrade.
Speaker 4 (01:40):
Doug, thank you for having me on. So I believe
the Moody's downgrade is going to turn out to be
a non event. As you said, two other rating agencies
have already downgraded the US over the years. And as
we look at the market reaction right now, the S
and P futures are down about six tens of percent.
Ten year treasure heels with me moved up about five
(02:01):
basis points. So we may see some short term volatility,
but I don't think that this is going to be
a major event whatsoever.
Speaker 2 (02:08):
But the timing comes as Congress debates even more unfunded
tax cuts. Do you think this in any way influences
the conversation in Washington?
Speaker 4 (02:19):
It might to a degree, because I do think it
puts upward pressure on bond yields, So to a degree,
it might because it is still a major news event,
so to a degree, yes.
Speaker 2 (02:33):
Well, you mentioned the upward pressure on bond yields, which
reminds me of the situation a while back with Silicon
Valley Bank. Do we have to be concerned if we
get a backup in yields to a meaningful degree about
the way in which some of the regional banks or
other financial institutions are exposed to US treasuries.
Speaker 4 (02:53):
We need to see tang year yields break out over
four point eight zero. Right now, they're trading at about
four point four eight, and I don't know that this
is enough of an event to push yields to that
breakout level. So it's always a possibility, but I would
say it's a very remote possibility that we get a
major breakout in yields from this.
Speaker 2 (03:15):
Let's talk a little bit about what's been going on
with the global economy as the Trump administration works to
rearrange or re engineer global trade. How do you understand
the tariff story at the moment? Are we closer to
a resolution? Do you suspect or does this have the
potential to drag on for a while and do a
substantial amount of harm to the global economy.
Speaker 4 (03:37):
My expectation is somewhere in the middle. So my expectation
is that this will not be a quick fix. It
could drag on as far as the process for a
few months or longer. Scott Bessnt recently said that he
thought it would take two to three years to get
a full China trade deal, so the process could take
(04:00):
a little more time. But I think what the markets
are really focused on right now is the news cycle,
and about six weeks ago, the markets had really priced
in worst case scenario and a global economic slowdown. Over
the past few weeks because of positive news headlines that
have come out, I think a lot of pressure has
(04:22):
been taken off global economic expectations, and I think the
markets are adjusting right now to the expected tariffs.
Speaker 2 (04:30):
We talked about the possibility that this Moody's downgrade will
negatively impact US equities. You cited the S and P
E many futures contract a moment ago, But if you
look at what happened Friday, equities capped there as second
best week of the year. Fair amount of optimism maybe
about the trade deal, and I was struck by the
fact that the markets seem to overlook not only the
(04:52):
slump in consumer sentiment, but a real spike in inflation expectations.
I think we're at the highest level right now in
about forty years. What is the risk do you think
for the US equity market in the next three to
six months.
Speaker 4 (05:06):
The two biggest risks that we face. Number one would
be if there was any major walk back in the
progress that we've made with China and the trade negotiations.
That would be number one. The second biggest risk if
for some reason the economy started to slow down drastically,
if the jobs market started to weaken, which it has not.
(05:30):
The labor market's held up very well. I think the
disconnect with inflation is inflation expectations are based on consumer sentiment,
but if we look at the actual data that's coming in,
CPI has come in below forecast for the past three months.
PPI came in negative last week, So the consumer expectations
(05:51):
may be bearish, but the actual data that's coming in
has been trending lower.
Speaker 2 (05:56):
But you could make the case that we have yet
to see the tariffs really bite. I think Walmart last
week said it was going to raise prices the President
kind of pushed back against that notion. Is there the
risk that these tariffs will in fact produce higher inflation
that the market is right now maybe underestimating a little bit.
Speaker 4 (06:17):
Yes, there definitely is. The tariff effect is going to
have a lagging process as far as when the tariff
kicks it, when the tariffs kick in. So although we
haven't really seen higher inflation yet, this is going to
be a process, not an event. So we do have
to stay cautious over the next few weeks or over
(06:40):
the next few months that inflation doesn't break out higher.
Speaker 2 (06:43):
So when it comes to the Fed, what is your thinking.
Do they take a very very cautious stance here? And
if the market right now is expecting maybe two to
twenty five bases point rate cuts, that's about right. Maybe
the risk is that we get fewer than that.
Speaker 4 (06:58):
Yes, I believe that the Fed is on hold at
least until September. The Fed Fund's futures market is pricing
in the first rate cut in September. But I believe
the Fed can be very patient right here. They don't
have to be in a hurry to cut rates whatsoever.
The economy is holding up well, the labor market is
(07:18):
very strong, and inflation is still above the long term forecast,
so I believe that the FED is going to be
very patient. I believe they're going to want to see
no negative effects from the tariffs, so I believe they're
on hold for the time being.
Speaker 2 (07:34):
I'm curious as to how you're viewing opportunities offshore right now.
Are there places to put money to work?
Speaker 4 (07:41):
Definitely?
Speaker 1 (07:42):
So.
Speaker 4 (07:42):
China has turned up recently. Taiwan. The Taiwan market is
back over the two hundred day moving average, and they're
heavily tied to semiconductors. Semiconductors had a very strong week
last week. Taiwan semi was very strong. India has turned
up recently over the past few weeks, that's back over
the forty week moving average, and Korea has been acting
(08:06):
very well. So I'm seeing opportunities in China, India, Korea,
and Taiwan.
Speaker 2 (08:11):
I'm curious, Larry about the measures of conviction that you
use in your work. What are they?
Speaker 4 (08:17):
What I look at is price trends and weekly price moves.
So what I'm seeing in the S and P five
hundred and the Nasdaq one hundred very very strong conviction
moves what we saw last week is the S and
P five hundred and Nasdaq one hundred both closed over
the forty week moving average for the first time in
(08:38):
quite a few weeks. They did it with a very
strong move. Both indices were up by over five percent.
The forty week moving average is rising, the ten week
moving average is rising. So when I look at these
weekly chart trends, these are very strong moves that we're seeing.
Speaker 2 (08:55):
Larry, we'll leave it there. Thank you so much for
joining us. Great insights from Tantarelli. He is the chief
technical strategist at blue Chip Daily Trend Report. Joining us
here on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia Podcast. I'm Doug Krisner. We're seeing currency market
(09:19):
reaction to the downgrade of the US credit rating by Moody's.
Both the Japanese yenn and the Swiss frank have strengthened.
The dollar mean time is weaker earlier. Treasury Secretary Scott
Besson downplayed concerns over the US government's debt and the
inflationary impact of the tariffs on Sunday. He said the
Trump administration is determined to lower federal spending and grow
(09:41):
the American economy now. Besson's remarks come ahead of the
G seven finance ministers meeting this week in Canada. That's
where US Japan trade talks are expected. For more, we
heard from Tobias Harris. He is the founder and principal
at Japan Foresight. He spoke earlier with Bloomberg sivon men
and April Home.
Speaker 5 (10:01):
We talked about what's at stake here, but it seems
like the narrative has shifted on how Japan can approach
these talks in this third round. What is your expectations
on whether Japan can actually secure a long term trade
deal with the US.
Speaker 1 (10:14):
You really have this fundamental question of what is the
US willing to put on the table, because I think
Japan has been very clear that it doesn't want a
one sided deal. It wants automobile tariffs, wh wants steel tariffs,
WO wants aluminum tariffs to be on the table up
for consideration, and I think the messaging from the Prime
Minister and other members of his government has been is
that this is pretty much a non negotiable position. And
(10:34):
so frankly, until we see movement from the US on
those tariffs, it's going to be really hard to get
a deal done because I think is of Us put
himself in a position where you can't really climb back
on that.
Speaker 5 (10:47):
Yeah, you mentioned about the auto tariffs. I mean that
twenty five percent tariff on japan auto imports is still there.
What do you think Isshab was thinking? Do you think
his administration is willing to sacrifice the domestic agricultural industry
to win back those terror reductions when it comes to autos?
Speaker 6 (11:04):
You know, I think it just depends on the overall
deal that's on the table.
Speaker 1 (11:08):
And in fact, I think, you know, we've now seen
some reporting hinting that the Issuba government might be open
to lower auto tariffs, but not completely removing the new
tariffs that we're introduced.
Speaker 6 (11:19):
But the overall package.
Speaker 1 (11:21):
I mean, for now, we have not really heard what
the Trump renstration is really willing to put.
Speaker 6 (11:25):
On the table.
Speaker 1 (11:26):
And frankly, I don't know if we if we've heard
that the Trump renstration is even happy with some of
the potential agricultural concessions that we've that have been discussed
as possible.
Speaker 6 (11:37):
From the Japanese government. I mean, the overall picture.
Speaker 1 (11:39):
The idea, you know, what exactly are they looking to
get out of Japan in this, you know, is the goal,
you know, getting rid.
Speaker 6 (11:45):
Of Japan's biolateral.
Speaker 1 (11:47):
Trade surplus with the United States or is it market
access for US goods, whether or not that results in
eliminating that trade and balance with Japan.
Speaker 6 (11:55):
And until we get to that point, I think it's.
Speaker 1 (11:57):
Really hard to say what exactly does it an agreement
between these countries look.
Speaker 7 (12:01):
Like Tomorrow's what about? Sort of like the domestic audience
at this point, because there is also an Upper House
election coming up. Does that in a way play into
trade talks?
Speaker 1 (12:16):
I think it absolutely does, and I think it you know,
it certainly has affected Issuba's sense of timing that, you know,
not wanting to have a certainly he doesn't want a
bad deal at all, but a bad deal right before
the election I think is going.
Speaker 6 (12:29):
To be bad news.
Speaker 1 (12:31):
I think, you know, a deal that saves Japan's automakers,
that limits the impact on agricultural producers, I think, you know,
that would be a great deal for him to announce
right before the Upper House campaign. And I think you know,
he's looking, you know, to have some achievement that he
can take to voters. But if that deal does not
look like it's materializing. You know, it's much more likely frankly,
(12:53):
that talks will drag on past the Upper House elections
that you know, Japan is better off waiting to get
a better deal than to have something inadequate to put
before the voters in July.
Speaker 6 (13:02):
So, you know, it really.
Speaker 1 (13:03):
Depends on what ultimately is on the table. But clearly,
you know the fact that issue doesn't want to be
going to the electorate having to face accusations that he's
thrown Japanese agricultural producers under the bus. That's not something
the LDP wants to have to run on in the
Upper House election. So you know, it really depends on
the substance. You know, it's not there's not a one
size fits all agreements here as far as the LDP
(13:25):
is concerned.
Speaker 7 (13:27):
What about the best currency? I mean, how is that
figuring it to negotiations?
Speaker 1 (13:31):
You think, I'm skeptical that currency has that much of
a role to play. It's been coming up, it's been
floating around, It's been mentioned as you know, possible.
Speaker 6 (13:42):
I don't think, you know, at the end of the day,
I don't think a deal.
Speaker 1 (13:45):
I don't even know what a currency deal really looks
like considering that Japan has not been has not been
devaluing its currency. If anything, when they've intervened, it's been
to strengthened its currency. I don't think the Japanese government
is really in a position to put monetary policy on
the table.
Speaker 6 (13:59):
I think going to resist that.
Speaker 1 (14:01):
And you know, when it comes down to it, they're
also not going to agree to some sort of specific
numerical target for dollar again either. So ultimately, I don't
I don't know what exactly a currency deal looks like.
I don't know what Japan is willing to bargain in
favor of a currency deal, and so ultimately, I mean,
I think, you know, they'll have these discussions, but when
it comes down to getting some sort of trade deal done,
I don't think currency is really going to be an
(14:22):
important plank of that.
Speaker 5 (14:24):
Yeah, Tobias, you talk about the relationship between the US
and Japan. You know, Japan is very dependent on the
US when it comes to security. There's a sixty three
billion dollar trade surplus with the US. I got to wonder, though,
how much leverage then, does Japan have going into these talks.
Speaker 1 (14:38):
I think we're seeing that, you know, it's trying to
find sources of leverage. But ultimately, you know, and some
of it is the structure of bilateral trade. I mean,
it's not that there's an easy fix, you know, to
make you know, either Japanese buy more American stuff or
you know, to get Americans to buy less, other than
leaving the tariffs in place, right, I mean, if the
(14:58):
US is really serious about reducing or eliminating the trade
deficit with Japan, I mean, ultimately the best thing is
going to be leaving the tariffs in place and encouraging
Americans to buy fewer things from Japan.
Speaker 6 (15:10):
That's a little uncomfortable for Japan in general, though.
Speaker 1 (15:13):
I mean, I think, you know, what has been interesting
over the last several months watching the Japanese public's response
to you know, the Liberation Day tariffs and the auto
tariffs and so on. I think there's a feeling of
frustration and betrayal, and I think it's in some way
stiff in the Japanese government's fine. I think there's a
feeling that, you know, in the past, perhaps the expectation was,
(15:34):
you know, the government has to do whatever it takes
to make the US happy, to keep the US engaged
and committed to Japan. But I think there's a feeling that,
you know, there were certain promises made during the first
US Japan FTA talks with Trump in twenty nineteen, and
there's a feeling that those promises were broken. There's a
feeling that without really having a clear sense of what
the US actually wants, there's a sense of, you know,
(15:55):
the US being unfair and being arbitrary, and so therefore,
I think there's an expectation that, you know, if you
should just you know, play caated, you know, do whatever
trip to playk Trump, that that actually could backfi your
domestically in a way that I think would not necessarily
have been the case in the past.
Speaker 6 (16:09):
And so this is something of you uncharted waters.
Speaker 1 (16:12):
You know, we don't really the way that domestic politics
are playing out in this situation.
Speaker 6 (16:17):
It's a little different than what we've seen with you
as in the past.
Speaker 7 (16:20):
Tobias, thanks so much, great to get your analysis. Tobias Harris,
founder and principal at Japan Foresight.
Speaker 2 (16:29):
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
(16:52):
and Australia. I'm Doug Prisoner and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. This
is going to be the first opportunity for markets in
Asia to react to a downgrade of the US credit
rating by Moody's. It was last Friday, after the New
York close that moody stripped the US government of its
top credit rating, cutting it to double A one from
triple A. Bloomberg's Michael McKee says this may not mean
(00:33):
a lot for US markets.
Speaker 3 (00:34):
But there could be some portfolio rebalancing based on this.
But most contracts say usment reference US government debt rather
than specific ratings for it, so that could prevent forest selling. However,
it does mean likely higher interest rates. We'll have to
keep an eye on the yield curve, and that raises
(00:57):
the costs that the US government is going to have
to pay to service.
Speaker 2 (00:59):
Its Yes, that is Bloomberg's Michael McKee. Now Moody cited
the failure of successive administrations to deal with rising US
debt and deficits. The firm also cited interest payment ratios
at significantly higher levels than similarly rated sovereigns. I guess
you could say the move was hardly surprising since both
(01:20):
S and P Global and Fitch have already taken similar steps.
Joining me now for a closer look at this and
other stories in the marketplace is Larry Tantarelli. He is
the chief technical strategist at blue Chip Daily Trend Report. Larry,
thank you for making time to chat with me about this.
Give me your reaction to the Moody's downgrade.
Speaker 4 (01:40):
Doug, thank you for having me on. So I believe
the Moody's downgrade is going to turn out to be
a non event. As you said, two other rating agencies
have already downgraded the US over the years. And as
we look at the market reaction right now, the S
and P futures are down about six tens of percent.
Ten year treasure heels with me moved up about five
(02:01):
basis points. So we may see some short term volatility,
but I don't think that this is going to be
a major event whatsoever.
Speaker 2 (02:08):
But the timing comes as Congress debates even more unfunded
tax cuts. Do you think this in any way influences
the conversation in Washington?
Speaker 4 (02:19):
It might to a degree, because I do think it
puts upward pressure on bond yields, So to a degree,
it might because it is still a major news event,
so to a degree, yes.
Speaker 2 (02:33):
Well, you mentioned the upward pressure on bond yields, which
reminds me of the situation a while back with Silicon
Valley Bank. Do we have to be concerned if we
get a backup in yields to a meaningful degree about
the way in which some of the regional banks or
other financial institutions are exposed to US treasuries.
Speaker 4 (02:53):
We need to see tang year yields break out over
four point eight zero. Right now, they're trading at about
four point four eight, and I don't know that this
is enough of an event to push yields to that
breakout level. So it's always a possibility, but I would
say it's a very remote possibility that we get a
major breakout in yields from this.
Speaker 2 (03:15):
Let's talk a little bit about what's been going on
with the global economy as the Trump administration works to
rearrange or re engineer global trade. How do you understand
the tariff story at the moment? Are we closer to
a resolution? Do you suspect or does this have the
potential to drag on for a while and do a
substantial amount of harm to the global economy.
Speaker 4 (03:37):
My expectation is somewhere in the middle. So my expectation
is that this will not be a quick fix. It
could drag on as far as the process for a
few months or longer. Scott Bessnt recently said that he
thought it would take two to three years to get
a full China trade deal, so the process could take
(04:00):
a little more time. But I think what the markets
are really focused on right now is the news cycle,
and about six weeks ago, the markets had really priced
in worst case scenario and a global economic slowdown. Over
the past few weeks because of positive news headlines that
have come out, I think a lot of pressure has
(04:22):
been taken off global economic expectations, and I think the
markets are adjusting right now to the expected tariffs.
Speaker 2 (04:30):
We talked about the possibility that this Moody's downgrade will
negatively impact US equities. You cited the S and P
E many futures contract a moment ago, But if you
look at what happened Friday, equities capped there as second
best week of the year. Fair amount of optimism maybe
about the trade deal, and I was struck by the
fact that the markets seem to overlook not only the
(04:52):
slump in consumer sentiment, but a real spike in inflation expectations.
I think we're at the highest level right now in
about forty years. What is the risk do you think
for the US equity market in the next three to
six months.
Speaker 4 (05:06):
The two biggest risks that we face. Number one would
be if there was any major walk back in the
progress that we've made with China and the trade negotiations.
That would be number one. The second biggest risk if
for some reason the economy started to slow down drastically,
if the jobs market started to weaken, which it has not.
(05:30):
The labor market's held up very well. I think the
disconnect with inflation is inflation expectations are based on consumer sentiment,
but if we look at the actual data that's coming in,
CPI has come in below forecast for the past three months.
PPI came in negative last week, So the consumer expectations
(05:51):
may be bearish, but the actual data that's coming in
has been trending lower.
Speaker 2 (05:56):
But you could make the case that we have yet
to see the tariffs really bite. I think Walmart last
week said it was going to raise prices the President
kind of pushed back against that notion. Is there the
risk that these tariffs will in fact produce higher inflation
that the market is right now maybe underestimating a little bit.
Speaker 4 (06:17):
Yes, there definitely is. The tariff effect is going to
have a lagging process as far as when the tariff
kicks it, when the tariffs kick in. So although we
haven't really seen higher inflation yet, this is going to
be a process, not an event. So we do have
to stay cautious over the next few weeks or over
(06:40):
the next few months that inflation doesn't break out higher.
Speaker 2 (06:43):
So when it comes to the Fed, what is your thinking.
Do they take a very very cautious stance here? And
if the market right now is expecting maybe two to
twenty five bases point rate cuts, that's about right. Maybe
the risk is that we get fewer than that.
Speaker 4 (06:58):
Yes, I believe that the Fed is on hold at
least until September. The Fed Fund's futures market is pricing
in the first rate cut in September. But I believe
the Fed can be very patient right here. They don't
have to be in a hurry to cut rates whatsoever.
The economy is holding up well, the labor market is
(07:18):
very strong, and inflation is still above the long term forecast,
so I believe that the FED is going to be
very patient. I believe they're going to want to see
no negative effects from the tariffs, so I believe they're
on hold for the time being.
Speaker 2 (07:34):
I'm curious as to how you're viewing opportunities offshore right now.
Are there places to put money to work?
Speaker 4 (07:41):
Definitely?
Speaker 1 (07:42):
So.
Speaker 4 (07:42):
China has turned up recently. Taiwan. The Taiwan market is
back over the two hundred day moving average, and they're
heavily tied to semiconductors. Semiconductors had a very strong week
last week. Taiwan semi was very strong. India has turned
up recently over the past few weeks, that's back over
the forty week moving average, and Korea has been acting
(08:06):
very well. So I'm seeing opportunities in China, India, Korea,
and Taiwan.
Speaker 2 (08:11):
I'm curious, Larry about the measures of conviction that you
use in your work. What are they?
Speaker 4 (08:17):
What I look at is price trends and weekly price moves.
So what I'm seeing in the S and P five
hundred and the Nasdaq one hundred very very strong conviction
moves what we saw last week is the S and
P five hundred and Nasdaq one hundred both closed over
the forty week moving average for the first time in
(08:38):
quite a few weeks. They did it with a very
strong move. Both indices were up by over five percent.
The forty week moving average is rising, the ten week
moving average is rising. So when I look at these
weekly chart trends, these are very strong moves that we're seeing.
Speaker 2 (08:55):
Larry, we'll leave it there. Thank you so much for
joining us. Great insights from Tantarelli. He is the chief
technical strategist at blue Chip Daily Trend Report. Joining us
here on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia Podcast. I'm Doug Krisner. We're seeing currency market
(09:19):
reaction to the downgrade of the US credit rating by Moody's.
Both the Japanese yenn and the Swiss frank have strengthened.
The dollar mean time is weaker earlier. Treasury Secretary Scott
Besson downplayed concerns over the US government's debt and the
inflationary impact of the tariffs on Sunday. He said the
Trump administration is determined to lower federal spending and grow
(09:41):
the American economy now. Besson's remarks come ahead of the
G seven finance ministers meeting this week in Canada. That's
where US Japan trade talks are expected. For more, we
heard from Tobias Harris. He is the founder and principal
at Japan Foresight. He spoke earlier with Bloomberg sivon men
and April Home.
Speaker 5 (10:01):
We talked about what's at stake here, but it seems
like the narrative has shifted on how Japan can approach
these talks in this third round. What is your expectations
on whether Japan can actually secure a long term trade
deal with the US.
Speaker 1 (10:14):
You really have this fundamental question of what is the
US willing to put on the table, because I think
Japan has been very clear that it doesn't want a
one sided deal. It wants automobile tariffs, wh wants steel tariffs,
WO wants aluminum tariffs to be on the table up
for consideration, and I think the messaging from the Prime
Minister and other members of his government has been is
that this is pretty much a non negotiable position. And
(10:34):
so frankly, until we see movement from the US on
those tariffs, it's going to be really hard to get
a deal done because I think is of Us put
himself in a position where you can't really climb back
on that.
Speaker 5 (10:47):
Yeah, you mentioned about the auto tariffs. I mean that
twenty five percent tariff on japan auto imports is still there.
What do you think Isshab was thinking? Do you think
his administration is willing to sacrifice the domestic agricultural industry
to win back those terror reductions when it comes to autos?
Speaker 6 (11:04):
You know, I think it just depends on the overall
deal that's on the table.
Speaker 1 (11:08):
And in fact, I think, you know, we've now seen
some reporting hinting that the Issuba government might be open
to lower auto tariffs, but not completely removing the new
tariffs that we're introduced.
Speaker 6 (11:19):
But the overall package.
Speaker 1 (11:21):
I mean, for now, we have not really heard what
the Trump renstration is really willing to put.
Speaker 6 (11:25):
On the table.
Speaker 1 (11:26):
And frankly, I don't know if we if we've heard
that the Trump renstration is even happy with some of
the potential agricultural concessions that we've that have been discussed
as possible.
Speaker 6 (11:37):
From the Japanese government. I mean, the overall picture.
Speaker 1 (11:39):
The idea, you know, what exactly are they looking to
get out of Japan in this, you know, is the goal,
you know, getting rid.
Speaker 6 (11:45):
Of Japan's biolateral.
Speaker 1 (11:47):
Trade surplus with the United States or is it market
access for US goods, whether or not that results in
eliminating that trade and balance with Japan.
Speaker 6 (11:55):
And until we get to that point, I think it's.
Speaker 1 (11:57):
Really hard to say what exactly does it an agreement
between these countries look.
Speaker 7 (12:01):
Like Tomorrow's what about? Sort of like the domestic audience
at this point, because there is also an Upper House
election coming up. Does that in a way play into
trade talks?
Speaker 1 (12:16):
I think it absolutely does, and I think it you know,
it certainly has affected Issuba's sense of timing that, you know,
not wanting to have a certainly he doesn't want a
bad deal at all, but a bad deal right before
the election I think is going.
Speaker 6 (12:29):
To be bad news.
Speaker 1 (12:31):
I think, you know, a deal that saves Japan's automakers,
that limits the impact on agricultural producers, I think, you know,
that would be a great deal for him to announce
right before the Upper House campaign. And I think you know,
he's looking, you know, to have some achievement that he
can take to voters. But if that deal does not
look like it's materializing. You know, it's much more likely frankly,
(12:53):
that talks will drag on past the Upper House elections
that you know, Japan is better off waiting to get
a better deal than to have something inadequate to put
before the voters in July.
Speaker 6 (13:02):
So, you know, it really.
Speaker 1 (13:03):
Depends on what ultimately is on the table. But clearly,
you know the fact that issue doesn't want to be
going to the electorate having to face accusations that he's
thrown Japanese agricultural producers under the bus. That's not something
the LDP wants to have to run on in the
Upper House election. So you know, it really depends on
the substance. You know, it's not there's not a one
size fits all agreements here as far as the LDP
(13:25):
is concerned.
Speaker 7 (13:27):
What about the best currency? I mean, how is that
figuring it to negotiations?
Speaker 1 (13:31):
You think, I'm skeptical that currency has that much of
a role to play. It's been coming up, it's been
floating around, It's been mentioned as you know, possible.
Speaker 6 (13:42):
I don't think, you know, at the end of the day,
I don't think a deal.
Speaker 1 (13:45):
I don't even know what a currency deal really looks
like considering that Japan has not been has not been
devaluing its currency. If anything, when they've intervened, it's been
to strengthened its currency. I don't think the Japanese government
is really in a position to put monetary policy on
the table.
Speaker 6 (13:59):
I think going to resist that.
Speaker 1 (14:01):
And you know, when it comes down to it, they're
also not going to agree to some sort of specific
numerical target for dollar again either. So ultimately, I don't
I don't know what exactly a currency deal looks like.
I don't know what Japan is willing to bargain in
favor of a currency deal, and so ultimately, I mean,
I think, you know, they'll have these discussions, but when
it comes down to getting some sort of trade deal done,
I don't think currency is really going to be an
(14:22):
important plank of that.
Speaker 5 (14:24):
Yeah, Tobias, you talk about the relationship between the US
and Japan. You know, Japan is very dependent on the
US when it comes to security. There's a sixty three
billion dollar trade surplus with the US. I got to wonder, though,
how much leverage then, does Japan have going into these talks.
Speaker 1 (14:38):
I think we're seeing that, you know, it's trying to
find sources of leverage. But ultimately, you know, and some
of it is the structure of bilateral trade. I mean,
it's not that there's an easy fix, you know, to
make you know, either Japanese buy more American stuff or
you know, to get Americans to buy less, other than
leaving the tariffs in place, right, I mean, if the
(14:58):
US is really serious about reducing or eliminating the trade
deficit with Japan, I mean, ultimately the best thing is
going to be leaving the tariffs in place and encouraging
Americans to buy fewer things from Japan.
Speaker 6 (15:10):
That's a little uncomfortable for Japan in general, though.
Speaker 1 (15:13):
I mean, I think, you know, what has been interesting
over the last several months watching the Japanese public's response
to you know, the Liberation Day tariffs and the auto
tariffs and so on. I think there's a feeling of
frustration and betrayal, and I think it's in some way
stiff in the Japanese government's fine. I think there's a
feeling that, you know, in the past, perhaps the expectation was,
(15:34):
you know, the government has to do whatever it takes
to make the US happy, to keep the US engaged
and committed to Japan. But I think there's a feeling that,
you know, there were certain promises made during the first
US Japan FTA talks with Trump in twenty nineteen, and
there's a feeling that those promises were broken. There's a
feeling that without really having a clear sense of what
the US actually wants, there's a sense of, you know,
(15:55):
the US being unfair and being arbitrary, and so therefore,
I think there's an expectation that, you know, if you
should just you know, play caated, you know, do whatever
trip to playk Trump, that that actually could backfi your
domestically in a way that I think would not necessarily
have been the case in the past.
Speaker 6 (16:09):
And so this is something of you uncharted waters.
Speaker 1 (16:12):
You know, we don't really the way that domestic politics
are playing out in this situation.
Speaker 6 (16:17):
It's a little different than what we've seen with you
as in the past.
Speaker 7 (16:20):
Tobias, thanks so much, great to get your analysis. Tobias Harris,
founder and principal at Japan Foresight.
Speaker 2 (16:29):
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
(16:52):
and Australia. I'm Doug Prisoner and this is Bloomberg
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