Bloomberg Daybreak Weekend: Nvidia Earnings Preview

Bloomberg Daybreak Weekend with Host Nathan Hager take a look at some of the stories we'll be tracking in the coming week.

• In the US – a look ahead to earnings from Nvidia, Walmart, and Target.
• In the UK – a look ahead to the European Business Summit.
• In Asia – a look ahead to Japan’s upcoming GDP report.

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Episode Transcript

Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.

Speaker 2 (00:10):
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, a
look ahead to earnings from Chip Giant, Nvidio in some
of America's biggest retailers. I'm Nathan Hager in Washington.

Speaker 3 (00:25):
I'm Carolin headka Hey London. While we're looking ahead to
the European Business Summit, I'm.

Speaker 4 (00:30):
Doug Prisner looking at an expected pivot in Japan's economic growth.

Speaker 1 (00:37):
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
eleven three year, New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine, Boston, Dad Digital Radio, London, Sirius
XM one twenty one, and around the world on Bloomberg
Radio dot Com and the Bloomberg Business Own.

Speaker 2 (01:02):
Good day to you. I'm Nathan Hager. We begin today's
program with earnings. Third quarter reporting seasons coming close to
an end, but before it does, we are about to
hear from some heavyweights, including the most valuable company of
all AI Chip Giant Nvidia wraps up results from the
Magnificent seven after the close of trade this Wednesday for

(01:23):
more and what we can expect, were joined by Kunjohn Sabani,
senior semiconductor analysts for Bloomberg Intelligence. Kunjohn, it's great to
have you with us on the weekend program. And it
seems like every quarter the expectation is for Nvidia to
more than beat expectations. How high is the bar this
time around?

Speaker 5 (01:43):
Yeah, So, just to add some context, the last two
quarters were the only quarters in which they did not
beat and raise significantly, after having beating and raising for
almost eight to twin quarters before that consistently in a row.
The key factors last two quarters were the head from
the China revenues. Also, not all the Street estimates had

(02:04):
China removed, so the consensus was not really clean. However,
looking into fiscal three Q, we now believe Street has
most of the China revenues removed, so that's out of
the way, and now we believe in Media's latest Blackwell
three hundred is ramping stronger, so they could return to
their normal race cadence of mid single digit beats and races,

(02:27):
and anything above that or a low double digit would
be a significant upside that could really help the sentiment.
Another point to add here is most of the hyperscalers
and cloud providers did raise their second half twenty twenty
five CAPEX projections by about a total of twenty billion
and their twenty twenty six projections by about one hundred billion.

(02:47):
So that combined with the five hundred billion pipeline that
Gentien shared during GDC last month for their black vel
and Rubin ramps significantly sets it up for a massive
upside in twenty six, to.

Speaker 2 (03:00):
The point of getting some of that China revenue off
the books. We have seen the CEO Jensen Wang making
moves like improving ties with Taiwan. He was just there
doing the relationship with Taiwan Semiconductor. How do you see
Jensen Wang building these relationships and how could that play

(03:20):
into the results.

Speaker 5 (03:21):
I mean, Taiwan is a key, you know, manufacturing hub,
not just for nd media but for most of this
the semiconductor semis and media is also leading TSMC's move
on shoring and building its products into the US in
the Arizona Plan, So that's going to be significantly critical.
On the China point, it doesn't seem like there is

(03:43):
enough clearance yet of course they're going to try because
there's the second largest market for them outside of the
US and they would really like to capture that market.
So far, we don't believe this quarter we'll see any
material revenues though.

Speaker 2 (03:58):
Are those barriers in kinda a continued headwind beyond this
quarter for Nvidia?

Speaker 5 (04:04):
They will, But on the good side, you know, most
of the investors in the street now have sort of
baked that in that you know, they're not adding this
back anytime soon. Also, since the head wind has come up.
You know, China right now is about fifty billion dollars
accelerator market right there have been other larger and other

(04:24):
large markets that have appeared in terms of SO and
AI spendings. One is the Middle East region, other is Japan,
and more and more countries like for example, in Europe
are coming in which could easily offset that tam that China,
that China had been took out of Invidia.

Speaker 2 (04:43):
I wonder what you're expecting to hear from the CEO
himself after we heard in recent days from the CEO
of Innvidia's maybe closest competitor, Advanced micro Devices, talking about
a big revenue outlook for AMD over the next three
to five years. What does Jensen Wong need to say
in terms of in videos outline.

Speaker 5 (05:04):
Yeah, and you know, in his normal way, I think
definitely is going to give more updates of how strong
the demand is, how strong the use case and performance
bench marks of the new Blackwell ramp is what we
would like to ask if you know, we as key
our investors should know is going to be more clarity
on that five hundred billion dollar pipeline that could really

(05:28):
set up the models and the estimates to go up.
Another key point is getting clarity on the cross margin
trajectory as these new products ramp and if they will
be staying close to in twenty six to the mid
seventies person gross margin range.

Speaker 2 (05:42):
In terms of those newer products. What are you expecting
on the pipeline beyond Blackwell.

Speaker 5 (05:50):
Yeah, I mean they have clearly laid out their road maps.
So the next product, the Rubin. We don't think they'll
announce much details for this three cube, but we will
get more clarity in the GDC early part of next year.
That's when we'll get a lot more specs. But again,
what we have seen from our channel checks is the
Blackwell Ultra, the GB three hundred seems to have gotten

(06:13):
much stronger traction when we had anticipated. And so unless
we don't run into any transition paines going to Rubhin,
we expect a similar stronger traction.

Speaker 2 (06:24):
Of course, one of the issues that has long been
an issue for in video, something that's tried to meet
the challenge of is just keeping up with this robust
demand for chips and AI centers. Do you see in
Vidia keeping up?

Speaker 5 (06:39):
They have been incrementally increasing supply every quarter, but we
still think, you know, demand continues to stay ahead of supply,
and we don't think supply will exceed demand anytime soon,
not at least until twenty twenty six.

Speaker 2 (06:53):
En all right, coun John Sabani, thank you for this.
That's Bloomberg Intelligence Senior Semiconductor analyst Konjohn Sabani. Again, we
get those video results after the close of trading on Wednesday. Now,
let's get to earnings from some of America's biggest retailers.
Target opens up it's third quarter books before the opening
bell on Wednesday. Then about twenty four hours after that,

(07:16):
we hear from Walmart. Let's hear now from Jen Bartashis.
She's a Senior analyst for retail staples and package Foods
at Bloomberg Intelligence. It's great to have you with us
on the program, Jen, And of course we look to
both these companies for a read on the consumer. Of course,
I'll look ahead to the holidays. What's the setup as
we await these results from Target and Walmart.

Speaker 6 (07:38):
It's a very interesting time for these retailers because we
hear about the disparity in consumer shopping behavior. On one hand,
Walmart is pulling more hire income households into its ecosphere
than ever before. And on the other hand, we have
Target that's going through a huge your reset as it's
trying to reconnect with its core customer base, and so

(08:01):
it's a it's a very dynamic time for these companies.
And it's the back to school season is what's really
in this quarter. So it's a good read on how
people are going to be entering into the holiday shopping period.

Speaker 2 (08:13):
Okay, so let's start off with Target. Of course, in
your latest note, one of your latest notes, you make
note of their goal to add fifteen billion dollars in
revenue over the next five years. Could this be a
quarter where we start to see them on their way there.

Speaker 6 (08:31):
I think it's going to be a little bit of
a mixed quarter for Target, and that's really because they're
still trying to find their footing and what's going to
resonate with customers. Target is its best when people are
willing to buy apparel and buy discretionary items, and that
willingness is still a little bit dampened. They've done some

(08:54):
good things this quarter to kind of help reset their business.
If you remember they announced job cuts, if almost eighteen
hundred positions that they were cutting, you know, that's the
beginning of what should be a turnaround for Target.

Speaker 2 (09:07):
And it's interesting we just heard some reports earlier this
week that Target is implementing a new greeting policy for
those workers who are still on the job, basically telling
them to smile more for the customers who come in.
What's the balancing act for Target as it tries to
navigate this turnaround.

Speaker 6 (09:26):
Yeah, I think it's a balance between not losing sight
of your own core values that is what makes your
customer base love you, and trying to chase other retailers.
So you know, they keep doing price cuts. You know
they want to stay priced competitive, but at the same time,
Target has never been about being the low price leader.

(09:47):
So there's a balance there between having the selection and
the fun type of you know, offerings that they have
while still offering values so that people feel like they're
getting their money's worth. And that's that's what Targets really
trying to focus on regaining its footing.

Speaker 2 (10:03):
Yeah, on the point of the price cuts, we just
recently heard the Targets cut the prices on three thousand
essential items. Is that the kind of thing that could
eat into its margins?

Speaker 6 (10:12):
It could? It depends on what items they are. You know.
For the most part, these are going to be more
of your day to day household items, you know, and
those items don't carry a whole lot of margin on
them anyway, So you know, when you cut the prices
on those, you become a little bit more competitive. The
goal always is that you prompt people to buy greater

(10:34):
volume and that makes up for any kind of discrepancy
you might have from lowering your prices. But we'll see
if that actually takes hold or not. And so the
higher margin areas of the store are things like apparel,
it's things like beauty, it's things like home decor, and
those are the areas that just aren't selling as well

(10:55):
right now.

Speaker 2 (10:56):
Of course, Walmart getting ready to report their earnings as well.
They made their name on low prices. Is Target potentially
eating in to what we could get from Walmart this quarter?

Speaker 6 (11:10):
I would say that usually on a price basis, Walmart
is a clear winner and a clear leader. And for
people who shop based only on price, I don't think
you'll see a whole lot of shifting between Walmart and
Target in terms of customer visits. It's really more about
the overall perception and value perception of what you have.

(11:35):
So for Walmart, it depends a lot of their success
is the size of their grocery business because more than
fifty percent of their revenue in the US comes from
grocery type items, and so they when they keep prices
low there, they bring people in, but then they're shopping
the rest of the store, and so I think that's

(11:55):
one of the tactics that we'll see, and it's it's
part of what's bringing higher income households into Walmart as well.
Because if you're going to buy a box of ceurios,
you know, why wouldn't you buy that at the lowest
price because it's the same box of curios no matter
what retailer you go to.

Speaker 2 (12:12):
Well, there's certainly a lot to keep an eye on
as we get ready for those big box retail earnings
later this week. Thank you so much for this, Jen,
really great having you on with us. That's Jen Bartashi's
Bloomberg Intelligence senior analysts for retail, staples and packaged food,
and coming up on Bloomberg day Break weekend, we'll look
ahead to the European Business Summit. I'm Nathan Hager, and
this is Bloomberg. This is Bloomberg day Break weekend, our

(12:47):
global look ahead of the top stories for investors in
the coming week. I'm Nathan Hager in Washington. Up later
in our program we look ahead to some key economic
data in Japan. But first, the challenges facing Europe are
unprecedented but clear of belligerent Russia, frictions with China, and
ongoing trade spats with the US. Even if the impact
from Trump Tariff's faded faster than expected, the task is

(13:10):
building Europe's resilience and competitiveness. That's the backdrop to the
European Business Summit, which gathers Brussels top bureaucrats and policymakers
every year. Let's get more from Bloomberg Daybreak Europe anchor
Caroline Hepger in London, Nathan.

Speaker 3 (13:24):
The European Business Summit in the next few days in
Brussels will play host to captains of European industry, Nobel
Prize winning economists, and top bureaucrats, including the EU Commission
president of Slavondaline. It comes as European firms grapple with
high deck costs, energy reliance, strained relations with China and

(13:46):
the US, and criticism ongoing of its regulatory environment. The
EASE Justice Commissioner Michael McGrath says that Brussels needs more
power to enforce consumer protection standards amid investigators into illegal
products being sold by Chinese e commerce platform Shean. He
says that relations with China can be challenging.

Speaker 7 (14:09):
We have a trading relationship at the moment that is
quite unbalanced in favor of China. So that's why issues
like market access barriers for European companies within the Chinese
market is a key issue for US. China is a partner,
but also a systemic rival and indeed a competitor of

(14:31):
the European Union.

Speaker 3 (14:32):
That was Michael McGraw, EU Commissioner for Democracy, Justice and
the rule of Law as well as consumer protection. Speaking
there to Bloomberg Radio. Well joining us now as Bloomberg's
Brussels bureau chief Susanne Lynch. Susan, great to speak to you.
Just give us a sense of this gathering and what
business and policy makers are focused on right now in Brussels.

Speaker 6 (14:56):
Yeah.

Speaker 8 (14:56):
Look, this is a significant moment for business representatives to
come into close contact, if you like, with some of
the big hitting EU policy makers and Brussels. The reality
is the EU, everyone thinks politics in fact, you know,
is one of the world's biggest regulators, does have impact
on business. And I think this year in particular, people
would be very interested to hear what's coming out of

(15:17):
the European Commission because there is such a focus, particularly
i'd say over the last year or so on the
challenges facing the European economy and the whole issue of
EU competitiveness.

Speaker 3 (15:29):
Yeah, indeed, and this summit talks about what choices Europe
must make today to remain resilient and globally competitive tomorrow.
I think that kind of neatly sums up the issues
for Europe as well. Over a year since Mario Daghy's report,
which exposed Europe's need for greater competitiveness, the discussion around
high energy costs and reliance on bank loans, and the

(15:51):
regulatory burden and so many other of the recommendations. But
more than a year since since that report, and even
his own up some that was quite negative about the
progress that Europe had made. Where are we absolutely.

Speaker 8 (16:06):
And Mario DRAGLEI was speaking himself recently on the anniversary
of this landmark report and made the point that there
has been very little progress.

Speaker 6 (16:14):
Now.

Speaker 8 (16:15):
One reason is because the EU is this very unique institution.
It includes twenty seven countries. It's not a sovereign body
that can make decisions. It means that decision making is
very laborious. You have to have people on board. You
can't just plow through on different issues. And what the
European Commission, which is the main executive arm of the EU,
what you're hearing a bit from them is, look, we

(16:37):
want to, for example, advance more cross border mergers, we
want to develop the banking union. But when it comes
to it and the negotiations starts, EU members says, EU
countries sometimes just don't want to play the game. They
are worried about their own national industries, their own national companies,
and they are reluctant to take that step forward for
more integration. So this has always been a bind for

(16:59):
the EU. How do you advance, how do you integrate
more when you've got all these different countries with different priorities.
But I do think there is a real awareness that
the Draggy Report is something that did impact, that did
break through. I think a lot of the listeners may
have been at Davos this year. I remember myself being
there and hearing it. This report by a former ECB

(17:20):
president had everyone talking and realizing that now something needs
to be done. That the reality is that Europe has
been diverging from the United States since the Great Financial Crisis.
You can see that in the banking sector, you can
see that in terms of innovation, you can see that
in the number of startups, and in fact the real problem,
which is scaling up European businesses, that is really an issue,

(17:41):
and it does look like it continuing to lag behind
on that.

Speaker 3 (17:45):
Do you get any sense that things are speeding up
when there are so many pressures, namely, let's look to
China first, managing that relationship supply chains and rare earths,
which is from years and years of me movement by Beijing,
has suddenly become so essential everywhere else.

Speaker 8 (18:04):
Yeah, I mean, I think the issue facing Europe now
is that on the one hand, you've got this increasingly
isolationist United States, and on the other hand you've got
an increasingly belligerent some would say, China, and the EU
is belatedly waking up to the fact that not only
has it built up a dependency on the United States,
particularly in terms of the defense sector, but it also

(18:27):
has built up a dependency on China, particularly for the
rare earth's material. Now this isn't just a europe wide problem,
but you now can see the European Commission realizing this.
So a couple of weeks ago at the Berlin Global Dialogue,
we were there for Bloomberg and European Commission President earthl
Of Underline gave a very strong speech where she directly
addressed this issue about coming from Beijing, about the rare

(18:49):
earth and she, you know, said that EU has has
got options. But the reality is, you know how much
leverages the EU have here, It really has more than
ninety percent of these magnets that are going into everything
from electric vehicles to the defense are coming from China.
It's now scrambling elsewhere to try and find like minded partners.
But so is the United States and everyone else. So

(19:12):
will the EU have that urgency Like the EU does
not move quick as an institution, that that's for sure.
So you know, will it be able to garner its
resources and make sure it's there at the table when
countries across the world are trying to negotiate and trying
to look at different alliances and different relationships. That's that's
one of the key challenges.

Speaker 3 (19:31):
Yeah, indeed, and we know that kind of lack of
minds that there are actually in Europe for those where
earth in and of itself, and it takes years to
kind of to deliver those sorts of minds. And then
they're also quite polluting as well. So it's very very
difficult challenges.

Speaker 8 (19:46):
And I mean we saw in the last few weeks
that you know, German particularly German factories you know, were
slowing down their production because they had these supply chain issues.
But really what's worrying I think for the EU. We
were reporting last week that there were some Chinese officials
in Brussels for negotiations, but really the EU wasn't making
that much progress, it seems. Now let's see how how

(20:07):
this works out in the next few weeks. But with
the big focus being on Trump and g where did
the EU sit, it's kind of difficult for it to
make its own voice heard.

Speaker 3 (20:14):
Yeah, indeed, and it's not just China, obviously the European
businesses have to keep an eye on. It's also the
White House's stance towards Europe and there too, there are
lots of challenges. I mean, you mentioned Ivondeline and has
strong speech a couple of weeks ago. But it was
that meeting, wasn't it, between Trump and Vondeline, I mean,
forgive me, I just remember the flowers that were between

(20:36):
Trump and Vonderline that seemed to speak volumes of the
kind of gap between the two and maybe the fact
that they didn't want Vondallion and Trump to be right
next to each other. And it was also a moment
where there was some criticism for Vondalatin and how she
handled it.

Speaker 8 (20:51):
There certainly was I myself actually was at term Breef
for that event during the summer, Yes, because it happened
very quickly. You know, we forget this with international diplomacy,
that no one really expected this meeting to happen, and
then it did. And even the optics of earthly vonder
lynd flying to Donald Trump's golf course in Scotland and
part of not in the EU and making that trip

(21:11):
over especially to see him. So yes, the EU came
under a lot of criticism from EU countries, in particular,
saying it could have got a better deal. It locked
in a fifteen percent tariff rate. It also not everything,
but it also got some exemptions. For example, there were
lots of worries about the pharmaceutical sector, a lot of
exporters in Germany, Ireland, etc. GenMark, how would they be affected?

(21:32):
They did get a deal on that, but again this
is where the different bits of the EU kind of
blame each other. Vanderline and the Commission we're saying privately,
really well, hang on, you know, we did these negotiations
with the backing of the EU countries and if they
had an issue, they could a shouted stop. But I
do think there is a kind of a wider statement

(21:54):
to be made about this, and that is the fact
that the EU has always prided itself on being, you know,
this global trading power, that the single market, that market
of four hundred and fifty million people, that integrated market
is its big power, that it's a big caughting card.
And yet when it came to it, it didn't have
a stronghand with Trump, it felt like it had to
really compromise there. And I think that's been a real

(22:17):
worry for the EU already. As we know, there's been
so much inward looking about the lack of strategic autonomy
of the phrase goals when it comes to defense, spending.
Your trade was something that thought this is what the
EU does well, and yet it still had to kind
of some people would say capitulate, others would say be pragmatic,
but negotiate with Trump, where it did end up with

(22:37):
extra terrists.

Speaker 3 (22:38):
And so where do you think that leaves the regulatory environment,
because that, as you say, is what businesses are also
focused on. Is there a watering down? Is there adjustment
that is being made in the face of some quite
pointed demands from the US.

Speaker 8 (22:55):
Yes, so I think there has been a change here. Actually,
I mean it's one of the ironies of bregxush Britain
was always one of the strongest voices criticizing over EU
regulation and in fact that really did feed into the
breaks of debate in London in the UK. But actually
since they've left, since Britain has left the EU, actually
in the last year or two, there has been an
awareness and acceptance by the EU that it does need

(23:17):
to do something about regulation. They're cutting it better regulation
or simplification, but really what it means is changing some
of the rules, watering down some of these regulations to
be more business friendly. So the second Underline Commission she
put this simplification at the top of her agenda. So
we had again Brussels to is a great place for acronyms.

(23:39):
But these omnibus builds that were brought in earlier in
the year, now these things take time, They go through
the EU system, difficult through the Parliament. There are changes
in tweaks, but really they are about making sure that
some of the reporting requirements are less ownerous. So we
are going to see some kind of watering down of these,
but it still has to be really negotiated, the fine tuning,

(23:59):
and we are getting pushback from some of the more
left cleaning groups in the European Parliament and MEPs who
for example, feels strong about climate change and they're saying,
hang on, we can't water down too much. So I
think we are going to see this simplification agenda coming through.

Speaker 3 (24:14):
Thank you so much, is on Lynch for being with us.
I'm Caroline Hepkee here in London. You can catch us
every weekday morning for Bloomberg Daybak here at beginning at
six am in London. That's one am on Wall Street. Nathan.

Speaker 2 (24:26):
Thanks Caroline, and coming up on Bloomberg day Break weekend,
we'll take a look at Japan's economy and some key
data ahead. I'm Nathan Hager, and this is Bloomberg. This

(24:46):
is Bloomberg day Break Weekend, our global look ahead of
the top stories for investors in the coming week. I'm
Nathan Hager in Washington. We go to Japan next, where
the economy likely shrink in the latest quarter. For more,
let's get to the host of the Daybreak Gasia podcast,
Doug Grisner Nathan.

Speaker 4 (25:02):
On Monday, in Japan, the government will report on third
quarter economic growth. A contraction in GDP is expected for
the first time in six quarters. Yes, there have been
signs of positivity recently to suggest that Japan may have
been able to shake off its lost decades. The stock
market very near record highs. Inflation is firmly in place,

(25:23):
and that will allow the Bank of Japan at some
point to continue normalizing policy. But clearly something has gone missing,
and now Japan's new Prime Minister is pushing for aggressive
physical stimulus. To help us understand more about the state
of the Japanese economy, I'm joined by Bloomberg's Paul Jackson.
He covers the economies of both Japan and South Korea.

(25:44):
He joins us from Tokyo. If you had to identify
a single culprit responsible for this weakness, as difficult as
it may be, where would you point.

Speaker 9 (25:56):
I think this is going to be a hefty fall
in this third quarter. Of it is to do with
Donald Trump and his tariffs. Now why is that. It's
because in the previous quarter there was a lot of
front loading of exports to try and beat the rising tariffs.

(26:16):
Now we get into the following quarter, you know you've
already used up some of that export power in the
previous quarter. So that's going to be one of the
key factors that explains this big drop that we're expecting
in third quarter GDP. There are some other factors, though, Doug.

(26:37):
We did have a technical element to do with housing.
There was some environmental regulations brought in earlier in the
year that's going to make a new housing more expensive.
So there was a bit of a rush on house buying,
and so that's also kind of stolen some of the
later demand pulled the earlier in the year.

Speaker 4 (27:01):
Certain areas of the economy. I'm thinking of the manufacturers
that do a lot of exporting to not only the
United States but other parts of the world. Cars, automobile parts,
steal other industries that have been severely impacted by these
tariffs that are providing more of a drag on the
export side.

Speaker 9 (27:19):
Well, I think you've mentioned the key ones there. Of course,
with these reciprocal tariffs are affecting exports right across the board.
The cars, obviously, that was the key part of the negotiations.
They're down to fifteen percent, and what's interesting is that
the car exporters are absorbing a lot of that tariff. Now,

(27:42):
normally you would expect about a third from the exporters,
a third from the importers, and then maybe a third
from the consumers. But what we're seeing in the figures
is that the japan car makers are lowering their prices
by more than a third of what the tariff side
would be. So that's you know, eating into their profits.

(28:04):
But I don't think we need to quite sound the
alarm bells now because of those those technical factors. So
it's one of those contractions that maybe looks worse than
it is. That's not to say there aren't ongoing problems
with the economy. I think obviously we need to see
how trade, you know, responds to these higher levels of tariffs,

(28:28):
and also whether the US economy can can keep expanding.
Obviously it's a huge engine for global growth, you know.
Looking at Japan's economy more domestically, it's a case of,
you know, whether consumption can can keep holding up in
this new environment of inflation, which households haven't been used to.

Speaker 4 (28:50):
Indeed, this has been a remarkable shift after multiple decades
of deflation. How a generation in Japan has not known
upward pressure on prices. There's also been, as you know, Paul,
a bit of skepticism that inflation will prove to be durable.
Now you mentioned the upcoming meeting of the BOJ in December.
A number of economists surveyed by Bloomberg have said the

(29:13):
Bank of Japan should hike rate. So let me ask you, Paul,
about the likelihood of an interest rate hike at the
next meeting.

Speaker 9 (29:20):
Well, Doug, I mean, the usual response is, you've got
inflation above target for more than three and a half years,
I mean, you'd be raising interest rates. It'd be a
bit of a no brainer But because of this kind
of national goal of trying to generate inflation, they've been
going very, very slowly. Given that the consumers are still
kind of getting used to the idea of inflation and

(29:42):
wrestling with rising prices, there's a bit of a fear
that going too fast on raising the interest rates could
upend the economy. Now we have a new prime minister
in Sanai Takeichi. She's very much of the kind of
abonomics reflationist mold. She wants to ramp up fiscal spending

(30:05):
and provide support to consumers. So, in a sense, this
contraction in GDP, although it might be slightly overstating, you know,
the weakness in Japan's economy, it's very useful for a
politician to have that figure come out just before you
want to unleash your economic package as the new prime minister.

(30:28):
And of course an economic package is a very tried
and tested approach for new prime ministers to bump up
their support when they come in.

Speaker 4 (30:38):
So there are a couple of things that I want
to consider. One is the currency, because we know the yen,
particularly weighted against the dollar, has been weak. I think
right now we're trading around one fifty four. Obviously, in
a scenario where you have a weak currency, you're importing
inflation and energy I know is a big component of
that where Japan is concerned. But the other thing that
I'm curious about wages. Why do we deal with the

(31:01):
yen portion first? Though? Help me understand if that is
kind of getting a lot of the blame for this
stubborn inflation story.

Speaker 9 (31:09):
It is getting a lot of the blame. Again, you
could argue that if the BOJ raised interest rates, that
would help lift the yen against the dollar and ease
some of that pressure. The thing is is Takeichi being
from the kind of ebinomics mold, she kind of wants
the BOJ to go slow because she wants to emphasize

(31:32):
growth in the economy before anything that might constrain growth,
such as interest rate to hank. So really the difficulty
here is wanting to expand growth, push on it, using
a weekend to help those exporters. But you've got to
rain it in at some point because if you have

(31:55):
too much currency weakness, then you're going to have to
intervene to prop up the end. And you mentioned that
currency rate around you know, one five four, one five five.
I mean, I think once we get into the one
five five to one sixty range, then we really are
stretching the limits of what's acceptable in terms of the

(32:15):
weakness of the currency.

Speaker 4 (32:16):
Okay, so let's talk about the wage component right now,
as it feeds into the inflation narrative there. How are
wages right now relative, let's say, to where they were
five years ago. I'm much appreciated.

Speaker 9 (32:28):
I think in terms of your full time worker in
a regular job, discounting kind of all bonuses and over time,
wages are going up around two point two two point
three percent year on year.

Speaker 6 (32:41):
Now.

Speaker 9 (32:41):
That is actually pretty solid growth for Japan compared with
the past. Don't forget in Japan there's been this kind
of this social compact between workers and companies to sacrifice
wage hikes in favor of job security, and unemployment is
very low in Japan compared with other G seven economies.

(33:03):
But obviously if you've got inflation, then people start to realize, hey,
wait a minute, or two point two percent sounds pretty good.
But if your inflation is higher than that which it is,
then essentially your purchasing power is getting weaker and weaker
and weaker. One of the factors that certainly is very
important for the Bank of Japan and other policymakers is

(33:26):
can these wage gains go above the inflation rates. If
they do, then it's a no brainer for the Bank
of Japan to keep going ahead with normalization and raising
interest rates.

Speaker 4 (33:38):
Let's talk a little bit about what Prime Minister taka
Ichu wants to do in terms of stimulating the economy.
Has there been any discussion around the areas of focus
positions that she would obviously take to try to stimulate activity.

Speaker 9 (33:53):
This feeds into this point. If she's got a player
kind of careful line between providing helps so that consumers
and voters think that she's listening to them about their
cost of living crunch concerns, So that means probably she's
going to be helping subsidize electricity bills, subsidizing natural gas bills,

(34:14):
reducing taxes on gasoline, doing things that consumers can immediately recognize.
There's also a talk of including in the package kind
of shopping tokens that you can spend, which will help
region economies of regional governments will be given quite a
bit of leeway, by the looks of things to offer

(34:34):
kind of incentives spending, spending tokens to consumers in their areas.
So those are the things she can do. But you
kind of offer too much stimulus to the economy, what
are you going to get? What are you going to get?
More inflation, which creates more of the more of the problems.
So there's a fine balancing act she's got to do.
There other things that we're expecting out of this package.

(34:58):
She's wanting to spur long term growth, and she's identified
seventeen areas that require more investment. So she's trying to
give tax breaks to companies that invest in these areas.
And these are kind of areas that you would expect
are important for economic security. Chips, chip making, anything that

(35:21):
goes into rare eers, this this kind of stuff Paul.

Speaker 4 (35:24):
I'm curious to get your take on the level of
public debt in Japan and whether it's a concern. I mean,
we know it remains more than twice the size of
the economy. I'm curious as to how it's being viewed
or perhaps there is a tendency now to ignore it entirely.

Speaker 9 (35:40):
Well, what I think we're seeing here, Doug, is a
bit of a sea change in the way that Japan's
fiscal policy needs to be weighed up against fiscal discipline.
In recent days, the Prime Minister has essentially said that
balancing the budget on an annual basis, this is after

(36:03):
debt servicing sorted out, is no longer going to be
their prime yardstick for a kind of fiscal discipline. And
what she's saying is, we need to support the economy,
we need to provide growth, we need an expensive policy,
but we do need to be responsible on the fiscal side.
But our yard stick should not be balancing the budget.

(36:28):
Our yardsticks should be debt measured against GDP. Now, those
figures do not look good, Dougging. You know, two hundred
and thirty percent or more the size of the economy
in terms of Japan's national debts. And so what she's
doing is she's saying, no, no, no, don't look at
the gross debt against GDP figure, look at the net

(36:51):
debt against GDP figure. Because if you look at those,
Japan's got a lot of assets, then the figures look
a lot better. I mean, they're still not great. We're
still talking like one hundred and thirty net debt against GDP,
but you back much closer to the other G seven nations.
If you use that yardstick.

Speaker 4 (37:10):
Paul will leave it there. Thank you so very much,
Paul Jackson. He covers the economies of Japan and South
Korea from our bureau in Tokyo. I'm Doug Prisner. You
can catch us weekdays here for the Daybreak Asia podcast.
It's available wherever you get your podcast. Nathan.

Speaker 2 (37:26):
Thanks Doug, and that does it for this edition of
Bloomberg Daybreak Weekend. Join us again Monday morning at five
am Wall Street Time for the latest don markets overseas
and the news you need to start your day. I'm
Nathan Hager. Stay with us. Top stories and global business
headlines are coming up right now.