BOJ’s Ueda Signals Little Concern Over Highest Yields Since 2008
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Let's begin in Tokyo today, where BOJ Governor Kazuo Ueda was making some hawkish comments earlier during an address to Parliament. He seemed to use unusually clear language in defending the recent rise that we have seen lately in the U.S.

in Japanese government bond yields. Joining me now for a closer look is Paul Jackson. He is Bloomberg News economy editor joining us from Tokyo. Paul, it's always a pleasure to benefit from your perspective. Talk to me a little bit about any concern that may be there in the market right now in Japan, given this move up that we have seen in JGB yields.

Well, I think the market concerns largely reflect the reality that the BOJ has now pulled away a year ago from protecting these yields, keeping a lid on them so they can kind of go up and up and up.

Now, there has been an uptick to the highest levels in the benchmark yield to the levels that we last saw during the global financial crisis before then even. So these are levels that are much higher than they have been for a long time. That's causing some concern amongst market players and also for policymakers. Don't forget that Japan has the biggest debt load

amongst advanced economies in the world. So rising yields on benchmark bonds is a problem for long term financing of the debt. And I think what we're seeing here from policymakers, not only from the central bank governor Ueda, but also from the finance minister Kato the day before, is that policymakers are trying to just reassure, just say, hey, look, this is kind of natural. We've

back towards a kind of more market-focused determination of yield pricing, and there's no need to get too overly concerned here. These market movements are normal. And it seems logical that it also would reflect expectations that the BOJ is going to begin raising interest rates soon, right?

Yeah, I think we're going to continue seeing interest rate rises in Japan. We've still got inflation. Inflation is going to be above or in line with the BOJ's target. We're getting close to three years now. So those interest rates are going to keep going up. Now, they're not going to go nuts. It's not like every meeting. It's not back-to-back rate hikes. We're not expecting anything at the March meeting.

But I think we are seeing pretty hard baked in expectations that the Bank of Japan is going to be raising rates every six months or so. So earlier today, we had the February reading on producer prices. You and I were talking a moment ago. This is pretty much in line with what the market was expecting, right? That 4% year-on-year increase in PPI? Yeah.

Yeah, I think so. I think that the main takeaway from this is we've got high input prices coming in. That means it's going to feed into inflation going forward. So inflation isn't going to disappear anytime soon. And so that feeds into the idea that the Bank of Japan,

will keep raising interest rates. Now, is inflation like 6% or 7% requiring urgent attention? No. So I think we're going to see a continuation of gradual rate hikes. So how are consumers in Japan feeling these days about inflation? And maybe you can help me understand how that's showing up in politics. Well, I think the average consumer on the street is...

thoroughly unhappy with all these rising prices. It's kind of an alien concept in Japan, the idea of prices going up. It's only something that a generation has seen in the last two or three years. So they're seeing this cost of living crunch as even though wages are going up,

much faster than they have been. It's still those gains are lagging increases in prices. So in terms of people's real living standards, they are going down. Now, is anyone in the world going to be happy with that? Well, no. And we do have an election coming up in the summer. So Prime Minister Ishiba kind of needs to do something to show that they are

on top of the inflation story if he's going to perform well in that election. And the signs aren't great. So much of the conversation here stateside has been around tariffs that are going to be imposed in a few hours from now on imported steel and aluminum. Now, Japan at one point was a big steel producer. How are Japanese people feeling about this talk of increased tariffs?

Well, I think it is a concern for the economy going forward. Obviously, Japan relies a lot on its trade.

We have a whole raft of tariffs in the Trump universe. So we're starting off with steel and aluminum, but there's also these reciprocal tariffs that he's also talking about and potentially tariffs on cars. Now, I think that the tariffs on cars is probably Japan's number one concern because 17% of its exports are cars. Mm-hmm.

So and a third of those go to the US. So if those tariffs are slapped on cars, that's going to really hit the economy. Now, looking at the economy, we saw recent growth figures showing that the economy expanded 2.2% in the fourth quarter. That's a pretty good clip. You know, if they could keep that going every quarter, I'm sure Japan will be very happy.

But looking at the figures, most of that growth is based on trade and business investment. Now, if you've got a whole load of tariffs being unfurled across the world, well, is that going to be good for trade? No. And our business is going to feel like this is a great time to invest.

Well, I don't think so. So what does that leave you to drive the economy? Consumption. Well, as I told you, consumers are not happy with inflation. So all of these are dark clouds for the economy moving forward. So are leaders in Japan attempting to get some exemptions, do you think?

Oh, yes. Like many of U.S. trading partners, especially those with surpluses on trade, we've seen a delegation go over to D.C. We had our trade minister there just in recent days talking with Commerce Secretary Howard Lutnick.

trying to find a way for some kind of win-win result. As you can imagine, in Trump's world, those are difficult to come by. Mentioned a moment ago that we have the BOJ meeting in the week ahead. Do you think that we're likely to get a hawkish hold? Is that the logical way of framing this?

I think that's a logical way of thinking how the outcome would be. I think it will be a bit more neutral. It will be a hold. I think there's so many uncertainties about what's going to happen with these tariffs. Don't forget, we've seen tariffs imposed, then delayed, then postponed, then rethought. Who knows what's going to happen? There's so many tariffs being talked about in the coming weeks.

Is that a scenario, a situation when you want to be very hawkish with the messaging after holding? I think it's more likely that they'll stick to a neutral take. No change. That's what all 52 of our economists surveyed recently said.

expect at this meeting. And I think they'll keep the language fairly neutral going ahead, just staying with this idea that if their forecasts are realized, they will continue with gradual increases in interest rates. You and I have talked in the past about the proposed acquisition of US Steel on the part of Nippon Steel. It was certainly a hot button issue going into the presidential election. I haven't heard much and there really hasn't been a resolution yet. What are we hearing about this?

Well, if you remember when Prime Minister Ichiba met with President Trump

recently in DC, you know, they discussed this, this came out at their press conference and they tried to reimagine the takeover as instead a direct investment of, of course, less than half. So now trying to realize that,

reimagining the deal as instead a direct investment, that's quite a leap of the characterisation of what's going on. So I think both sides are still trying to work through that

My understanding is Nippon Steel's case insisting that it should go ahead and fighting against the bloc that former President Biden put on the deal. That is still in process, still going ahead. So a lot of questions still to be answered on that deal.

Paul, we'll leave it there. It's always a pleasure. Thank you for joining us. Paul Jackson there, Bloomberg News economy editor, joining us from Tokyo here on the Daybreak Asia podcast.

I'm Alpine skier, Michaela Schifrin. I've won the most World Cup ski races in history. But what does success mean to me? Success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stiefel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there. It's

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. It certainly was another volatile day in the equity market, and the cross-currents were many. We had the trade tension between the U.S. and Canada. We also had Ukraine saying it's ready to accept a U.S. proposal for a 30-day truce with Russia. And here in the States, heightened concern over economic growth. Let's get to it now with Michelle Martin. She's our guest today.

Michelle is president of Prosperity, the wealth management arm of Eisner Amper. And Michelle joining us from just outside Minneapolis. Good of you to make time to chat with us. Can we begin with the tariff story? Because tonight at 12.01 a.m., the U.S. tariffs of 25% on imported steel and aluminum will take effect. Obviously, in terms of equity market action, we've seen some heavy selling returns.

recently on concern over the impact of these tariffs. To what extent do you think the market has now fully embraced the risk or is there still potentially some more downside as it relates to these tariffs biting? Well, that's an interesting question, Doug. And I think that that question is going to remain out there until we actually start to see this

communication in the back and forth settle down a little bit. I think that tariffs are absolutely having an impact on the markets right now. And I think that the fact that the markets were so, the valuations were so high, this is kind of the pin that's bursting the air out of the bubble here a bit.

We're seeing NASDAQ in correction territory. And it's really difficult at this point to even keep track of on a day-to-day basis what is happening with the tariffs. As you said, I'm here in Minneapolis and

the premier of Ontario just removed the threat to our electric grid here in Northern Minnesota and Michigan and New York. So there's a lot of bargaining going on. And I think it's important that we follow that, but I think it's creating a lot of uncertainty and fear.

which is affecting the markets. Absolutely. No doubt. It's kind of curious today, President Trump seemed to downplay the recent sell-off that we have seen in the equity market. At one point when he was talking with reporters, he said, and I'm quoting him, it doesn't concern me. So if you look at the concerns, I'm sure there are many, and I'm sure that you're hearing a lot of concerns coming from your clients. What are they asking you when the phone rings?

Clients are definitely concerned. And I think that just the lack of certainty is really unsettling to them. I think that people are feeling like perhaps it was time for a pullback.

And one of the things that we talk about a lot with our clients is just having a diversified strategy and being diversified in your portfolio. You know, they're calling and asking where their equity exposures are and if their portfolio is rebalanced appropriately. Those are all things that are top of mind for people.

And I think the other thing is they're just concerned about if they have some short-term investment needs, need for cash, need for income.

They're more apt to be putting more in cash and fixed income at this point, just thinking that there's going to be a short-term correction. Trump said today he does not foresee the U.S. going into recession. I don't know how you get your economic reporting, whether or not you outsource that or whether it's something that happens internally at Eisen or Amper that you have access to. Is the House view right now that we are at risk of a recession?

I think our view, and this is from several investment houses, is really where we draw our information. I think we think it's a little bit early to say that a recession is absolutely on the horizon. I think that it is going to really depend largely on what we're seeing with consumer spending and jobs.

Those are the key drivers here, and we've got some reports coming out shortly. But I think monitoring that and really understanding consumer confidence is going to play largely into that.

Do you think this is going to move the needle where the Fed is concerned? I mean, there were many folks who watch market action saying that the Fed is probably going to be on hold for the foreseeable future. And I'm wondering whether what we've been seeing in terms of volatility and uncertainty changes that outlook slightly.

I'm a former banker, Doug. And I think that we're in this, I think the Fed, you know, did some easing last fall. I think that, you know, there was talk that perhaps they got ahead of themselves in September, but it actually has worked quite well. And we were, you know, heading for what appeared to be a soft landing. I think that the Fed is going to hold steady for a while. I think they've signaled that. And I think one of the things that's important is that we listen to the messaging of the Fed.

The market tends to lean towards what the market thinks, not necessarily always what the Fed is saying. And so I think the Fed would absolutely adjust if there's true signs of recession coming into play. But I think it's a little early for that. Where are you in terms of the opportunities that may exist in the bond market right now? Is that the place to be, do you think?

Yeah, it is. We've increased our allocations in fixed income. I think bonds are actually, for the first time in a decade, really putting that ballast, that foundation into a portfolio. When you're picking up a yield of 4.5% to 5%,

We extended duration last winter on our portfolio. And so, you know, I think by locking in and holding individual bonds, clipping coupons at 5% sounds pretty boring, but it actually works really well in a volatile market like this. So what type of credit risk are you taking? Where are you going in terms of credit quality? So we're not taking a lot of credit risk on our core bond portfolio.

We're in high quality bonds, but we are taking some credit risk, Doug, in private credit and high yield. That has served us very well over the last 12 to 18 months.

And as you've talked about with a change here and a shift, I think we're watching that very carefully. That's an area where obviously it can be affected if we see a real downturn in the economy. But for now, those yields are working quite well.

Are there opportunities offshore, something outside the United States that maybe has piqued your interest a little? Oh, well, it's so interesting right now because there's clearly a rotation going on. And you mentioned this earlier with the talks with Russia and Ukraine. But, you know, just in general, the equity markets in Europe are

the valuations are much lower than they are here in the United States. And we're actually seeing that rotate where, you know, the IFA is actually up almost 8% year to date.

when we've seen a pullback in the U.S. markets. So that is an opportunity. We have an allocation to international. We're watching and not necessarily jumping in on emerging markets or China at this point. I think that that economy still has some issues. But just really when you look at Western Europe, it's just...

riding along pretty steadily right now. Michelle, we'll leave it there. It's always a pleasure. Thank you so much for joining us. Michelle Martin there. She is president of Prosperity. That is the wealth management arm of Eisner Amper joining us from Minneapolis here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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