Bloomberg Daybreak Weekend: US CPI, Portugal Election, Japan Eco
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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 some key economic data in the U.S., how that may impact Fed policy moving forward. Plus, a look at earnings from retail giant Walmart. I'm Tom Busby in New York. I'm Caroline Hepke in London, where we're looking to the future as Portugal chooses a new leader. I'm Charlie Pellett, looking ahead to a big week of eco-data out of Japan.

That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington, D.C., Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App. ♪

Good day to you. I'm Tom Busby. We begin today's program with some key economic data out this week, the April Consumer Price Index on Tuesday and on Thursday, that same month's Producer Price Index and Retail Sales Data. For

For more on what that all could tell us about the U.S. consumer, the U.S. economy, and what it may mean to the Federal Reserve, we're joined by Edward Harrison, editor of Bloomberg's The Everything Risk newsletter. Good to talk to you, Tom. Oh, pleasure, man. Pleasure. Well, let's start with inflation. It looks like inflation at both the consumer producer levels may be muted. There's good news there. Energy prices flat despite the president's claims of $1.98 gas. Eggs prices still elevated.

Housing rents through the roof, but we just don't know about inflation, do we? I mean, we really have no idea what's going to happen because of these tariffs.

No, I mean, this is really a baseline, Tom, for the pre-tariff announcement numbers. We're looking at a CPI that was 2.4% in March, but also expected to be 2.4% in April. That's the CPI. If you take out food and energy, you're looking at 2.8%, both in March and April. And those are levels that are above the Fed's 2% target. So on both of those, they're above. And it

It would therefore, given the uncertainty, tell the Fed to wait, as they have told us already last week, that they would do before any sort of impact on the economy comes from the tariffs, either on employment or on inflation. Yeah, Jerome Powell was pretty clear after that announcement the third time this year that the Fed has left rates unchanged.

that we just have to wait and see. We don't know what the impact will be on inflation, on jobs, on the economy. Exactly. And so I think that we're getting a good read ahead of time, which says that the numbers should be flat, somewhat elevated relative to where the Fed wants them to be, but flattish and

And so if we get any numbers that are higher than expected, that will tilt the balance toward the Fed holding for longer. Right now, if you look at markets, it's somewhere between June and July that markets expect the first rate cut to happen. And that could be pushed more back towards July if the inflation numbers before the tariffs look a little bit elevated. Well, before we get to that...

June and July. Let's talk. You know, we had this. This is the April number coming out. Right now it's May. But there are talks going on. We know that just this past week, the president talked about a trade deal with the U.K., not the European Union, much bigger, but the U.K. And this weekend there are talks.

between the U.S. and a Chinese delegation for the first time in Switzerland. Are you hopeful for something there? You know, I'm hopeful in terms of what it tells us about what the sort of parameters are that we're dealing with. What we're looking at at this point now is sort of a 10% baseline across different countries. And then,

you know, negotiations on top of that based on the individual deficits with the United States or surpluses. The UK, you know, they didn't, if you remember back in Liberation Day on the 2nd, they didn't actually have an additional tariff on top of the 10%. So this is the easiest win, you know, for Trump to come out and say, we have a deal with them, look what could happen to you. This is sort of,

promise to other countries that come to the table that this is where we're going. But in the end, ultimately, we'll probably end up in the mid-teens in terms of the percentage versus 2.5%, which is what we had before these tariffs came into place. So that's a big increase. And if you look at what a

Economists expect, according to Bloomberg estimates, they expect inflation, CPI, which is now going to be 2.4% for this month, they expect that to move up to 3.5% for the entirety of Q4 of this year. So it's going to continue to move up.

up and get to 3.5%. And so obviously what that means is that if the Fed doesn't see weakness in the labor market, they're going to be on hold for the entirety of 2025. And that's key. Once the labor market starts to really deteriorate, that's going to be the impetus for the Fed to maybe act, right? Exactly. So what the Fed has said is it's

We don't really know what's going to happen. And we also don't know how to tease out what happens as a result of the tariffs and what's happening as a result of inflation expectations, the underlying economy, et cetera. So as these numbers go up, we'll just have to wait and see.

Well, I want to bring it back to retail sales. In March, we saw retail sales shoot up 1.4%. A lot of that was to get ahead of the tariffs, especially for autos. There was a real rush in people buying. Do you see in April, when, you know, April 2nd, as you said, was in this Independence Day, all these tariffs were announced. Do you think it may have sparked a lot of consumers to...

to do more shopping for the month of April? Or are people just scared and maybe they were pulling back? It's a really good question. And I think that two surveys that we're looking at, that is CPI and retail sales, this is the one that's the biggest question mark, especially because of the volatility associated with people pulling forward their demand. You know, if you look at the advanced number month on month, it was 1.4% for the previous month. And

The survey here expects it to be 0.0%. That's the Bloomberg survey. So completely flat in the month of April. So it could be all over the place. So that's a huge drop from one month to the next. When you look at it, if you take out

autos because there were a lot of auto buying that went on in March. The number is a little bit more normalized. You have 0.5% increase month on month in the previous month, and then they expect another 0.3% on top of that in April. So that's kind of like the slowing trend of growth in terms of retail sales that economists are expecting.

the variation there is going to be a lot bigger than it is for CPI. Well, a lot to look forward to. That April retail sales data out on Thursday, along with April PPI. On Tuesday, the Consumer Price Index. And our thanks to Edward Harrison, editor of Bloomberg's The Everything Risk newsletter.

We move now to corporate earnings from the world's largest retailer, Walmart's first quarter results are out this Thursday. What will they tell us about the U.S. consumer and how retailers are responding to the Trump tariffs? For more, we're joined by Jennifer Bartashas, Bloomberg Intelligence Senior Analyst, Retail Staples and Packaged Food. Jen, thanks so much for joining us. Well, consumers are worried, a lot of them pulling back, worried about the tariffs is going to send prices higher.

Is Walmart worried? Yes. Hi, Tom. I think that Walmart is actually one of the best positioned retailers out there for this really dynamic environment that we're in. They appeal to a very wide swath of consumers. And as people are continuing to search for value, Walmart is a natural destination for a lot of those shoppers. So, as we're looking at the quarter and their earnings, we had a solid Easter season.

People are looking for value and Walmart is pretty well positioned to be able to navigate a lot of this turbulence that we're seeing right now.

Would you say they're the best retailer to navigate what's going on right now, all the uncertainty out there? I mean, it's a lot of competition, but they seem to always figure it out. There is indeed a lot of competition. But when you think about Walmart's scale, the supply chain efficiency that they have, the fact that they've got a really broad assortment in their store, they've got a lot of groceries, but they have other general merchandise as well. It really puts them in a position where they can

have a lot of different levers they can pull to help make sure that they can meet consumer needs and still have the things in stock that the people are looking for. Now, what are its customers doing right now? Are they spending? Have higher grocery prices brought in a lot of new products?

Yeah. Walmart has actually been, for the last several quarters, talking about how higher income households are being pulled into their ecosphere, which is actually pretty interesting because everybody seems to be looking for value right now. And a lot of that did come from the higher food prices, as you said.

it's also that Walmart has built multiple facets to its offering. So it's not just about low prices. It's also about service. So for people who are members of their Walmart plus program, the convenience factor plays in very much to the overall value proposition. You know, Walmart has, you know,

pharmacy operations. They've got all kinds of different things that pull people in. And once you get into that system, you become kind of sticky. And so, you know, Walmart is, is got a lot of customers coming in and they've got a lot of things that will help keep

keep them there, even once prices sort of normalize from food inflation. And as some of this uncertainty in the market starts to subside, we think Walmart's actually very well positioned to hold on to a lot of those customers that they've gained in recent quarters. Yeah. And I see it, you know, they've got this now manager specials. These are price cuts, price matches against competitors. So

So clearly this is not just groceries. I mean, they are going after the best buys and the coals and the targets of the world with this new initiative. It is. It's a way for them to gain market share. And as I mentioned, they have a lot of scale. That means that they have the ability to really work with suppliers.

to ensure that they're getting goods. And they also have the ability to absorb some of the tariff-related costs if needed, which means that they can have very competitive prices relative to some of those other retailers that you mentioned. Well, let's talk about the tariffs then. Is it better positioned than most companies

in getting goods from the U.S., from other countries that may not, what I'm saying is not China. A lot of it obviously comes from China, but are they more nimble in getting around those tariffs? I don't know if it's about being nimble, but when you look at Walmart's overall operation in the United States,

More than half of their revenue comes from grocery sales. The majority of groceries are sourced from the U.S. When you talk to the company, they'll say that two-thirds of the goods they sell are manufactured or bought in the United States, which leaves only about a third of their inventory that's subject to imports.

A good chunk of that is coming from China, but again, because Walmart is such a big player, it gives them a lot of weight when it comes to dealing with suppliers and finding ways to

to optimize what they're ordering and to help reduce the impact of tariffs. Now, they will not be completely unscathed. I don't think any retailer will be. By virtue of their product mix and by virtue of their scale, I think that Walmart is better positioned to mitigate some of those tariff-related costs than other retailers are.

Well, we'll see about first quarter earnings out this Thursday ahead of the opening bell on Wall Street. Jennifer Bartashas, Bloomberg Intelligence Senior Analyst, retail staples and packaged foods. And coming up on Bloomberg Daybreak Weekend, we'll look to the future as Portugal chooses a new leader. I'm Tom Busby and this is Bloomberg. ♪

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

People endure presentations.

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You can drag and drop images, graphics, charts, and data from Canva's media library, or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too, and everyone knows presentations are a team effort. Comments, reactions, and version control are designed to help teams work together better. Working from stunning templates, you don't need to be a designer to make it look great. It's just a smarter way to build a better looking deck.

You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York.

Up later in our program, a look at some key economic data in Japan. But first, in the coming days, Portugal holds its third general election in as many years after the downfall of its center-right minority government. This comes at a complicated time for the European Union as it navigates trade disputes and pressure to bolster defense capacity. For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Tom, poor

Portugal is heading to the polls again in the coming days. The news comes after Luis Montenegro's government lost a confidence vote in early March. It's set to once again be a close race between the Prime Minister's centre-right AD coalition, which is looking for deeper corporate and personal income tax cuts, and the centre-left socialists, who are proposing VAT exemptions for certain essential products.

Now, at the moment, no single party seems to have enough support on its own to get an absolute majority in the Portuguese parliament. It means that the country will likely end up with another minority government that has to make concessions to obtain policy support. This is likely to complicate fiscal policymaking and, at a crucial moment for Europe more broadly, the region's

economic situation is something that I've been discussing with Helen Jewell, who is EMEA CIO for Fundamental Equity at BlackRock, setting the backdrop in Europe.

So, Europe has performed incredibly well year-to-date, particularly in dollar terms. And what's interesting is that what we're not really seeing at the moment are U.S. investors pivoting into European stocks. We're seeing more flows coming through from European investors. When we have asked our clients, we have more than 50% of them saying that they're thinking about allocating more to Europe over the next six to 12 months.

But we're not yet seeing as much of that in U.S. investors. Now, maybe if we continue to see the euro strengthen, we will start to see some kind of flows moving back into Europe and that will help the European story. But

But at the moment, it's difficult to see what will take it that much further because from a multiple perspective, Caroline, it's trading at a pretty fairly valued level. Unlike the UK, which is at a discount, Europe is at 14 times pretty fairly valued relative to history. So I do think Europe will need some kind of catalyst to take it potentially to that next level. If we don't see that, if we don't see some kind of

a strong outcome to trade negotiations at some point soon, we might find it flat. Not to say there won't be opportunities within it. We saw Ferrari performing well, strong results and their order book is full.

Those kind of names will continue to do well. We still think European banks, domestically focused names will do well. But the index as a whole, I think without a catalyst, might just bubble along the level it is at the moment. And top line, you think euro strength is good news because it can pull those U.S. investors in without being worried about downside in the currency. How clean is that play given the export function of a number of European companies and the weight that strong euro plays on that?

So that is the key interaction at the moment. The thing we've seen, however, is that they are not the names that have significantly outperformed. A few exceptions, obviously, I mentioned Ferrari, but I think that's a special case given the brand that they have.

But on the whole, what has outperformed year-to-date has been the domestically exposed names and not those global names because already tariffs have played down on those. So, I think what you're likely to see is some kind of pressure easing because of the tariffs, but some kind of – from the dollar weakening, kind of offsetting that a little bit.

I think those two things will interact, but don't forget they are not the names that have done well year to date. It has been much more the domestically focused European names that have driven the European rally that we've seen so far. Yeah, in terms of the European rally, how much of it is affected by the difficult political situation now for Germany and for Friedrich Merz? And, you know, we saw, for example, German industrial production rising before the barrage of tariffs, but tariffs again are going to hit Germany particularly hard.

So, I think what happened earlier this week in Germany is perhaps just a signal and a reminder that things aren't always plain sailing. However, the key commitment that has been made within Europe, particularly by Germany, on the infrastructure spend is really phenomenal, on the defence spend as well. And that's really important. If you look at the defence spend, so much of that defence spend historically was for global companies. Now, so much of that is going to be European-focused.

And that remains. There are going to be bumps along the way. And I wonder whether those bumps are what's stopping U.S. investors coming into Europe by as much as perhaps they should, given the narrative that we see in Europe and given the strength of the euro versus the dollar.

But I don't think they are anything more than little bumps in the road rather than necessarily underlying changes to the structural narrative that we see in Europe at the moment. So that was Helen Jewell there speaking to me and to my colleague Tom McKenzie about what's going on in Europe more broadly.

And amid the pressure on the continent, what is at stake in Portugal's election? The country has a population of 10.6 million people. The finance minister expects the country to grow by 2% this year, but successive governments have been and gone, and a raft of smaller parties are vying for a share of the vote in an increasingly heated election campaign.

I've been speaking to Bloomberg's Portugal bureau chief, João Lima. João, just talk us through the main contenders who are vying for power in this election in Portugal. So you have the ruling party, it's a ruling coalition, centre-right coalition led by Prime Minister Luiz Montenegro. And he actually called a confidence motion in March today

and he lost that vote. And ultimately, that's what triggered this early election. It's Portugal's third early election in three years. And he'll be competing against the socialist leader, Pedro Nunes Santos. Those are the two main centrist parties in Portugal. And they've more or less dominated politics in the 50 years that Portugal's had democracy. And they seem to be heading again for a tight race. The center-right, the prime minister's coalition, and

And the centre-right is leading by about five, six, seven percentage points, depending on the latest polls. And the socialists are still very, very close. And still, it's not clear if the prime minister will be able to keep his job or if you'll have a socialist government. But for now, the prime minister is still in the lead in the latest opinion polls. OK, interesting. But three governments in three years, or at least three elections in three years,

That's a lot of political uncertainty. Do people think that there will be perhaps more stability as a result of this vote? It really depends on how strong or weak the next government will be. Portugal has had this tradition of having weak minority governments. And at the moment, neither the Socialist nor the Centre-Right Coalition seem like they will be getting an absolute majority. I could say some commentators have said there's an element of election fatigue in Portugal at the moment.

But we'll have to see. There will be probably more pressure felt by lawmakers and by whoever's in government to try to coalesce and find a solution that will let the government last more than just a year, as has been the case in the recent years. Do you foresee more political manoeuvring then if a minority government is looking for external support? Yes, definitely. I mean, whichever party,

party wins, whichever of the two main centrist parties wins, they will have to compromise to get backing from others to get a budget approved, for example. That happened last year, for instance. The center-right government had to compromise on tax cuts. It wanted to push through deeper tax cuts, but to get the abstention of the socialists, which was necessary to let the budget pass, it had to settle for smaller tax cuts.

And similarly, that will happen if the Socialists win. They will probably have to find backing from parties further to the left, and they will have to find compromise on different policy areas.

There are, though, Zhao, tectonic plates in Europe shifting, aren't there? Not least because of the Trump administration in the United States, additional defence spending, infrastructure spending across Europe, the idea of trying to battle weak economic growth and so many other challenges for Britain, sorry, for...

and so many other challenges for Europe. Just tell us about how the candidates are thinking about their relationship with the EU and all of these challenges. Well, in Portugal, the centre-right and the centre-left, they share many positions in terms of the big policy issues of foreign policy of defence. For instance, the centre-right government recently announced it would use an escape course

of EU rule allowing it to spend more than a certain limit defined for EU countries in order to boost defense spending. And it's

mentioned that it addressed this issue before making the announcement with the socialists. So that kind of underlines how the center-right and center-left in certain key policy areas like defense, foreign policy, they share this consensus and there is agreement on major, major policy issues, especially when it has to do with defense and foreign policy. More domestically, there are differences, obviously. But again, in terms of the bigger

EU issues, defence, diplomatic relations, there tends to be a shared view between centre-right and centre-left. So if there isn't much between them then in terms of those sort of big policy lines, what will be the top priority for a new government once elected?

where there is a clear divide, for instance, in terms of, for instance, tax policy and where to cut taxes. So the center-right is talking about continuing to cut corporate taxes and income taxes, while the socialists are proposing removing VAT tax from certain essential food products. So they argue that that kind of tax cut

when you tackle VAT is a way of benefiting everyone. And they argue that the center right in focusing on corporate tax and income tax is only

helping a part of the population, a smaller group of the population. On the other hand, the center-right will say that you need to create wealth first before redistributing it, and that's why they are betting more on cutting corporate tax, for instance. Again, it's a debate that's, you know,

been going on between centre-right and centre-left for many countries for decades. And here, that still is, at the moment, one of the key policy divides going into this election. And so what sort of economic position is Portugal in then at also this time of real global financial and trade uncertainty?

Well, Portugal together with Spain, for example, has been doing better than the EU average in terms of growth. It's obviously, there was obviously a post-COVID boom, but it's continued to benefit from exports, from tourism continuing to have strong growth, you know, well beyond the immediate post-COVID period. And so the Bank of Portugal, for instance, in March, it raised its forecast for the country's growth this year to 2.3%.

So there's been this steady overperformance compared to other EU countries. However, under the Trump administration, there's obviously been new announcements in terms of tariffs and so on, and that effect might not have filtered through to the Portuguese economy yet. So that outlook could still change. So there's still a lot of uncertainty. That's something the central bank governor has pointed at and has stressed repeatedly that there is a lot of uncertainty at the moment.

That was Bloomberg's Zhao Lima speaking to us from Lisbon. My thanks to Zhao.

Now we'll have full coverage, of course, as Portugal heads to the polls here on Bloomberg Radio over the next few days. I'm Caroline Hepka in London. You can catch us every weekday morning for Bloomberg Daybreak Europe, beginning at 6 a.m. in London. That's 1 a.m. on Wall Street. Tom. Thank you, Caroline. And coming up on Bloomberg Daybreak Weekend, we look ahead to some key economic indicators out this week in Japan. I'm Tom Busby and this is Bloomberg.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better. People endure presentations.

But they engage with Canva Presentations. You click through a normal presentation. You impress with a Canva presentation. With Canva, you can use AI to instantly elevate your presentation, generating slides and text in seconds with a simple prompt. Dynamic, visually imaginative, difference-making slides. Canva Presentations provides everything you need to build your deck, so you never need to switch between apps. Just focus on what you're doing.

You can drag and drop images, graphics, charts, and data from Canva's media library, or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too, and everyone knows presentations are a team effort. Comments, reactions, and version control are designed to help teams work together better. Working from stunning templates, you don't need to be a designer to make it look great. It's just a smarter way to build a better-looking deck.

You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York.

We turn our focus now to Japan, where a trio of high-impact economic indicators will be released this week. And for a closer look at what those data points could mean, we turn to Bloomberg's Charlie Pellett. Tom, Japan has been walking a delicate economic tightrope, balancing sluggish growth, sticky inflation, and a weak yen.

We're expecting updates on GDP, factory output and producer prices. Three key indicators that could give us a clearer picture of where things stand. Are we looking at a rebound or more signs of strain? And to answer that question, we're joined now by Paul Jackson, Asia EcoGov editor for Bloomberg News. He joins us from our studios in Tokyo.

Paul, let's start with GDP. What are economists expecting and what would a surprise in either direction tell us?

Well, I think we're expecting another weak start to the year. I think we had somewhat inflated GDP figures at the end of last year. They were a bit flattering. It was largely a kind of lull in imports that gave us the 2.2% annualised growth there. So I think we're going to be flipping towards a contraction in this first quarter. Now, that's a bad sign because...

As you know, US President Donald Trump has unleashed this barrage of tariffs on the world. This Liberation Day that took place at the beginning of April means that if you're starting with a weak quarter, the second quarter isn't looking pretty. In fact, it's looking a lot worse. On the ground in Tokyo, do the Japanese people follow tariff developments that closely?

Well, I think there is a lot of fear and uncertainty about what this all means for Japan's economy. I mean, you're right. You know, does the average person on the streets follow closely the GDP figure or the latest number on tariffs? No. But they do get an impression of is the news kind of good or bad. And if you're looking at consumer confidence at the moment,

We saw that falling to the lowest level in two years in April. So are consumers worried about the state, the outlook for the economy, where tariffs are taking the world? Yes, I think you can conclude that they are worried about it. And if we have a step back into the reverse for the economy in the first quarter, then the tariffs hit in the second quarter, I think we're at risk.

of a technical recession in Japan, which is not going to be a good look for Prime Minister Ishiba as he faces an upper house election in the summer. Well, industrial production certainly has been under pressure. What sectors are driving that trend? And is there any sign of a potential turnaround?

Well, I think we saw in Asia, we saw a kind of boost in auto output once Donald Trump was talking about putting these 25% tariffs on autos.

And we saw in other countries like a huge jump in auto exports starting in February and also taking place in March. But what we've seen is while that trend was similar in Japan in February, in March, the output of autos was not as strong as you would have expected with you expecting some front loading right ahead of those tariffs.

And I think this takes us to one of the key fears for Japan and policymakers here is that the tariffs on the autos, that's really going to hurt Japan. I mean, the auto sector employs 8% of Japan's workforce.

And about a third of Japan's exports to the U.S. are car-related. Now, there was that Nikkei report recently that Japan's government was mulling leveraging shipbuilding in tariff negotiations with the Trump administration. How do tariffs play into the broader outlook?

Well, the broader outlook really, it's that auto sector is the key thing that Japan wants the US to dial back.

25% on all toes, that's going to have huge implications for the economy, as I've mentioned, just for the sheer scale of those exports to the U.S. and the number of people it employs in Japan. So in these trade negotiations, we've already had two rounds. You know, Japan is going to have to give a lot.

something in return for maybe pegging back the tariffs on autos. And what can Japan do? I mean, offering some shipbuilding help could be one, buying some more agricultural goods.

from the US might be another card, another thing they can offer the US to try and convince the officials there to lower these tariffs. Now, so far, what we're hearing in local media reports

is that the U.S. is pretty firm on those auto tariffs. The reciprocal tariffs, okay, we'll lower those, but that 25% on autos is staying. That's what we're hearing now, and that's a big concern for policymakers here. Paul, looking ahead to, we've got data coming up on producer prices. They have been sticky. How are businesses coping with input costs, and could that data shape the Bank of Japan's next move?

Well, we've seen these input costs growing at around about the 4% mark. So if you've got inflation, overall inflation is 3.6%. Core inflation, which is focused on by the central bank, is 3.2%. So you can see those input prices are higher than consumer inflation levels. So what that tells you is that producers are taking a squeeze. They're taking a hit here.

as they're trying to absorb those costs. Now, on the one hand, that sounds bad, but in terms of the optics, the dynamics of Japan's economy, we've seen a lot of change here over the last two or three years. This is an economy that has seen very little inflation for decades.

Now we've had three years of inflation of 2% or more, which is the Bank of Japan's goal. And what we've seen is businesses have gone from having to absorb almost all of those input cost increases to being able to spread most of the input costs further.

increases onto consumers now. Not all, but most. So these are positive developments for the economy. The question is, can consumers up their spending in Europe?

in real terms, not just keeping up with inflation, but expand their spending, which would be a sign that they're getting comfortable with the new reality of Japan's economy. I've got another major question for you, then having to deal with uncertainty, not just for the economic data here in the U.S., very tough to make planning decisions, either at the corporate level, the individual level. Do you go out and buy something now because of potential tariffs? Certainly one of the big questions for investors.

How much of the incoming data do you think is already priced into markets given all of the uncertainty? Well, I mean, that really is a very difficult question to answer. I mean, if we look at how stocks have been performing recently,

over the year. We started around the 40,000 mark for the Nikkei. And I think when the real fear and concern over the tariffs hit in April, we got down to about the 31,000 marks. I mean, that's quite a downward move.

So where are we now? We're about 37,000 mark. So we've retraced most of those losses. So we're nearly, you know, we're heading back to where we were, but we're still definitely below. I would say there's a huge amount of uncertainty here. We've seen Donald Trump in his first presidency and again this time round.

you know, he can change tack very quickly. The implications can be huge for economies. So I think the big fear, we're over that. There is the general understanding that he is a dealmaker. So, you know, the top end level figures of these tariffs, that feels like, you know, the worst it could be and will be likely negotiated down. But the devil is in the detail.

How much lower can Japanese policymakers bring those tariff levels down to protect its economy? Paul Jackson, Asia EcoGov editor for Bloomberg News in Tokyo. Switching gears now, Hong Kong's economy has expanded at the fastest pace in more than a year, benefiting from a recovery in tourism and an export bump before Donald Trump's drastic tariff hikes.

The upbeat result may vindicate efforts by policymakers to make the city an attractive destination again after its image suffered from strict pandemic measures and a crackdown on freedoms. And for a closer look, we heard from Rosanna Law, Hong Kong's Culture, Sports and Tourism Secretary, and she spoke with Bloomberg's Stephen Engel.

I actually see pretty handsome increase of visitors from outside of Asia or within the short haul of Asia. For our long haul, which primarily means a flight,

more than five hours for the long-haul visitors. We see double-digit growth last year and this year, 31% growth from Australia, I think close to 20% growth for the US and the UK, for example.

I think these are signs that people are actually still travelling and with the resumption of flight capacity, the subsequent or consequential drop in air flight ticket fares and also the fully operational free runway system of Hong Kong, actually we see

that our overseas visitors are coming back. Are you doing enough to attract those non-Chinese visitors? We are doing more and more, actually. The Hong Kong Tourism Board has been doing quite a lot in these ASEAN countries. I actually just now led the delegation to the Middle East. I went to Dubai, Abu Dhabi, and Riyadh.

We were doing a trade delegation visit to the Arabic travel market. And I think we are keeping and increasing our work in the traditional markets. There's no question about it. We are also exploring new markets. So the figures actually speak for themselves. What are you doing for the U.S. market?

Because there's threats that perhaps those Hong Kong trade offices might be closed. We all know about the trade war. Well, we are doing nothing to the U.S. We maintain a zero-tariff separate customs territory, a founding member of the WTO. We have not imposed any sanctions.

Reciprocal tariffs. Reciprocal tariffs. I don't know how reciprocal that is because Hong Kong adopts zero tariffs. So we're doing nothing. We basically did nothing to undermine any of it.

On the other hand, we actually welcome everybody. Hong Kong's door is always open. And you can see for yourself the increase in visitors from the United States. You can see that Hollywood movies are now still being staged in Hong Kong all the time. Even when we are faced with different challenges,

fritz or fritz of tariff or other things, Hong Kong remains a free port. Roseanne Law, Hong Kong's Culture, Sports and Tourism Secretary, and I'm Charlie Pellett. Tune in weekdays to the Daybreak Asia podcast for a look at the story shaping markets, finance and geopolitics in the Asia-Pacific region. It's available wherever you get your podcasts.

Tom? Thanks, Charlie. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at 5 a.m. Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Busby. Stay with us. Top stories and global business headlines are coming up right now.

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