In short
A global investor week-ahead briefing covering (1) U.S. housing data (June existing/new home sales), (2) Tesla’s upcoming Q2 earnings and key issues for Elon Musk (robotaxi, new models, expiring EV tax credits), (3) the ECB’s next rate decision amid trade tensions and France’s fiscal strain, and (4) Japan’s upper-house election and what it means for Prime Minister Shigeru Ishiba and inflation/trade.
Guests and backgrounds
Drew Redding, Bloomberg Intelligence U.S. home building analyst. Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Manager. Caroline Hepker (host/anchor in London) and Bloomberg ECB reporter Yana Randall. Bloomberg Tokyo bureau chief Isabel Reynolds (Japan election). Masahiro Kihara, CEO of Mizuhu Financial Group (Japan business outlook).
Key claims + examples
Housing: resale sales modestly down sequentially; inventories up ~30% YoY; prices rising slower; builders discounting/incentives losing effectiveness; possible production pullback. Tesla: Q2 earnings near consensus; Model Y ramp in China improving; extended Model Y planned; robo-taxi likely no meaningful profit until ~2027; China competition via BYD price cuts (~30%); EV tax credits end Sept 30, hurting earnings (credits ~<5% of profits). ECB: July likely pause; uncertainty tied to trade; September projections could decide; France deficit plan targets <5% next year (4.6%) and <3% by 2029. Japan: ruling coalition likely to lose upper-house majority; “rice election” tied to cost-of-living; opposition favors cutting consumption tax; bond-market jitters if fiscal policies expand; younger voter turnout rising.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOHousing Market Insights
1:39 to 1:50
Discussion on U.S. housing data and market trends from experts.
Interview with Drew Redding
1:50 to 9:00
Expert analysis on existing and new home sales in the U.S. market.
“our global look at the top stories in the coming week from our Daybreak anchors all around the world.”
Tesla Earnings Preview
9:00 to 14:00
Analysis of expectations for Tesla's upcoming Q2 earnings report.
“It's out with second quarter results this coming Wednesday.”
Tesla Earnings Overview
14:00 to 14:46
An overview of Tesla's upcoming Q2 earnings impact on profits.
“If you look on the bottom line, it's minimal.”
Global Financial Updates
16:45 to 16:57
A look ahead at key financial stories impacting investors next week.
“Optum is working to bring costs down, save patients money, and make it easier to get refills.”
ECB Interest Rate Decisions Ahead
17:07 to 17:46
Discussion on the upcoming European Central Bank interest rate decision.
“Up later in our program, we look ahead as Japanese citizens head to the polls for an upper house election.”
France's Economic Challenges
17:46 to 19:31
Insights into France's budget plan to tackle public debt and deficits.
“Economists and markets are now betting on a pause in July.”
Political Support for Budget Plan
19:31 to 21:47
Discussion on the political dynamics around France's budget plan approval.
“And we are aiming at a deficit below 3 % in 2029.”
Monitoring Public Finances
21:47 to 24:23
Overview of how France is executing its public budget and deficit targets.
“because again, it's an issue of national interest.”
EU and Trade Negotiations
24:23 to 25:39
Exploring the EU's role in trade negotiations and their impact on France.
“speaking to Bloomberg's Anna Edwards, Kriti Gupta and Mark Cudmore.”
Show all 20 chapters
Interest Rate Outlook in the EU
25:39 to 28:00
Analysis of expectations for interest rates and economic forecasts.
“because that affects growth in France, but also across the region.”
ECB Rate Cut Expectations
28:00 to 29:21
Learn about the varying expectations regarding the ECB's monetary policy and economic forecasts.
“Economists expect another rate cut in September.”
ECB Rate Cut Expectations
30:23 to 31:19
Learn about the varying expectations regarding the ECB's monetary policy and economic forecasts.
“It doesn't always work the way people expect it to.”
ECB Rate Cut Expectations
31:23 to 32:16
Learn about the varying expectations regarding the ECB's monetary policy and economic forecasts.
“4imprint have promotional products that work as hard as you do.”
Japan's Political Landscape Ahead of Election
32:16 to 35:54
Explore the implications of Japan's upper house election on current political stability and leadership.
“This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week.”
Inflation and the Rice Election
35:54 to 36:59
Understand the significance of rising inflation and its symbolic representation through rice prices in Japan's election.
“And that's why we're seeing these kind of eruptions in the bond market, fears that these kind of policies could gain traction after the election are raising concerns about Japan's finances.”
Impact of Election on Trade Deals
36:59 to 37:58
Analyze how Japan’s election could influence trade negotiations with the U.S., particularly regarding tariffs.
“the Japanese parliament, impact what the Bank of Japan is trying to do in weaning the economy off massive stimulus that, as you well know, has been going on for decades now?”
Generational Voting Trends in Japan
37:58 to 39:37
Examine the changing dynamics of voter turnout among different age groups in Japan's elections.
“Put the election in context of trying to work out a trade deal with the U.S.”
Corporate Perspectives on Economic Uncertainty
39:37 to 42:04
Gain insights from Masahiro Kihara on business confidence amidst global uncertainties and plans for the future.
“Isabel, thank you so very much for helping us look ahead to Japan's upper house election in the week ahead.”
Corporate Actions in Japan's Economy
42:04 to 44:48
Discussing the outlook for corporate actions and the Japanese economy amidst uncertainties.
“Is it companies that will then grow also abroad as the economy stabilizes?”
Transcript
Automatic transcript. May contain errors.0:00Bloomberg Daybreak U.S. Edition is brought to you by OTC Markets Group. OTC Markets' overnight platform for exchange-listed securities, Moon ATS, provides access to global securities in U.S. dollars from 8 p.m. to 4 a.m. Eastern, Sunday through Thursday. Learn more at otcmarkets.com slash moon. Moon ATS is operated by OTC Link LLC, a FINRA-registered broker-dealer, and is available only through participating broker-dealers. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work.
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1:23So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. Bloomberg Audio Studios. Podcasts. Radio. News.
1:49Tom Busby: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, we'll look at upcoming housing data, along with earnings from EV giant Tesla and the latest on its CEO, Elon Musk. I'm Tom Busby in New York. I'm Caroline Hepker here in London, where we're asking what the European Central Bank will do next. I'm Doug Krisner, taking a look at the upcoming national election in 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.
2:41Tom Busby:Well, good day to you. I'm Tom Busby, and we begin today's program with some key U.S. housing data as we wrap up the critical spring home buying season. Existing home sales for June out on Wednesday, new home sales for that same month on Thursday. For more on what to expect, the impact of sky-high home prices, elevated mortgage rates, a rise in existing home inventories and the Trump tariffs, and all that, we're joined by Drew Redding, Bloomberg Intelligence, U.S. home building analyst. Well, Drew, thanks so much for being here. I want to start with what you're expecting to see in these reports, and then we'll break down what's behind those numbers.
3:17Sure. So let's start on the existing home side. Obviously, the resale market has been stuck in the mud. You know, we're expecting sales will be down modestly on a sequential basis, but, you know, should be up a little bit from last year's 3.9 million annualized rate. Keep in mind that that was the lowest pace in about 15 years. So some modest improvement, but the market's still down over 20 percent from more normalized levels. We've kind of been hovering around this four million annualized rate of sales for a while now. But it does appear to us that at least from a volume perspective, the market has troughed.
3:51You have to realize there's some level of underlying demand out there in the market, given people have to move for one reason or another. And I do think you'll see a little bit of growth this year and perhaps stronger growth next year off that low base. Now, it's a little bit of a different story in the new home market. Sales are expected to be down from last year. Some of the higher frequency data we've seen on purchase applications showed a little bit of improvement. So there are some conflicting signals. We've also been hovering in a range for about a part of two years now. But what we do know is that builders are having to fight harder for every sale and they continue to discount heavily to maintain their sales space.
4:29there's some evidence that these incentives that they've been using are having diminishing returns. They're just not as effective at a certain point. So, you know, builders are turning to base price cuts. We've heard that from Lenar and KB Homes. So I think that's probably the path forward.
4:43Tom Busby:Well, I think that's the biggest sticking point is the price, the price not only on new homes, of course, but on existing homes. They are still rising. The growth is starting to slow, though, correct? Yeah, that's a great point. And the resale market prices are definitely still climbing. The latest data we've seen from Redfin showed about a 2 % increase in mid-July. But as you mentioned, prices are rising at a slower pace. Part of that reflects the obvious shift to more of a buyer's market where sellers are getting a little bit more realistic in terms of listing prices. So it has started to help the monthly payment on the margins.
5:16Like we've seen with inventories, the story is really at the local level where we have a lot of markets across the country that are actually already seeing price decline. So, you know, you talk about markets in Florida, like Tampa, also Atlanta, Austin. So it really varies by market and it's going to be dependent on supply. You know, in the new home market, we've already seen prices come down more significantly. And one of the reasons, obviously, builders have been aggressive in their use of incentives, but they're turning more to base price cuts as well. And if you think about, you know, how builders account for incentives, it's reflected as a reduction in the average selling price.
5:53So to the extent that inventory continues to pile up, they keep their foot on the gas in terms of incentives. We think you see further net pricing pressure in the new home market as well.
6:03Tom Busby:And those inventories of new homes, the highest in almost two decades, right? Yeah, it's certainly an interesting dynamic right now. Remember, over the last couple of years, the lack of for sale inventory in the existing home market had been a key part of the investment thesis for home building investors. You know, you had a lack of options, so it helped to funnel buyers over to the new home market who were also able to help with the monthly payment. But, you know, as you mentioned, that tailwind has turned into a headwind as more listings come onto the market and homes are sitting for longer.
6:32On the resale side of things, inventories are up about 30 percent from last year. And, you know, we're still 10 percent below 2019. But looking at the national data, I think really blurs the picture. At this point, we now have 10 states where resale supply is higher than it was in 2019. And a lot of that's in some important markets for the builders. Think of Florida, Texas, markets out west like Colorado and Arizona. Certainly a big risk out there. And as you mentioned, it's not just the resale market, but it's also in the new home market where completed inventories have really risen. And the reason for that is over the last couple of years, when there wasn't supply in the resale market, builders stepped in to fill that void.
7:14So they got more aggressive in their use of specs. Now, that building inventory was met with a rise in rates and a drop in demand. So now they're left sitting with all that inventory on their books. I think what ultimately that leads to is a pullback in production. So fewer housing starts. We're starting to see it on the building permit side. So it's something that they're going to have to work through before they start to put more units into the ground.
7:39Tom Busby:Got to clear out that inventory. Now, let's talk about interest rates. you just mentioned, still stubbornly near 7%. You know, that's probably why mortgage applications just last week took a tumble down 10%. Now, the Fed meets again about 10 days from now. No indication the central bank is ready to lower those benchmark lending rates. So how big a concern are rates to the housing market right now? We've talked about one piece, which is home prices. And the other important piece is obviously where the 30-year rate is. Right now, we're at about 6.8%. We had seen a little bit of improvement, but now maybe some concerns reigniting with inflation, pushing things back up.
8:20I think one of the main issues with rates is not only the absolute level, but just the volatility. I think if we could get rates into the low six, high 5 % range for more of an extended period of time, it gives home shoppers a little bit more comfort of what their payment might be as they're going through the application process. So rates are certainly a very important piece of the puzzle. And, you know, there's not a whole lot of indication that things are going to get significantly lower anytime soon.
8:49Tom Busby:Oh boy, it's a lot to take in. June, existing home sales out on Wednesday, new home sales for that same month on Thursday. Our thanks to Drew Redding, Bloomberg Intelligence, U.S. home building analyst. We move now to earnings at Tesla. It's out with second quarter results this coming Wednesday. Has the EV maker bounced back from a troubling first quarter? What has CEO Elon Musk's renewed focus on the company meant after he left his Trump administration cost-cutting duties? And what will the pending rollback of clean energy tax credits mean for the company? For more on what to expect, we're joined by Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Manager.
9:28Tom Busby:Well, Steve, thank you so much for joining us. After a disappointing first quarter results, will there be good news in Tesla's upcoming second quarter report? Yeah, I think the investors will be more focused on what Elon Musk is going to talk about in the remainder of the year and beyond. In terms of earnings, we actually expect it to report in line with consensus. But a few things that are on investors' mind, like the robo-taxi, like the new models that they're rolling out, they're planning to roll out. And even Elon himself, he's tweeted a few things around politics. You know, what is he thinking around that and how it's going to impact the company?
10:09Tom Busby:Let's start with those models. Well, the Model 3, still the bread and butter for revenue, right? But how about the revamped Model Y Juniper SUV? What does that mean? The ramp up has been going fairly well. It probably disappointed some investors that they didn't ramp up as fast as they thought. But it seems like the second quarter, it came in nicely. Some initial data on China sales, which is right now is probably like close to 40 to 50 percent of their sales now. They're also planning to launch an extended version, a longer version of the Model Y in China. And I think that's going to resonate with the clients over there fairly well.
10:51Tom Busby:How does it compete against the BYDs and the Cherries and the other very, very low cost Chinese rivals? Yeah, it's tough. launching FSD, full self-driving in China earlier this year will help. But BYD did cut prices quite a bit early in the year by a magnitude of 30-some percent. And Tesla, it doesn't want to play in that low cost, low price market. I think they're going to be medium price to high price market. And I think launching the extended version will actually help drive sales for the company over there into next year. Now, last month, you mentioned this Elon Musk rolled out his long delayed robo taxi unit in Austin, Texas.
11:36Tom Busby:How far away is that service really from making any kind of impact on the company? It's a pretty exciting development. He's been talking about it for a while. It's finally here. It's still a slow go. I think he's very focused on safety, not a surprise. and that's where he should be focused on to make sure the long-term reputation of that business stays positive. And we think no meaningful revenue or profit in the next couple of years is probably gonna come through in 2027. So we haven't baked in that business as a meaningful contributor to the bottom line, but it's a big market. So there's a number of players, Waymo being probably the largest at the moment.
12:24But I think the market's going to grow to a point where it's going to be able to absorb a new competition like Tesla and even Uber. Uber announced that they're partnering with Lucid to develop autonomous vehicles for their robotaxi business.
12:39Tom Busby:You mentioned something earlier, and that is safety concerns, especially with the full self-driving. I mean, they've had quite a few problems, a lot of litigation. I would say that's kind of normal mode of operation. I think there will be some safety concerns. There will be accidents. I think the investors should be aware. No engineering feat like this goes smoothly. So it's going to have some hiccups. So that's why it's very important for not just Tesla, but Waymo to really hone in on safety and making sure the consumer, the users of Robotaxi feels confident with this service. I want to talk about something.
13:24Tom Busby:I think that the shareholders are going to be very interested in what Elon Musk has to say, and that's the expiration of the$7 ,500 EV tax credits. That deadline is coming soon, September 30th. Now, we know how Elon Musk reacted to that Trump bill that removes those clean energies, and it was not pretty. How will Tesla respond? How will the company respond? It's a double-edged sword. I think on the surface, it is negative. It is negative because, obviously, they have generated quite a bit of revenue and profit from selling these credits. If you look on the bottom line, it's minimal. is probably like 5%, maybe less than 5 % of profits.
14:07So it's going to have an impact on earnings, definitely in the fourth quarter and well into the next year.
14:15Tom Busby:Well, a lot to look forward to. Tesla, Q2 earnings out this Wednesday after Wall Street's closing bell. Our thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Manager. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to the next monetary policy decision from the European Central Bank. I'm Tom Busby, and this is Bloomberg.
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17:02Tom Busby: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, we look ahead as Japanese citizens head to the polls for an upper house election. But first, Europe's central bankers will vote on their next move when it comes to interest rates. The Governing Council decision comes at a time of heightened trade tensions fueled by the back and forth with the U.S. How will policymakers respond? For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepker. Tom, the Bundesbank president and DCB policymaker Joachim Nagel has urged caution over the European Central Bank's next move on interest rates, telling a newspaper that it requires a steady hand.
17:45His comments come as policymakers have cut rates eight times between June 2024 and June 2025, down to 2%. Economists and markets are now betting on a pause in July. The final release of euro area inflation for June also confirmed that the headline measure accelerated to 2 % year on year from 1.9 % in the previous month, but still fairly well anchored in terms of inflation in Europe. So the focus is also going to be on the ECB September meeting when we get new ECB economic projections. And that may give officials more clarity on the economic backdrop. But with US President Donald Trump's on-again, off-again tariff policy clouding the outlook, Nagel says that the impact on inflation is extremely uncertain.
18:35And in Europe, member states are urging the council to do more to support the economy. French Premier François Beirut said his country is facing the same challenges as the US, but without the strong dollar that he says gives the Federal Reserve the option to create money to fuel, quote, optimism in the economy. It's an issue France's finance minister, Eric Lombard, outlined, speaking to Bloomberg's Anna Edwards, Kriti Gupta and Mark Cudmore. France has an issue of a large public debt and too large a public deficit. And we are tackling the issue, I believe, very seriously. The plan is a plan of 44 billion euros of savings and revenue increases.
19:2244 billion euros that will bring our deficit below the 5 % threshold next year to 4.6%. And we are aiming at a deficit below 3 % in 2029. The bulk of the plan is to cut public spending. There are 30 billion of savings, of cuts in public spending, whether for the state or social security, which is absolutely important but manageable. There will be 10 % of revenue increases and 4 billion more because French people will have to work more, 2 days more because we will cut two banking holidays next year and the years after. So it's a very serious plan,€44 billion. Okay, and you think that this is enough to reassure investors.
20:16What about getting the support of all of the lawmakers in France? Because that seems to be very difficult. You'll need the support of a number of parties. Which parties are you going to talk to to try and get support here? Are the socialists at the top of your list? because I think the far right and the far left have already found serious problems with this budget plan. Well, first, let me remind you that with the same parliament, we had an approval for the 2025 budget which is currently being implemented, which is already a budget which is a very serious budget bringing down the deficit. We will talk to all parties because it is an issue of national interest.
20:57We believe it is the best interest of France to put its public finance right before the next presidential election of 2027. And we will talk to all parties. Having said that, the first reaction of opposition parties is quite normal because it's a huge plan. So the first reaction is negative. We will explain. We will discuss. We will improve the plan. And obviously, there are probably more possibilities to reach an approval with the Socialist Party. They are still a party in the opposition. But they allowed the budget to pass for 2025. And if we have a fair discussion with them, and we will have a fair discussion with the Socialist Party, hopefully they can support the government for the budget.
21:46But again, we will talk to all parties and we hope to have wider support because again, it's an issue of national interest. Eric, good morning. Part of the plan is to raise revenues through selling down stakes in companies without losing influence apparently. What kind of sectors do you expect to see those kind of revenue gains? Are there any sectors off limits for selling down stakes? And how much do you expect to raise through that? Well, obviously, you know, the French state owns many companies, some of which are listed. So I won't be very talkative on that point. So we are working on it. Obviously, the large public sector companies like La Post or like EDF are not on the plan, but there are many options and we will work on it.
22:38But ultimately, the investor community, I think the initial reaction is not a lot of faith that the trajectory of this budget plan and the government's is much better than it was, you know, six months or a year ago. And I think there's a lot of worry about that the government, again, will kind of struggle to get the budget passed and will kind of suffer on that. But we saw last year the investors move on. Are you more worried about how the investor reaction this time or do you not think that we're yet at a critical period? for investor pressure to kind of really force something to get done? I'm not worried, but thank you for giving me an opportunity to talk to them.
23:15I want first to reassure them on the 2025 budget execution, because, you know, public finance is something which is very operational. We put a budget for this year, cutting the deficit to 5.4%, and we follow the budget execution on a monthly basis. I gather all ministers, general secretaries every month, and I can tell you beginning of July, middle of July, where we are today, that we are totally online in the review of spending. We are on plan on spending after, I must say, 10 billion cuts that we did in the first quarter and the second quarter. But after those cuts, we are totally online. And on the revenue, whether VAT, income tax, corporate tax, we are also online.
24:04So we are monitoring the execution of 2025 very closely. We have a very ambitious target for 2026. I'm confident it will be approved, it will be executed, and that France will put itself back on track, which is absolutely key in order to play our role in Europe and in the world. That was the French Finance Minister Eric Lombard there, speaking to Bloomberg's Anna Edwards, Kriti Gupta and Mark Cudmore. The plight of France and other European countries in similar positions will be on the minds of policymakers as they make a decision about the ECB's immediate rate path in the days ahead. It's something I've been discussing with Bloomberg's ECB reporter, Yana Randall.
Read the full transcript
24:44Yana, France's situation is one all too familiar to EU member states, high debt and stalling growth. How can the EU mitigate that? Well, mostly it's France's responsibility, right? Passing a budget that puts the government on a path towards sustainable public finances. And of course, it has presented plans on how to narrow the deficit next year, which mainly look at austerity measures, including freezing welfare, pensions as well, and axing to public holidays as a matter of fact. Whether that will do the trick, whether that'll fly, we of course all remember what happened in France at the start of the year.
25:26We won't know until September because that's when lawmakers come back and will properly engage and vote on this. Debate surely will also be colored by the outcome or the state of trade negotiations because that affects growth in France, but also across the region. And that's, of course, where the EU then comes in because it's up to the EU to engage with the US on trade. Good deal has the potential to lift confidence, thus demand investment spending, consumer spending across France, but also across the region. And yeah, I don't need to tell you what a bad deal will do. But is the French prime minister right to ask for interest rate cuts in the near future then?
26:08I find it always difficult when politicians tell central bankers what to do, especially because central bankers are independent for a reason, because they need to be keeping their cool when maybe tensions and sentiment heats up and passions heat up in political decision making. And of course, we can see what is happening in the US currently with the Federal Reserves. The Prime Minister's motivation is easily explained. And if you're naughty, you can say it's very much in the same spirit as the arguments that the president in the US makes. Lower borrowing costs for the government at a time when debt levels are high and a lot of money is needed to service that debt, right?
26:53So low borrowing costs help the government deal with its fiscal mess. If you look a little bit back in the past, we've seen similar voices, similar initiatives in Italy and Greece when those countries were in the spotlight of markets. As for France, you know, I wouldn't make too much out of it in terms of will the ECB swayed by those calls or not. I really would see it more as a sense of a sign of desperation from the French, you know, realizing that something is going really, really wrong with their budget. Yeah, absolutely. And perhaps can't be compared to the sort of relentless pressure that President Trump has put on Jerome Powell that we've seen repeatedly.
27:33But look, we might not get an interest rate cut from the ECB this time round. Overall, though, how fast are interest rates expected to continue coming down in the months ahead, given EU inflation that does look at the moment reasonably tamed? What is your view now on the path of interest rates? We're not expecting anything for the upcoming meeting. And as far as September is concerned, that is still very much in play. Economists expect another rate cut in September. Others, you know, the majority, I should say, expects another cut. Others say the ECB is done or, you know, might wait a little bit longer to deliver it.
28:19It essentially all hinges on some signals on how trade negotiations are going, the implications they will have or the implications any result will have. And September in that sense is a good month because the ECB will get another fresh round of economic forecasts. So another look at growth and inflation prospects for the eurozone in September. so it would be a good month to make up their minds equally if they still can't be sure and things are kind of coasting along they might wait a little longer so overall one more rate cut is more or less expected September if you need to put your money on it but uncertainty is just exceptionally high and listening to policymakers some say you know the bar is very high for another cut.
29:12Others are concerned about inflation maybe falling a bit too low, below target. It's, you know, highly uncertain. Okay, Diana, thank you so much for being with me this morning. That is Bloomberg's ECB reporter, Yana Randall. Thank you. I'm Caroline Hepker here in London. You can catch us every weekday morning for Bloomberg Daybreak here at beginning at 6am in London. That's 1am on Wall Street. Tom.
29:35Tom Busby:Thank you, Caroline. And coming up on Bloomberg Daybreak weekend, we look ahead to an upper house election in Japan. I'm Tom Busby, and this is Bloomberg.
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32:18Tom Busby: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. Japanese citizens head to the polls in the coming days for an upper house election. This comes at a time when the country's prime minister finds himself in a precarious political position. For more, let's get to the host of the Daybreak Asia podcast, Doug Krizner. Tom, this election will serve as the latest referendum on the leadership of Prime Minister Shiguro Ishiba. He's already running a minority government after last autumn's dismal election results in the lower house.
32:54For a closer look now at what's at stake in the upper house, I'm joined by Bloomberg's Isabel Reynolds. She is our Tokyo bureau chief, joining us from our radio studio in Tokyo. Isabel, thank you. I know the stakes are high, as I understand, where the ruling coalition could lose its majority. This would be a first. Is that correct? Not exactly a first. But we did see a similar case back in 1994, where the ruling LDP lost its majority in both houses. But the party has been in government for almost all of the time since 1955. So to be out of power in both houses is pretty unusual. They did also lose power to an opposition party in 2009, of course.
33:37But yes, this would be a historic occasion. So give me a sense of where things are in terms of political stability. How would you describe that at a time when Japan is really struggling with so many issues, not the least of which is a trade deal with the U.S.? Absolutely, yes. I would say the situation is extremely unstable at the moment. What we're seeing is the support for the ruling coalition is falling again as we're going into the election. What we see is several of the big media outlets here, the newspapers, which were still widely read in Japan, unlike other places in the world perhaps, but they do massive polls and analysis of what's going on in the run-up to the election.
34:17And it's looking pretty likely that the ruling coalition will lose its majority in the upper house. So with that, then, Prime Minister Ishiba would probably lose his position as prime minister. Is that right? Well, we don't know that for sure. It sort of depends how bad the result is. Obviously, they could lose their majority by a very small margin, in which case they could hope to sort of cobble together, not a formal coalition, but a loose coalition with some other party to get legislation through. And that's what they're already doing in the lower house. So it's not out of the question that they could do that in the upper house.
34:50But if the results are extremely bad, I think Ishiba would eventually have to take responsibility for that situation and step down. And then we could see a whole different level of chaos in Japan. So he's considered a fiscal hawk. So if the outcome is such where Ishiba has to withdraw from the prime ministership, and that wouldn't necessarily, I think, put Japan on a path where maybe the country's finances are somewhat in question. Is that fair? Yes, you're absolutely right there. I mean, the big issue in the election, as it was in the last election, is the issue of inflation in Japan. It's the cost of living.
35:27The level of frustration is growing among the public. They've been putting up with this situation where prices are growing much faster than their own wages. And the question is how to deal with that situation. So the LDP, Shigeru Ishiba's party, is sticking to these kind of temporary one-off solutions. It wants to do a cash handout, things like that. But those smaller opposition parties that are growing in popularity are proposing these much more drastic ideas, such as cutting consumption tax, which is a key source of income for the government. And that's why we're seeing these kind of eruptions in the bond market, fears that these kind of policies could gain traction after the election are raising concerns about Japan's finances.
36:08So you mentioned the fact that households in Japan are dealing with higher inflation, much higher inflation. Is that why this election is being referred to as the rice election? Yes. I mean, the symbolic issue when it comes to inflation is the price of rice, which at one point was double what it had been a year earlier. There are a lot of structural reasons why that's the case. And the LDP has put in place this young politician, Koizumi, who has dealt with this by immediately sort of releasing rice stores at a much cheaper price to the public. So that did gain them some time. But that is not a long term solution to what's going on.
36:47So people who want a more drastic solution, for example, ramping up production of food in Japan, might opt to vote for a different party. So how does what is happening in the diet, the Japanese parliament, impact what the Bank of Japan is trying to do in weaning the economy off massive stimulus that, as you well know, has been going on for decades now? Right, yes. I mean, we're seeing, obviously the government tries officially, at least to keep its hands off what the Bank of Japan is choosing to do. But if we are going to see a massive ramp up in spending, Obviously, that will have to play into the thinking at the Bank of Japan.
37:27So this path that we've been seeing towards normalization could potentially be affected if we're going to see a massive cut in, for example, revenue from consumption tax and so on over the coming years. So put this election in the context of Tokyo and Washington trying to work out a new trade deal. I think the deadline is now August 1st to avoid being slapped with 25 percent tariffs. And we know that for Japan, when you're talking about automobiles and steel manufacturing, this is critical. Put the election in context of trying to work out a trade deal with the U.S. Yes. Well, I think that that's an interesting question because I think there's a growing doubt in Japan about whether anything, any action or words on their part can affect what decision Donald Trump makes on these tariffs.
38:16So although it's been somewhat of an issue in the election campaign, I think there's very little sort of faith that either Ishiba or any of these smaller opposition parties could do any better job than they have done so far in trying to negotiate a deal. So I'm not really sure how it affects that. Obviously, Ishiba could opt to reshuffle his cabinet after the election if there is a poor performance. But if you ask the public who's going to do a better job in organizing this trade deal, I doubt they would come up with a very swift answer for you. Before I let you go, Isabel, can you break down for me how this might look if we segment different generations of Japanese society, let's say younger voters versus the older generation?
39:04Yes, I think we are seeing increased interest in voting among the younger voters. They traditionally have not had a very high turnout. It's been the older voters who have always voted for the LDP or its coalition partner, the Cormator. Cormator in particular, their support is falling away rapidly. And for the LDP, it's always a bad sign if young people are coming out to vote. That means that somebody is going to be voting for opposition parties. So for the LDP, they'll be hoping that the young people stay at home. Isabel, thank you so very much for helping us look ahead to Japan's upper house election in the week ahead.
39:43She is Isabel Reynolds, Tokyo Bureau Chief for Bloomberg News. Let's stay in Japan because we heard earlier in the week from Masahiro Kihara, CEO of Mizuhu Financial Group. He sees an end to uncertainty and reason to be optimistic on the future. Here's part of the conversation with Mr. Kihara, with Bloomberg's Francine Lacqua. How confident are you about reaching the 1 trillion yen profit within a few years, given all the global uncertainty and given what we heard on tariffs and trade? In fact, I think from a current earning profile, I think we have almost reached 1 trillion yen, actually. We had 800, last year we had 880 billion.
40:24We took one-time losses around somewhere around 120 billion, actually. So I think in reality, we reached one trillion, thanks for all the circumstances. But what does the uncertainty do? The uncertainty surrounding some of the Trump policies and trade and tariffs? Yes, yes. So before April 2nd, we were aiming somewhere around 1.1 trillion yen for this year, actually. However, because of all the uncertainties, we sort of shrink it down as a conservative base to 950 billion yen. But I think, you know, when things get certain, the corporate action will come back, which means that we can ratchet up a little bit.
41:13Yeah, I'll guide us. So where are you seeing that uncertainty play into it now? Is it loans? Is it chief executives not spending, not deploying cash? Yes. Right now, the CEOs are very, very on the sidelines, actually. But, for example, if it is a domestic deal, even in each region, if it is a domestic deal, things are happening, which means that we don't see a lot of cross-border happening right now. All of them are, we have a big chunk of pipeline, but they're not executed. But from a domestically perspective, people are moving a little bit. So I think, you know, there is a good chance that people will get confident at some point.
41:53How do you see the Japanese landscape for businesses changing? How much will they look? I mean, Japan has been a great experiment, right, in terms of financials for a long time. Is it companies that will then grow also abroad as the economy stabilizes? I would say that if right now there's many uncertainties, but as things get clearer, the corporate action will come back. These couple of years, we have seen many corporate actions happening, investing outside Japan, changing their business portfolio, selling parts of the business that they are not doing well, so concentrating the areas that have strengths.
42:37So I would say that once things get clearer, corporate action will come back. And many Japanese corporates will try to invest in outside of Japan, too. Are you confident in the Japanese economy overall? Overall, I think we still have strengths in the economy sectors that we have. So I think overall, I am very confident in that. The thing is that we have to concentrate our resources in the area that we have strengths. We have high quality manufacturing, high quality products. So I think we need to figure out where the strengths are and try to sell it to the world. Do you worry or are there dangers actually to Japan given the spike in long term interest rates?
43:34Yes. So 20 years. So for the long end, 20 years, 30 years, there has been spike and there has been volatility. But I think the government said that they will try to shift the issuance to 10 years below. I think the BOJ is a little bit shrinking. It's QT. I think that will help. But is there a point where it actually starts hurting your business and starts hurting the real economy? Well, I think BOJ is saying that the neutral rate is somewhere around 1 % to 1.5%. And on top of that, 10 years will be somewhere around 2 % to 2.25 % then. I think that's the level that is okay. But if it goes beyond 3 % or so, that will then hurt the budget, I think.
44:27Are you expecting more turmoil in yen, but also in the bond markets? Not at this moment, actually. I think the current level of 1.4, 1.5 for 10 years is very, it's okay, I think. I haven't seen any turmoil in the 10-year zone. So as long as the 10-year is fine, I think it's fine. That is Masahiro Kihara, CEO of Mizuhu Financial Group, speaking with Bloomberg's Francine Lacqua. And I'm Doug Krizner. You can catch us weekdays here for the Daybreak Asia podcast. It's available wherever you get your podcast. Tom?
45:01Tom Busby:Thank you, Doug. 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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From the publisher
Bloomberg Daybreak Weekend with Tom Busby take a look at some of the stories we'll be tracking in the coming week.
- In the US – a look ahead to housing data and earnings from Tesla.
- In the UK – a look ahead to the next ECB monetary policy decision.
- In Asia – a look at ahead to Japan’s upper house election.
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