mark: that japan estimate -- japan sits his focus to steepening the yield curve. eliminating the negative. banks rallied if corona sidesteps a deeper -- if corona sidesteps a deeper cut. the odds of a hike phase investors look to the -- to thicken the rate debate. ♪ mark: welcome to the pulse. i am mark barton. get the reaction to the boj decision. stocks rising in europe.

the stoxx 600 up by .9%. we await the fed with the dollar yen higher. it is a by .1%. .107%.up by the 10 year yield they go positive for the first time since march in japan. it is negative once again, -.103. gold did rise and it is up after the boj hosted the dollar. we are awaiting the dead. let's get the -- awaiting the fed. let's get the bloomberg first word news. nejra: theresa may has insisted britain's decision to leave the european union is not a decision to leave the allies. >> when the british people voted to leave the eu, they did not vote to turn inward walk away from any of our partners. facing challenges like

migration, a desire for greater antrol of their country and mounting sense of globalization is leaving working people behind, they demanded politics that is more in touch with their concern and followed action to address them. that action must be more global, not less. nejra: the new york bombing suspect had been charged with a blast in manhattan and new jersey. the fbi has revealed that he was investigated in 2014 allowing a domestic incident but authorities say they have not discovered links between him and other terrorist groups or evidence of accomplices. the former president of brazil is to face criminal charges after a federal judge accepted there is evidence to take him to trial. the prosecution alleges that he pontificated in a scheme of kickbacks. in july he was indicted of

attempting to obstruct justice. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. mark: the governor of the bank of japan says the bank is no longer in a deflationary state after its easing program. asian and european stocks rallied after the biaggi tweet its monetary -- after the boj tweet its -- the boj monetary policy. david ingles joins us. breakdown the announcement for us. i think the key takeaways from what we heard on the bank of japan in terms of the announcement and the press conference which was behind me. the tweak to the current framework should not be misconstrued as tapering. the governor said this new

framework is better. it is better equipped to deal with certain conditions and the other key take away leading to that was this move away from this target of how much they want to expand money supply, the monetary base here in japan to something that allows open market operations to give them more control over the yield curves. they want a yield curve that is appropriate for the japanese economy. to most people it means they want to prevent the yield curve from flattening further, like what we saw between january and a month or so -- a month ago. boj. david ingles at the let's welcome stephen king. ask for joining us. -- thanks for joining us. david ingles using the twist term. stephen: two things to say, the process there trying to operate

on the yield curve. the second thing is the emphasis on trying to do something about future inflation expectation. what the boj is worried about is every time they tried to create higher inflation, something has come along like an emerging market crisis, or brexit to push inflation back down. what they said today is they are going to commit to push inflation above the long run target at some point in the future. for every undershoot today, there will be an overshoot in the future. by making the commitment, people will believe that inflation in the future will be higher than it has been. credible is more difficult. bank of japan has emphasize how it would deliver higher inflation and they have not done that. this is an academic argument. the idea to commit to being irresponsible by saying we really will commit to higher

inflation in the future to make sure the average inflation rate will come in at 2%. mark: they had the inflation target still, two separate things. stephen: you could describe this is a price level target rather than an inflation target. if you have an inflation target, you try to get 2% at some point in the future. you don't care about bygones. in this framework, what this is saying is if we undershoot on inflation today, we have to commit to overshoot in the future. go above 2% to make sure that on average we are at 2%. every undershoot, we're going to go -- mark: do we believe the bank of japan will reach 2%? believe this will happen in the next two years? stephen: the evidence is poor.

commit to being irresponsible and hopefully people will believe you. believel begin to inflation will be higher because they believe it is going to be higher, it will indeed be higher because people will spend more freely. the last two or three years, the bank of japan has expanded its monetary base hugely. initially when corona came in, there were very high expectations -- when corona came in,-- when kuroda came there were very high expectations. the actual effects have been disappointing. this comes back to a fundamental question about japan, if -- is japan's weakness due to a failure? or is it because of demographics? or the kind of longer-term structural stuff that has limited the pace of japanese economic growth? it is been more of the second in the first. they have gone everything but the kitchen sink -- they have

thrown everything but the kitchen sink. on the yield curve, a separate discussion from the inflation story, there is confusion in the market about what it means to steeping the yield curve. driving people thought rates higher. the problem with driving rates higher, it increases the price of borrowing. what they are saying is if we can commit to holding long rates at 0%, if we in the future have to push short rates down to lower levels, we will do so and we will commit to make sure the long rates do not fall any further. the yield curve would start -- stephenep in -- would -- short rates have fallen but the profitability for banks would be gearing teed because -- would be guaranteed because

banks would get money by borrowing short. having banks being profitable, the credit would expand rapidly. mark: banks bought that. the nikkei rose today. stephen king stay right there. the boj shifted policy plans it will get the latest reaction live from hong kong. -- we willeckon as preview the decision and what it means for global markets. an economist forecasting another rate cut in the u k and end of the year. we will talk brexit luxury and the european economy. this is bloomberg. ♪

mark: i am mark barton. let's get to bloomberg business flash with nejra cehic pete nejra: and detects has reported first-half earnings that beat analyst estimates. the owner said operating profits increased 8% to 1.6 one billion euros in the six months to -- six months through july. it prioritized online expansion. is entertaining boss --of -- and fronts air france boss said the company can a longer ignore the threat

from a range of contenders. costshave protected our on price for next year. increasing,rice is it means that the world economy is getting better so it means we can get more business. it means there is not only the drawback but we can also have tailwind because of the increase of the oil. it hasmicrosoft says authorized the buyback of $40 billion of stock. that is on top of an existing $40 billion repurchase program would -- which it plans on finishing by the end of the year. it raised its dividend to $.39 a share. stocks have jumped 30% in the past year. that is the bloomberg business flash.

mark: japanese stocks surge and the 10 year bond yield rising for the first time since march. let's get reaction to the boj stemless announcement. ken cheung joins us from hong kong. stephen king is still here. 1%. the yen jumped by it is pretty much unchanged against the dollar. investors reassessing their views on the boj's announcement? that markets are not so negative with the boj decision, because despite there is a no negative rate -- there's a low negative rate cut for this it reboundedaw above 102 after the boj meeting. bojhows the market -- the can get more flexibility and room for easing.

introduced some policy to inflation target. the markets are not so negative reaction with the boj right now. -- the boj decision right now. >> the bank of japan has promised a lot, committing to pushing inflation higher, committing to pushing the end lower -- the yen lower, do you think they have done enough? what do they need to do further? think for guidance, there is a missed -- there's a discount problem. that is why they try to stress -- the introduce inflation -- so so that they will

the boj has the strongest intention to guide [indiscernible] specific inflation target, so that means they may continue to go -- to do further easing. on the other hand by targeting the 10 year gigi b you -- the jg bu, they don't want long-term negative inflation rates in their long-term horizon. yen, talk to me about the where hovering around 102. what is the outlook for the yen, especially given we have a fed meeting? our house viewer, we look for [indiscernible] the 100 level, even before the boj meeting.

we saw the dollar yen coalesce to about 101 level even after lower negative interest rates cut. -- interest rate cut. we will see the fed set the tone. we don't see that there will be much movement for the dollar yen in the rest of the month. stephen: if the dollar yen remains in that range, is the right conclusion that the bank of japan policy has failed? ken: for this moment, the boj decision [indiscernible] for the dollar yen at this moment, even though the dollar yen [indiscernible]

for today's meeting. i think the fed will be the more yen willas the dollar be driven by the u.s. monetary policy divergence see of this moment. mark: ken, thanks a lot. stephen is still here. do you agree the fed side of the equation will drive the dollar yen more? stephen: there is no doubt that on occasion the again is we can -- is weakened by what the bank -- done has done by than what the fed has done. bank of japan policy can have an yen, it has dollar had less of an influence in recent times. it is fair that if the federal reserve surprises people and we

end up with a rate increase, that could have a huge impact on all currency. my view is currencies will be well behaved. strange things happen. mark: what about the yield curve of other jeter nations given the boj decision -- other jeter nations given the boj decision. stephen: people will start to think that central banks are generally will be expressing views about what should be happening at the long end. they feel nervous about driving long rates into ever more negative territory, because there is a sense of a target in mind, then it may not just be the bank of japan that has that target in mind. looking long-term for the last years, irrespective of qe and what happens at the short end, long rates are being driven lower by facts that are under --

that are beyond the control of central banks themselves. aging population, changing investment preferences, apple bunch of things have influenced lower yields -- a whole bunch of things have influenced lower yields. mark: we've got some breaking news from volkswagen. the total value of the vw related to the emissions testing scandal at about 8.2 billion euro. pending and it sees the total value of the vw suit at roughly 8.2 billion euro. shares crossing the bloomberg terminal. that announcement crossing the bloomberg terminal as i speak. countdown to the fed as investors digested news from the boj could we look ahead to today's decision.

this is bloomberg. just from the boj. we look ahead to today's decision. -- from the boj. we look at today's decision. this is bloomberg. ♪

mark: europe's markets rise in an -- in response to the boj announcement.

we'll hear from the federal reserve at 7:00 p.m. london time. let's get to stephen king. the potential for a hawkish hold, stephen. how you might summarize? stephen: a hawkish hold will be a dovish increase. what is going on in the fed is you have a decision between those are hawkish to get interest rates up sooner. the dow this saying that is a terrible thing to do. you got yellen -- you have got yellen between the schools of thought. we will raise rates from time to time but make sure the dots are indicating the pace of future rate increases will be slower than what we did previously. there will be increases from time to time that we are not going to commit of whacking rates of at a desk at an accelerated rate. -- at an accelerated rate. mark: imply that one more this

year and you bring the 2017, 2018 down to deck -- down to? stephen: the problem that the federal reserve has is the sense that long-term interest rates are continuously come down to the lower level. the kind of long run equilibrium interest rate is not determined by central banks at all. it is more a perception that this thing is falling. the less willing central banks to raise rates, partly because they will bill again -- they will begin to believe that current interest rates are lower -- has fallen to a -- mark: to roughly 3%. stephen: what we do know is you is growth will be soft. inflation has been ok, it hasn't been too low. resilienty is not as

as it was peevishly. productivity -- as it was previously. productivity growth is not as strong as it has been previously. actual rates is lower. on the horse side, you got those worrying about -- on the hawkish side, you've got those worrying. their word frankly come the next recession they will have less ammo. they worry about that. mark: stephen king, he stays with us. up next, the sharp slowdown and a cut from carney. and his survey predicts another post-brexit move. we will discuss that. stocks rising across europe after the boj implemented a bit of a twist. greater possibility with the monetary base with the yield curve did some are asking should handling the yield.

there's the ftse up. the fed is later, some :00 p.m. u.k. time.

welcome to "the pulse" live from bloomberg's european headquarters in london. markets are up after the boj's stimulus tweaks. let's get over to the bloomberg. nejra: i'm starting with the imap function on the bloomberg looking at the sector health of the stock 600. we are in the green across the board. it is the financials that are outperforming. financials 1.4%. similarly as was the case in japan. we have had a move deeper into

negative rate territory and targeting the to yield curve. this being interpreted as positive for lenders. we are seeing those banks outperforming. the stoxx 600 europe bank index, every bank gaining today. there was a note from hsbc saying the market maybe too bearish on european banks and now may be a time to turn positive. as i say, a lot of the focus likely to be reaction to the bank of japan. moving on to dollar yen, the initial reaction we saw was stronger dollar, weaker yen off the back of the policy announcement. our bonds and fx reporter was saying to me on bloomberg radio, this is more a relief rather than a surprise reaction from the markets. we will see if it lasts. it hasn't. dollar yen is unchanged now.

if we look at what is happening in the bond markets, of course what the bank of japan wants to do is stephen the yield curve in japan, and look what happened in europe. this is the german yield curve steepening. rise seen 30-year yields for the first time in days. we've seen those rising pretty much across the board in europe and the u.s. as well as japan. is one to keep an eye on as we turn our attention to the fed. the u.s. versus japan 10-year yield gap, it had widened to the most in almost two months. keep an eye on it today. mark: thank you very much indeed. let's get some final thoughts from stephen king. does the fed have a credibility problem or not? withen: it struggled forward guidance over the last few years, with the path for

interest rates that never really materialized. many people in the market have not understood what the dots were about or what the fed was trying to communicate. when you think about what the fed delivered and what they appeared to deliver, there's a big gap. at the same time, the economy has performed different. one of the big problems is the absence of productivity growth. the labor market has been fine in some ways. absence of wage growth in productivity growth, these are things you don't normally associate with productivity directly. nevertheless, these are the things that led to the errors in the fed's forecast. mark: let's talk about the uk. we have a survey from bloomberg news. the survey says economists tell us the boe will cut rates close to zero this year because of

brexit concerns, which is interesting given the pickup in data. they are divided on november or december. year,recast for gdp next 0.7%. more rate that camp, cuts to come,? stephen: investors slashed their forecasts savagely. we pushed our forecast down, but a pleasant pace. we are roughly at 0.7%. one of the problems the uk has is like the u.s., very weak productivity growth. it is not clear what the bank of england role can be. another problem is that the uk has a current account deficit. the bank of england i think is genuinely worried that if it can't get the pound down, that

becomes a bigger problem in the medium-term. we've been dependent on foreigners investing in the uk. many might think twice about investing in the uk now because the uk can't have that guaranteed access to the single market. you need to reduce the size of the current account deficit. one potential route is through sterling. rates come down not because there's a collapse in the near term, but because the economy has to rebalance always -- away from domestic demand. mark: hello and how quickly could it get there? we are below 130 again. where was the bank of england like? stephen: i think the bank would liek 120, mark: can it get there? stephen: it is tricky when you

have other central banks trying to get growth from arcane or peculiar policies. the bank of japan would like to have a weaker rather than stronger yen. for the uk specifically, i think there's no doubt the bank of england would like to have sterling lower for longer because of this huge external imbalance. mark: the concern in recent weeks, stephen, has been maybe we are reaching the end of the road. is that very much the case? stephen: they are worried about it obviously. when you are at zero or below zero, you are going into with the on monetary conditions in you are worried that in the event of another recession you really haven't got much in the way of traditional firepower. if you hear about jackson hole and what janet yellen spoke about, more in the way of qe, other peculiar things, ben

bernanke has talked about helicopter money, these things are all possible. the difficulty is that no one understands how they are supposed to work. i think we are going to see much more talk over the next three or four years not just about monetary policy, but as monetary policy becomes more tricky, more talk about fiscal policy. mark: talk is one thing and action is another. stephen: appears obvious constraint there. alternative which we are also seeing is a move towards increasingly protectionist narratives. when all else fails, if monetary policy fails, fiscal policy fails, the simple thing to do is to build a wall. but a metaphorical wall. the wall that says we protect our people at the expense of everyone else. defining who power people is is a very difficult task. this kind of protectionist

pressure is a genuine threat to globalization and economic stability. mark: we had a guest on yesterday who suggested that if trump wins the presidency, the fed might not actually hike rates, which he thinks they will do if hillary clinton wins the presidency, in december, because of the uncertainty. i know eric pretty well. he's a very good man. what i would say is that trying to make interest rate forecasts on the back of elections is always very tricky. because you are never sure how the market is going to react to one or the other person winning the election. you are not sure what monetary policy could do. i think the fed will be more hesitant than perhaps eric has suggested, but it will still be data-driven. what the fed can do is a lot less than might have been the case in the past.

narrativeget into the about walls, barriers, the breakdown of the institutions of globalization. mark: great to see you. stephen king, hsbc senior economic adviser. stay with bloomberg. we talked to the british movedge brand that just operations back to britain. then, decisions day in d.c. we are live in the u.s. and we will bring you extensive coverage around that fed decision. first, we bring you analysis. that is coming up in ""surveillance, this is bloomberg. ♪

mark: let's get the bloomberg first word news. here's nejra cehic. nejra: uk prime minister theresa may has insisted that britain's decision to leave the european union was not a decision to walk away from allies. when the british people voted to leave the eu, they did not vote to turn inward or walk away from any of our partners in the world. faced with challenges like migration, a desire for greater control of their country, and a mounting sense that globalization is leaving working people behind, they demanded a politics that is more in touch

with their concerns, and bold action to address them. but that action must be more global, not less. mark: the new -- nejra: the new york bombing suspect has been charged with the blasts in manhattan in new jersey. the fbi revealed he was investigated in 2014 following a domestic incident. authorities say they haven't discovered links between rahami and any terrorist groups. a federal judge suggested there is sufficient evidence. the prosecution alleges that lula participated in kickbacks. he was indicted on charges of attempting to evade justice. global news powered by more than 2600 journalists in more than 120 countries. i'm nejra cehic. mark: the bank of england will

cut interest rates close to zero later this year as concern persists about the long-term impact of brexit. that is according to a bloomberg survey of. -- bloomberg economists. let's welcome gavin haig. that ukjust said activity slowed since brexit. it has published its summary of business conditions. consumer confidence pending has shown resilience. uk business investment in pensions have fallen. brexit for bell staff. what has been the impact? ken: -- gavin: the decisions have not been made. the policies have not been announced. we are looking at the short-term, which is favorable to us. in terms of the currency fluctuations that have been happening, very much in our

favor. weakness in the pound has brought many tourists to london and scotland. there's an advantageous price now in terms of pricing for international shoppers. almost a 40% difference compared to asia or america. we are seeing a good uptick in tourism. poundwould you expect the to fall further? we've had a leg down and some say we need another leg down. gavin: for us, it helps us. i'm not going to speculate. we live with it as it comes to us. if it does further, we have stores, a head office. the reporting euros. it is favorable in terms of cost. if it does go further, we have more advantageous pricing for customers. mark: and your investment intentions? business investment intentions have fallen. have yours fallen?

have they risen? gavin: we've made important investments in the uk. we have six stores in the uk now. we've gone through some investments. we are quite well set now. we have operations down in venice in terms of sourcing product development. we will probably keep it there. investment, we are quite comfortable where we are. mark: you also are present in japan. you have a store. you are opening three more. gavin: we are looking at the brexit situation and what is going to happen in europe. in korea, we've opened three stores in the last four months. three stores in japan in the last six months. if you look at the economy in japan, japan and korea are positive despite the fact that china has been difficult and parts of asia are difficult.

japan is part of our plan going forward. mark: on the day the boj fiddled with monetary policy and tries to boost prices, what is your pricing power? what is your ability to raise prices and price goods competitively right now in japan? 25%n: japan is about 20%, higher than the uk. some brands are more extreme than that. we believe in giving value to the customer. we think we are very competitive in the marketplace. i wouldn't want to keep that position. tokyo, uk, store, europe, new york, south korea, china, which store is the strongest? gavin: number one store is new bond street. our second most important store is our online business. we have 20 physical stores worldwide but the online business gives us international

reach. it is our second most important store. from an image point of view, having a flagship in milan, in new york, opening a flagship in japan next year, physical stores , still very important as well. mark: how many stores do you want? gavin: we have 22 today. we have about 600 point-of-sale in wholesale. we want to keep that mix. the world is a pretty unpredictable mix. keeping our ability to be agile, wholesale is important. we will grow retail stores in a controlled way. whether it is 25 or 30, that would be about right. mark: you've been around, the brand, the ipo was put on hold post brexit. at what juncture do you start considering ipo again? gavin: we are a challenger brand.

the world is an unpredictable place. interesting to see what happens in the next year or two. that is not our concern right now. our concern is continuing to drive our business. we have expansion plans in geographies. that is where our focus is now. mark: is the world ready for the uk post brexit? what is the message you are hearing from countries and potential customers around the world? gavin: the world is looking at the uk, but there's a lot of respect for the uk. we are a brand that is pretty independent, pretty daring. it is very much about us as a brand. people will continue to shop in the uk. i think the image of british brands is continuing to develop as well. the world has seen a lot of development in french and italian brands. i think british brands -- mark: is that the key to staying

distinct, because there are many brands around? how does no staff maintain its image? think exclusivity comes in different ways. we are not about being the most expensive, the most luxurious, but selective distribution is very important. we are still a discovery brand, a very iconic brand. we will stay true to our roots. i think that is how we keep the desirability. mark: how is liv tyler getting on? gavin: she's just completed london fashion week. we had a terrific launch. liv tyler joined us after the film with david beckham last year. an enjoyed the brand, became ambassador. london fashion week, we showed the second capsule collection, 12 pieces, very feminine, full

of the brand values. she really personifies who is the bell staff woman. mark: great to see you. coming up, the yen paring its post-pog decline against the dollar. could a hawkish fed have a bigger impact on the currency? we will look ahead to the fed. stay with us. this is bloomberg. ♪

mark: japan's 10-year bond yield rising for the first time since

march after the boj tweaked its monetary policy. all eyes on the fed now. let's get to new york. economics editor michael mckee, how much attention will the fed be paying to the japanese decision in the market reaction? michael: it may be that what the fed does will have more of an impact on japan than what the bank of japan did to the united states. it also raised inflation expectations, which might or might not affect the yen. unless there is a dramatic move in the yen, there's not much that will affect fed policy making, except maybe this. if you are not going to increase the size of your balance sheet, and if you feel like you can't cut rates anymore, maybe you are signaling you are reaching the end of monetary policy and mitigating the effects on the system rather than

system rather than expanding your stimulus. that might be something for the fed to think about as they consider whether they should do more or perhaps do less and start tightening. mark: is that something the fed could consider? the boj said they could expand monetary base until inflation is stable. is this something the fed could consider tweaking? michael: it is something that has been talked about here. the idea of running hot, letting the economy generate more inflation than your target, essentially looking at a price level rather than average percentage appreciation, the fed has rejected that idea in the past. janet yellen has said we are not going to do that. they could change their minds, but given the situation in the united states, it is not likely. mark: michael, briefly, but take away today will be no change,

but essentially a hawkish hold, is that it? michael: that is the way the market is leaning. a couple primary dealers are calling for a deal today. futures have ticked up just a little bit. still less than a one in four chance. you want to be hawkish and say a move may be coming soon. they don't want anybody to think the yield curve is going to stephen very quickly. it will be a tricky communications issue more than a policy issue. mark: big day for you. thanks a lot. we will bring you coverage around the fed policy decision. 7:00 p.m. uk time. half an hour later, you can watch janet yellen's news conference. bloomberg customers can also follow all of that. stay with us. "surveillance" is next. francine is in new york with tom keene. they are going to kickoff coverage with black rock.

european stocks are rising today. the greater flexibility of the boj. that was the take away today. the fed is next. what a big day. this is bloomberg. ♪

>> bend it like the boj. the stimulus focusing on steepening the yield curve. eliminating the negative. banks rally as kuroda -- subzero cuts. yellen in the wings is an odds of a september hike fades. this is bloomberg surveillance in new york for the week with tom keene. there is the little matter with the boj and reports from the oecd. we will be speaking -- we will be speaking to catherine mann. they are downgrading their forecast be -- for gdp locally.