cranny.'m manus this is bloomberg daybreak: europe. the peso rally as president trump suspends plans for tariffs on mexico. shares in china again as export growth unexpectedly rebounds. the communique trade tensions and slowing growth dominate the g20 meeting in japan. u.s. treasury secretary mnuchin has discussions with the pboc governor were candid and constructive. losing faith.

sinking inflation expectations and trade woes haunt the ecb by the governor and councilmember. tells bloomberg exclusively they stand ready to challenge the risks. somehow do not go willt is predicted, we certainly act. there is no question. ♪ manus: warm welcome to "daybreak europe", an exclusive conversation we had with the governor of the bank of japan, mr. kuroda. he spoke to kathleen hays. the top line is the bank of japan has room for big stimulus. the pboc has tremendous room. this is a message coming from

the g20 he goes on to say there are more ways to reduce the effect of extra action, and japan's economy doesn't need the stimulus right now. take a listen. >> when risks materialize and if the japanese economy is affected, and if the momentum of 2% target is lost, then we'll swiftly respond by changing our policy. manus: keep an eye on the aussie yen, dollar-yen. they are all beginning to lighten up a little bit. there are a number of factors at play when it comes to determining the next move from the boj. use some of the options will depend on the situation, not just economic,

but also monetary situation. manus: we just got to pause for a thought. you've got corroded saying we have -- kuroda we have room for stimulus. tremendous room to maneuver on policy. seven is not important to them anymore. you have a de-risking of trade risk from the president of the united states. can you trust it? let's have a look. the dollar pace of trusts the move. tariffs will not be ratcheted higher. they are indefinitely suspended. wells fargo said 19 is on the way. however, this is the point. uncertainty persists after trump weaponize is tariffs. is mr. corona right -- mr. kuroda right? until next week when you find out the attachment of the agricultural requirements. we don't know those yet. do you trust the deal? rolet over.

have a look at the rest of the markets. what we need to consider. two year yield is rising. prices are falling. the latest rally will retrace. they're looking for a reentry point on the curves. political and economic uncertainty will anchor a dovish fed. how dovish will the fed the? 25 basis points is a shoe in to the market. what is a protectionist move? we talk much more about cable because it looks like boris johnson, what would he do if he was time it desperate minister? -- prime minister? tax cuts, anybody. juliette saly rings the bells with the morning market. juliette: yeah, they can't keep me away from those bells. the markets in asia, looking solid to kickoff the week, the best gain its last wednesday.

australia out of action but elsewhere, you are seeing a lot of risk on. it was closed friday for a public holiday, markets rebounded. likely to follow suit and the thing that market. bonds are rising after they issued returns from a weeklong holiday. awayinly trump has backed from the mexico tariffs. a lot of movement in korean automakers. this company here is one of the major tech players in taipei, said it might move its mexico plant to the u.s. but rallying on the back of news coming through out of the u.s. we are watching brokerage firms and china on the lower front today, getting sold off.

sentimenteeing weak hurting the sector. worth noting a lot of the casinos in hong kong and china doing very well today. manus: thank you very much. escalating trade tensions dominated the agenda at the g20 finance ministers meeting in japan. calling trade tensions the biggest threat to the global growth story. officials welcomed trump's decision to take one trade threat off the table and suspending terms of mexico. that includes canada's finance minister in an exclusive interview. us the move will pay the way ahead for the u.s. talks. positionobviously in a where we don't think tariffs are helpful in the conduct of global trade. that didn't happen, so i'm not going to speculate.

from our perspective, what's most important is the u.s. removing those section 232 aluminum tariffs on canada, which for us, was a very important statement that we could move forward to the ratification of the usmca. so, we'll just deal with of the world as it is. up,ince you brought that leaders of the company, that's still in play. retaliation against canadian citizens. how would you describe where you are now, and is there a clear step forward? >> we don't have a clear step forward right now. we are in a difficult moment in our relations with china. we're following our extradition agreement with the united states in our approach, which is the right way for us to move forward. we think it's entirely unjust

for china to be impersonating two canadian citizens, and certainly not helpful with our long-term aspirations as far as relationships. kathleen: do you have any sense that president trump's decision to increase tariffs, saying china backed off things at already agreed to, two sides of the story, but have you noticed that china has toughened its stance against canada, less receptive to talk about important issues surrounding huawei since that happened? >> i don't know if i want to say i can see cause in terms of that part of the relationship. certainly, we have seen some pretty difficult issues. there's a slowdown of the canola exports. it's a very big export from canada to china. that's a big problem. we are obviously concerned china

will expand this action, which would be not beneficial for either economy. so we're hopeful we can make progress, the right now, we don't really have a path, and this entire issue between the united states and china is something that we hope will help to move forward. manus: a little more nerve, the canadian finance minister speaking with kathleen hays in japan. my guest host is lana, chief economist and managing director. welcome to the show. one could say the de-escalation in the tariffs is a good piece of news. i draw your attention to the latest central bank statement. the bank of japan governor said there is room to maneuver. he begun the pboc talks about having a substantial ability. that a clear message here they feel that they have the ammunition, or to quote the

sector general, they are the heroes. are they really? do they have that much ammunition? lana: you're absolutely right. this is the focus of the day for markets because there is no certainty in the global economy. we've hit a dark spot for global growth. chances are geopolitical traces and high risk instability will create some growth volatility ahead. and what concerns central banks, the u.s., the ecb, australia, india, china and japan, as well, have now looked to backstop market sentiment. what we don't know is what comes next. manus: backstopping the market sentiment. rodaou believe mr. ku when he says he has room for big stimulus? they have a lot of equities and have done a lot in the bond

market. what could that mean in japan? there's clearly room for the boj to do more if they wanted to bring money that can go further. limit to however, a how quickly that stimulus could come because central banks do not respond to fear alone. the second the question is, will it be actually enough? given that the big shift in market sentiment has come off the back of a shift in tone about global trade or in the , that is greate the question, can central banks really backstop the kind of construction growth, stop the demand shortfall in the traditional classic downturn, but from a wholesale global supply that comes on the back of trade wars? manus: i want you to indulge me for a moment. i know you often do.

i want to take your mind to 1985. where was i? i was getting ready for university. giving it a new -- a court? lena: do we need a new currency a court? i think at this point, it's probably immature -- premature. looking to fix currencies at ais point is probably solution that would create absolutely no economic whatsoever and have a major superpowers world, the u.s. and china going to go forward. if we were in a strong dollar environment and were to see the global de-risking, deleveraging, that could create the basis for the next financial crisis and deflationary recession. that could be something to look at.

but we don't have financial volatility of this. having said that, what you alluded to, the language we got from the u.s. about the china potentially weaponizing the dollar through the exchange rate and that is a concern because it is a level of political risk. there's too much in financial markets and banks are clearly struggling to respond to it. manus: mnuchin does go on to make the point in his meeting with the pboc that the deals he's trying to put together, he does not have a preference for a week dollar and maybe that's how you affect one. we had a next this of conversation with the pboc governor. look at this. this is the yuan. there is no redline in the sand. these are the fords and the forwards curve on the yuan,

suggests a very clearly the market once to retest higher ground on dollar u.n. -- you on -- the dollar yuan. no one number is important than another. what does that mean? signaling there is no barrier how far it is going to go to stabilize growth. the lori here is that this is not just a short term disruption. the longest -- longer this is continued the greater the long-term strategy is one of rebalancing global economic power between the world's largest to trading economies, the u.s. and china. consider have to stabilizing domestic growth versus price stability and if

things were to continue down the path, it's a matter of time before it prioritizes to mr. growth again. that means that you on breaking lower. they don't want to signal this is the path of least resistance. chinese ists currently looking political not weaponizing the exchange rate. but it's on the table. and that's what we heard. it is on the table. that's what we take away here. in a lonely london newsroom. where has nejra cehic absconded to? let's get the first word news with annabelle droulers. annabelle: president trump

dropped plans for tariffs and mexico, a deal has been reached. the seems to be confusion about what was agreed. in addition to impact on illegal immigration, mexico agreed to make farm purchases from the u.s. officials told bloomberg agricultural trade wasn't discussed. saysank of japan governor he still has plenty of options to boost the economy as further threats materialize. he says they include reducing the negative interest rates, raising asset purchases, and committing to a continued increase in the monetary base. just like mario draghi at the ecb, they are able to react if necessary. risks materialize, and if the japanese economy affected, and also if the moment of -- momentum for the inflation target is lost, then of course

we will swiftly respond by changing our course. annabelle: finance ministers from the g20 agree they need to find a common ground method taxing technology giants. a number of proposals are being discussed, but reaching consensus won't be easy. this comes as they are stepping up their campaign against huawei. russia says the move is detrimental. the world as we know it, with huge potential, access to brilliant digital technologies we all use every day without noticing it, has become possible only because of the high connectivity of the world. thanks to cooperation, thanks to the free flow of licenses, knowledge, people. what the u.s. is doing now, they are destroying this world. but the shrapnel will hurt everyone, absolutely everyone. annabelle: global news, 24 hours a day on air and at tictoc on

twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: thank you very much. coming up on the show, sinking inflation expectations and trade woes on the ecb. so what is the strategy for opposed draghi world? this is bloomberg. ♪

manus: this is bloomberg daybreak: europe. i'm manus cranny in dubai. european central bank will take for the steps to support the region's economy if traits or other risks threaten the economic outlook. that's according to the governor of the -- inc. of italy. -- bank of italy. he sat down with kathleen hays

for a next this of interview at the g20 in japan. , first of all, as you may have noticed in our last meeting and frank for, there was not a -- frack for, there was -- frankfurt, there was not a total consensus. theh means, also thinking fact that we will maintain interest rates and these very low levels and actually negative banks are concerned for a longer time than we decided and as long as needed. we will use all the elements we have, including those you have mentioned if needed, if things may somehow fail to grow back in and with that objective that objective is, in this case, goes hand-in-hand with supply

, which we will do a mandate. we don't have to do a mandate, but it's clear the revival of inflation talks are price stability measure, and increasing domestic demand go hand-in-hand in europe. kathleen: would you say as long as the u.s. china trade war is unresolved, as long as this uncertainty hangs over consumers, businesses, financial markets, that at least the ecb will maintain the current level of stimulus, even if it doesn't take additional steps to add more? >> i think the monetary stance is very favorable. there is no question. we call for other policies to come to the ecb fiscal policy, in this case. now, fiscal policy obviously, we know that there are differences across countries, but the

countries which have fiscal space are called for having on the side. for the others, mostly an issue of composition. not gogs somehow do how it is predicted, we will certainly act. there is no question. manus: and that's your bank of italy governor speaking with kathleen hays at the g20 meeting in japan. now, lena is my guest this morning, and still in our london studio. listen to the italian listening to mario draghi last week. the message was, i think, plentiful. but the markets seem just believing of execution. -- disbelieving of execution. why? ecb oncea draghi's

again has tried to get ahead of market expectations by shifting towards dovish buyers by suggesting current stimulus will be there for longer. the markets didn't expect that to happen for later until year -- into the year. but it also signals the consensus the governor's counsel appears to be resisting. that left markets underwhelmed and dipped inflation expectations, as you noted, lower. that's a concerning development. yes, global growth, growth in the eurozone and u.s. trends, but it is slowing down. momentum is there. we've had a global business cycle since the middle of last year. that means disinflation pressures are on the rise, led by china, so such a banks will have to react. i think the controversy here is

while the market prices and four -- prices in four rate cuts, the eurozone is so much more vulnerable to global trade disruption, global risk, volatility in how yields -- manus: if we're so much more vulnerable, what should we be pricing in terms of rate cuts? and should we expect qe revisited in europe before the end of this year? we have 30 seconds. go. lena: i think that would be the optimal scenario, ecb moving back to buyers. the truth is ecb policy is already at the lower frontier for a just rates. in theory, is no limit to how far you can cut rates. but the longer they stay at the current level, they can raise the damage to the credit shall. no responsibility to political

risk. that's the worry here. we're out of ammunition. manus: and we're out of time. lena, you stay with me. we talk bonds shortly. and protest in hong kong. ♪ we're the slowskys.

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manus: here is a look at what you should be watching for the week. british oil makers quiz huawei on security. ministeran energy alexander novak meets his saudi counterpart in moscow. they will discuss trade and investment. wednesday, the japanese prime minister shinzo abe is visiting iran. it is the first visit by an incumbent japanese leader since 1978. colleaguesi and his speak at an event in frankfurt.

the imf managing director will get a readout on the trade war. inflation data from the u.s. and china. is a race to succeed theresa may heating up. the first about in the tory leadership. we are expecting a new prime minister to be announced in late july. promising tax cuts for all from the money he will toe from the flow of money europe. what do you believe? hong kong now and the chief executive says a delay in beijing-backed legislation on extradition's to china despite one of hong kong's largest protests since the former british colony returned to china. >> this bill is not initiated by

the central people's government. i have not received any instruction from beijing to do this bill. we were doing it and we are still doing it out of our conscience and our commitment to hong kong. very little is merit to be gained from a delay. that is the message from that lady. let's get to our china government editor. the chief executive there holding firm. this bill is going through. this woman does not sound like she is perturbed in any way. >> know, a lot of people are seeing the size of the turnout from last night, there has been some speculation that we could see further amendments, even have the bill taken off the table, but she said what she has said all along. she does not want hong kong to become a refuge for fugitives.

she holds firm on the bill. this. tell me why is it so worrying for the people of hong kong? is that about an extension of china into the more liberal construct that hong kong is post-british departure? >> people are worried this gets at the independence of hong kong, that it could erode autonomy and risk its reputation as a financial hub. it spooked to the business community for months. you saw the outcry from the size of the protest last night, if there was any doubt as to how worried people are this is going to take away that fundamental independence hong kong nurse have so much pride in, you are not debating that now. manus: our china government editor tracking the process and

response from the government. thank you. let's check on the market around the world. 6:30 in london. --0 in yvonne man has the latest on asia. indian markets up and running. the global mood, a lackluster week to say the least. what is on the agenda? unfortunately, nothing quite dramatic in india as in hong kong. half a percent higher for the benchmark indices. are the center stage after with the central bank did in friday's session. it is a start to what is happening around the world. everything came off from there. trending -- is

aside of that, it is a quiet start. forink we are now waiting the budget, which comes up 20 days from now. goes in today's session. manus: thank you. how is the rest of the world? what a conversation. it really shifted the dimensions of how we think about china. good day. >> that is right. put is sending a floor for these markets, at least in mainland china. hong kong today shrugging off the political risk we have seen over the weekend. you mentioned the eventful weekend we had. we have not seen gains like this

since january. welle seeing large caps as doing quite well in china today. the nikkei a big beneficiary. taking a stronger footing against asian fx. we did get trade numbers out of china. pretty early on as well. markets looking good. a lot of these fx traders towards a worrying sign. imports down 8.5%. perhaps there is worry when it comes to consumption growth. renminbi is lower. offshore renminbi, the highs for dollar china in 2019, hovering around 695. the onshore rate weakening as well. asia 10 yeart your coming back from the holiday of eid and catching up with this

bond rally, plunging 21.5 basis points in jakarta. to kill look at this -- take a look at this chart. the renminbi seems like it is a stairway to seven as some say. goldman with a note saying they expect the currency could break seven in a matter of three months or so. this is natural to offset the higher u.s. tariff. we did not hear that kind of narrative from the pboc governor. there is a level that is more important than others for downside when it comes to renminbi. at the forwards. it is all pointing to a probability of a very extreme move. great work, everybody. are the markets in context. the ultimate driver of that, the central bank of japan, how is it does -- responding to global

risk? governor kuroda spoke to bloomberg at the g20 finance ministers meeting in japan. she began by asking him about the risks associated with stimulus measures. whole isonomy as a -- so the local this trend, soh we could have -- we might have two potential risks. at this moment, the situation is -- we have a carefree

monetary situation if we continue our control. expand further. >> you are saying in a sense you are willing to respond to the risk of rising costs and extraordinary stimulus if you need to to stimulate the economy? >> it is possible to reduce potential side effects. >> sounds like a very interesting recipe. big picture, bankers are saying they have ammunition and they can do more.

clear.ade that very powell has said, we can do it if we have to. mario draghi this week or last week said if we cut the negative rate further, we can buy more bonds if we need to. i want to come back. the boj cannot do more. maybe we could even do something else. you said we have these tools, maybe something else. do you still have the capacity to show all those people the boj cannot do anything, but you can do something good? >> i think so. the first of four options, reducing the negative interest rate and further increasing the amount of asset purchase and to continuingting

to increase the monetary base and so on and so forth. those i think we can still utilize if necessary. and how we use and how we could on the economic price and financial conditions. like mario draghi, i think we can do these. an expressive bank of japan governor speaking exclusively to bloomberg at the finance minister's meeting in japan. my guest host at the chief economist and managing director at g plus.

as i reflect back over the past five days in terms of rhetoric ecb, fromed, from the a dooj, the pboc, this is whatever it takes, is it? and thatbecoming, suggests the level of panic among policy officials. the level of panic we have priced into the market. manus: are you panicking? >> let me explain. there is a degree of concern here that is now being priced in very rapidly. that is creating a sense of overreacting. there is some fundamental justification for that. we are seeing the u.s. economy coming down from the sugar high of last year's tax cuts quite rapidly. with strong growth,

low inflation, low interest rate environment. the momentum is faster than anyone appreciated until now. cyclesks of this economic coming to an end quite abruptly on the back of policy has grown. what the fed has is two-way risk. it can justify the market sphere by introducing -- market's fear by introducing a rate cut. as to how much effectiveness it will have in the midst of a trade war. on the other hand, do nothing and watch political risk run economic confidence down to recession levels. both are very likely, but at the same time, very unfavorable scenarios. that creates a crisis of convictions in terms of what the fed does next. manus: what is an insurance rate cut from the fatty afco is it 25

basis points -- from the fed? is a 25 basis points? is 100 hitting the panic button? insurance rate cut is slow, but introduces a hedge against panic. threerkets pricing of rate cuts this year, 100 basis points the next year, is reminiscent of early days of 2008 recession, the financial crisis, 2001. in a very short period of time, pricing policy risk on the political side that will drive the fed to basically take a recessionary stance. i think time will tell. more important is the political

reaction. it is quite clear economic confidence, this happened in the past month. is a risk here on the one strategically the turn will continue to deteriorate the president is sensitive to rhetoric from opponents in congress, but also trade frictions seem to be a distraction. we saw a turnaround with of the mexico talks on friday. we could be looking at a much better second half of the year if this risk is contained. asset let's get some classes quickly through. you said to me you want to look

at the three month versus 10-year note. you say this has gone a little bit too far too fast, reminiscent of crisis time. do we re-steepen? do you have enough confidence to buy risk assets? where do you pick up risk on a drawdown? isa: at the time when there global confidence in a down spot and political risk is the driving factor for central bank risk, in terms of the top of it isic risk agenda, liquidity at the moment. with equities being supported in at the same time, the yield curve is pricing in eminent recession. the suggestion is i do not think treasury yields are justified if

the fed were to backstop the cycle as it looks likely. we have seen a dramatic shift in language. it is quite clear the fed will be looking to introduce liquidity into the market if we are to see some escalation of risk. we are not there yet, but we may ifl be there by early july the g20 meeting fails to resolve the impasse between the white house and china. thes: that could be flashing light that gives the fed 25 basis points in july, which is the insurance cut. stay with me. more to come from the chief economist and managing director at g plus economics. we understand that renault said they might not go for governance changes at nissan. that was the story we were carrying. we did receive a letter from renault on the proposal.

that true that we received . renault's view -- this is from nissan. saying renault plans to abstain from a vote. the opinion is regrettable. these are the breaking lines. renault has a 15% holding. bruno le maire had suggested reducing the stake of the french carmaker. that was one option. renault is seeking better representation. the current plan is to set up three committees on nominations and auditing. this is where the disruption comes between the two. nissan says renault plan to abstain from the agm vote. it is regrettable. as we get more, we will bring it to you. there is a little bit of doom and gloom, to say the very least.

retailerhe ceo of a releasing an apology. shares -- disappointment . drawing the attention of regulators. discuss. -- let us discuss. investors?g what is next for the investors left behind? he was seeing a lot of outflows over the last few months because his performance has been -- he was underperforming. inot of his holdings are smaller and mid-cap stocks, not to mention securities.

a lot of redemptions. you have to go into the market and liquidate your positions. it gets really hard in this market to liquidate your small and microcap positions. to hold redemptions from his funds. one has got to ask -- this is reminiscent of late 2007, 2008. it was virtually impossible to liquidate. are the regulators not looking over this with enough prudence? surely the regulator should have been cognizant of risks. liquidity, mutual funds, redemption, it is not very normal, is it? someone is asleep. >> it is not normal.

1940, only on six occasions regulators have allowed a mutual fund -- a daily liquidity mutual fund to redemptions. regulators are looking at it and have indicated they are looking at it. manus: thank you very much. we will see where the next piece of this story goes. well done, renting it all up for us. -- rounding it all up for us. coming up, boris johnson hardens his rhetoric on brexit. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." the conservative party leader closed today.

boris johnson hardened his rhetoric on brexit. the former foreign secretary said he would scrap the irish backstop until a deal is reached. the leadership campaign of environment secretary michael has been marred by revelations of his cocaine use. was a crime. it was a mistake. i deeply regret it. >> should you go to prison? >> i was fortunate in that i did not, but i see the damage that drugs do. and inseen a close-up the work i have done as a politician. that is why i deeply regret the mistake that i made. manus: the race is on. chief economist and managing director of g plus economics, still with us. skewed toward boris winning. he wants to raise the level at

tax kicks in. he is offering cuts to business. or that iso lose, the sense i get. from a negotiating point of view , how important is that boris is or is not in the lead? clear the next prime minister will be leading the country to the next general elections. whether we have hard brexit or not. the question at this point is -- the social opinion is fragmented, as we have seen from the results of european elections. it is obvious hard brexit is something that will have to be

embraced. it is the position neither party can ignore if they want to win a majority. manus: thank you for being my guest host today. this is bloomberg. ♪

manus: good morning from bloomberg headquarters. these are your top headlines. a sea of green. global stocks climb and the peso rallies as president trump suspends tariffs on mexico. shares in china gain as export growth unexpectedly rebalance. the communique. trade tensions dominate the meeting in japan. governor kuroda tells bloomberg the central bank can deliver stimulus if needed. for 2%he momentum

inflation target is lost, we will swiftly respond by changing our policy. faith.and losing sinking expectations and trade woes onto the ecb. a governing council member tells bloomberg exclusively the central bank stands ready on the risks. if things somehow do not go how it is predicted, we will certainly act. there is no question. manus: you've got your equity futures marching higher.

everybody is focused on the central bank and the possibility of rate cuts from the fed. the bank of japan governor using the right language in terms of more headroom. max headroom is global, that's for sure in terms of the equity market. of where themoment central banks are the heroes. rhetoric.he heroes of now they must deliver in terms of their actions. to the bond market, which is the defining prism of risk along with fx. farbond market has gone too too fast. bunds advance. comments again coming this morning. money is coming out of the bond market. commerzbank says mario draghi's

take on inflation is nothing but wishful thinking. keep an eye on italian government bonds. there is a drag according to -- robeco.robe aco 10 year u.s. treasuries declining in price. morgan stanley say the latest rally will retrace, they are calling for a re-steepening after tariffs have been delayed with mexico. let's get to juliette saly and see how the asian session is marching along today in singapore. is risk on on, it the latest news regarding mexico tariffs. a lot of strength coming through in the automakers in japan and korea. closing of the session firmer by 1%. yen weakness helping. china hong kong markets looking strong. the hang seng up by over 2% in late trade.

close on friday due to a public holiday. playing catch-up. the likelihood the fed could cut rates according to the markets lifting chances the hong kong monetary authority would follow suit. 0.3 percent. australia closed today for a public holiday. let's have a look at other assets. we heard from the pboc saying there is not a line in the sand when it comes to the one. -- of the yuan. also underdollar pressure because we did have china import data coming through from may, which was weaker than expected, although exports held up quite well. we have been watching this rally in indonesian assets. the yield on the tenure down by 22 basis points. the rupiah and equities rallying. india resumes trade following the holiday. manus: thank you very much.

now the g20. thanks are responding to growing global risks. kathleen hays has been speaking exclusively with the bank of japan governor, mr. kuroda. she joins us now from the g20 finance ministers meeting in japan. great work over there. sat down with kuroda a short time ago. he looked utterly engaged with you. what is your take away? how aggressive can they get on policy response? >> it is interesting. it is always a great moment to sit down with governor kuroda. the bank of japan, the european central bank, we were able to spend a nice chunk of time with him. i asked him about the trade tensions that were in the communique, increasing downside risk.

he shot back, you know the communique acknowledged there is stabilization. what is really clear is he is not worried about the japanese economy. he can see industrial production has fallen. he can see the plus side. he can see stronger consumption. he can see the inboard -- inbound tourism rate. if these downside risks materialize, and that is the word he used, the bank of japan, led by governor kuroda, already take action -- are ready to take action again. here this one again. -- i want you to hear this again. it is a very important point. economy isapanese affected, if the momentum to the inflation target is lost, we will swiftly respond by changing

policy. manus: what are the negative side effects are the banks? we are in negative rates. we have really been pushing back. what are the biggest issues? is, whenrse, the thing under control and you are keeping the jgb around banksyou do not give much. a lot of pension funds and insurance companies who might 40% ofught jgb's, about the outstanding jgb's is not very active right now. they start reaching for yields overseas. i asked governor kuroda, what can you do? he said we can do four things. we could cut the negative rate further. yield curvepen control. even by more etf.

there is a lot more on the table. he is also making it clear that if they have to take that step, it is going to be based on the controls they use on the variety of conditions knowing they have to be very careful not to make these negative effects worse. here is just one of the things he said about that. >> how we use some of the functions will depend on the situation. -- but also the supply. we are goings through this long interview with governor kuroda, at what point ,e said -- one point he said mario draghi said last week they could cut their negative rate further. a lot of people doubt the boj really has the ammo to do anything more. he said, yes we do.

he said he could do like mario draghi if necessary. people let governor kuroda do not say things like that accidentally. i think he is trying to tell the world he is not worried about growth. he is encouraged that inflation will continue to gradually head for a target. here is what you have got to watch now. inflation. if it looks like a serious move in momentum, these other steps provide stimulus. that is the first thing that came out of his mouth. confident now, but ready to act if japan needs it. manus: they need to send a confident message, don't they? a dead mani could be walking in terms of going out the door. where are you? did you unpack behind you? that i unpacked badly behind me yeah, not sure because i -- it did i unpack badly behind me?

i'm not sure because i cannot look behind me. we are at a beautiful southern coastal port city, a center of industrial activity. one of the family members has a very large company here. i wish you were here because we could walk through and see some of the beautiful japanese trees, the kind of things you might see in a japanese museum. uswas very generous to let come in here and talk to you. and nice backdrop for what was a busy weekend. some people are wondering, what did we get out of this g20 meeting? the digital economy, we were talking about that yesterday. there is one big challenge that has to be met, has to be dealt with. that is the global trade war. i wonder if even president xi and president trump no what is going to happen next.

this is why everybody has to say, look, i expect a better second half, but i am ready to act if needed. well done.anus: you kicked it out of the park. let's get to my guest host, chief investment strategist at bluebay asset management. let's pick up on the kuroda comments. does he have the ability to do something big? if so, what might that be in your view? think the bank of japan still has some room for maneuver . for me, the key take away as highlighted by you and your correspondent is the support the , even the fedecb are providing to the markets, is a promise that is contingent upon downside risks emerging.

the bond market right now is pricing those risks for the yen. there is a connection between central banks, which is to say, we do have the tools to provide server -- for the report if support if- further necessary. i think in the case of the bank of japan, it is going to be tough for them to be very aggressive. they have less room for maneuver than the fed. what is interesting about governor kuroda's comments, about mitigating the negative impact on the financial sector and banks, that has been an issue for the central banks -- the ecb as well. the curve is very bad for the banking sector. in japan as in europe, that is an important source of credit creation. the market has priced in

25 basis points for july. that is the insurance -- is that an insurance cut? points is priced in the market, way beyond an insurance cut. it ends up being forced to react effect of theg downturn. the fed is caught between the devil and the deep blue sea, isn't it? absolutely. it is a dilemma. the market is pricing an aggressive series of rate cuts by the fed. the underlying path of the u.s. economy at the moment is by relatively weak payroll number on friday. plus in the u.s..

the fed may at some point look to cut rates later this year. the will be in response to negative impact of trade concerns, of investment. also the drop in oil prices also going to have some of the headwind for u.s. investment spending as well. the market is pricing something much more aggressive. we are also going to disconnect with risk assets, the equity market and the bond market. one of those is going to have to give. we are going to get to a point where we have three rate cuts by the fed this year. i think we are going to have more pain before we get the fed to cut rates by 75 basis points. have a look at this. spread had just gone for

two negative and perhaps should be steepened. that is echoed by a number of market calls. the bond market is screaming recession. the equity market does not want to admit a slowdown. does the curve re-stephen? penn --eve re-steepen. david: the market is anticipating a soft -- the cycle. what is really happening is if you look at the 10 year in the treasury market, that has been steepening because the two-year is coming down so quickly. saying we is actually think the fed is going to cut rates and that will be enough to

force a more meaningful slowdown. that is what the stock market is responding to. where the disconnect comes in is the fed is convinced it needs to cut rates, if at all, and if it ratesit should be cutting by 75 to 100 basis points over the next 12 months. when the unemployment rate is 3.6%, we have still got the three month moving average on job growth in 150,000. i do not think red flags have signaled for the fed when it looks at the u.s. economy. what it does see is a downside risk related to trade. points isbe 25 basis an insurance cut. anything more would be perceived as moving into the panic are being bounced into the move. stay with me. we have much more to get to. read headlines across the terminal. anamic bank recommending

acquisition. i caught up with the ceo last year. he was very hesitant about wanting to do a deal, but there you go. a recommended acquisition of nor bank, it is set to go through. this is the consolidation story we have, which is very much about an overgrowth market and consolidation. at 7:17 in london, sinking inflation expectations and trade woes. what is strategy in the post-mario draghi world? this is bloomberg. ♪

manus: just on 7:20 a.m. in london.

let's talk about the european central bank. step to support the region's economy. trade and other risks threaten the economic outlook. governor the bank of italy. an exclusive conversation at the g20 in japan. >> all of these we have, including those you have somehow failed to be brought back in line with our objective. visco speaking to kathleen hays. to the data from the united states of america. weaker than expected jobs report.

in response to a weakening vote, escalating trade tensions around the world. atures show as much as quarter of a point cut almost fully priced in to the meeting. david, when we look at the jobs data, some people are saying fissures for the consumers in the united states of america. of numbers are perhaps one the weakest we have seen on a running average since trump came to power. what was the warning sign for you from the jobs data? undoubtedly a week jobs report. we should be careful about putting too much weight on a single -- they are subject to revision. the three month moving average is still running at 150,000 jobs.

that is actually above the 100,000 needed to maintain stable unemployment rates. is if youink the risk look at the more cyclical trade goods producing centers, -- sectors, we have seen weakness in terms of job creation, manufacturing, in terms of construction as well. there is some sign that we are -- there is weakness in global growth and trade starting to spill over into an otherwise pretty robust u.s. economy. it is actually going to move the dial enough for the fed. we are going to need another couple more reports like that before you can really nail on the fed is going to cut rates. i think the market has overshot.

manus: kuroda talks about the ability of the bank of the -- of japan to do more. why is the market mistrusting of mario draghi's intention to act or the indication he gave that he is the one with headroom on qe and on the ability to stimulate? why do we disbelieve that message? >> i think that in part is because they did not really back that up with specific detail as to how they really would implement another round of quantitative easing. they don't have much room for maneuver. they have set limits on individual bonds they can hold. in terms of interest rate cuts,

they did not detail how they could mitigate the negative impacts on the baking sector, which is a very important channel within the eurozone. thirdly, because we do have a leadership change coming up at the ecb, there is some challenge in terms of transmitting forward guidance and commitment when mario draghi will be standing down. you, when i ask look at the bond markets, italy over spain. now, you saw a whole host of moves lower across the core of european rates on thursday and friday. is it time to buy italy whether it is across the belly of the curve or here on italy versus spain? socgen say italy has decorrelated from the rest of

europe. when you take advantage of this? >> the level of spread we have on italian bonds offers quite an attractive risk reward profile. i think the sort of exit risk from the euro zone is actually very low, particularly over the short of -- the sort of short to medium-term. against the backdrop of a surge for yields by european international investors, i think you are going to see a gradual squeeze down in terms of that spread. it was interesting, you highlighted spain versus italy. inin still is at the moment the deficit procedure, which the european commission is working with. what that highlights is it is not such a negative factor after all. manus: thank you very much.

david riley, chief investment strategist at bluebay asset management. that is bloomberg europe's monday addition. "the european open" is up next ♪

anna: welcome to bloomberg markets "the european open." i'm anna edwards. matt: and i am matt miller. today the markets say me gusta. a positive open as donald trump suspends tariffs on mexico. the cash trade is less than 30 minutes away. anna: a sigh of relief in the sea