i'm kathleen hays. few words in , nottatement, nothing big to tank the dollar, hitting its lowest level in 14 months. it makes you wonder, what is going to happen when the fed starts reducing the balance sheet? if it does do one more interest rate increase this year. yvonne: things like they were focusing on the little tweaks. when it came to inflation, they dropped the word recently or somewhat. is that an indication that janet yellen is admitting transitory factors when it came to inflation are going to last a little longer? four straight months we have seen inflation go the other way. that could be a key question in asia. let's get the latest with juliette saly. whattte: i'm looking at the dow jones did overnight, a record high coming through once again. up by led by industrials 2.8%, consumer staples also getting a bounce and energy staples up by .5%, the same movement we had an energy space in asia yesterday. the positive start you would think you a little bounce to asian equities, but we also have

let's get more from kathleen hays. she is in new york this morning. flation in the balance sheet -- was there anything new? kathleen: i think what happened is, it has sunk into the markets, what has been a square in front of them for some time. that is, janet yellen has repeated what people have been talking about, including other fed officials, that inflation is weak and the fed has to watch it closely. it was up 2%, back down to 1.4%. the president of the dallas fed saying he wants to see greater evidence inflation is turning back toward targets for them to stay on the fed hiking path for him to be on board. we have the former head of city fx. he made the point that it is not so much what janet yellen fed -- said the last couple days, but the market is weak. let's listen to exactly what he said. thinkthe markets inflation will stay relatively low, the growth is going to be not as strong as the fed thinks, so that the pace of hikes is not anywhere near what the fed thinks -- yes, they are going to do the balance sheet withdrawal, lowthe commendation o

let's get the latest from kathleen hays. she is at the boj with our next guest. h. outside the bank of japan, a two-day meeting is wrapping up. this is one of the four meetings a year where the bank of japan issues its monetary policy report. that is why this gets potentially more attention, because this is the opportunity at the very least to shift the dials on their forecast for growth, inflation. we have a guest who knows exactly what it is like to be inside the conference room at that bank where the bank of japan's meeting now. let me introduce kazuo momma, executive economist at a research institute, a former assistant governor at the bank of japan. welcome back. great to have you. set the stage for us. day two of the meeting. is there any big issue they have grappled with or did they sit down and say, we are not changing anything, we are going to keep policies in place, let's have lunch and leave? what is the big issue they have to decide? , the far as the market economy continues to grow at a reasonable pace. there is no motivation for the boj at this momen

kathleen hays in tokyo. king and china, the potential of qr codes in developing markets. that is next. this is bloomberg. ♪ ♪ haidi: qr codes are becoming increasingly popular as a former de-payment in developing markets. in china, five point $5 trillion of electronic transactions were made last year. our bloomberg columnist is here with more. qr codes have been around a while, so why wouldn't consumers prefer newer tech like apple pay? >> there are a couple of reasons. if you are in a developing country, an iphone is quite expensive, so the technology used in an iphone to make payment near field is not that widely available. qr codes can be read on feature phones and lesser smartphones, so that is one big advantage. the flip side our the merchants. if they want to use apple pay, they have to purchase expensive terminals, samsung pay, purchase terminals. with the qr code come all you have to do is printed out and put it up at the register and somebody with a qr code enabled phone can scan it and make a termi

kathleen hays is here with all the details.t with the bolts, inflation, the balance sheet. these are the two key elements that are at the core of where fed policy is and where it is heading. no matter what happens to janet yellen, she is the fed chair and leading the charge. repeated on day two of her testimony when she said the fed is watching inflation carefully in light of the recent low readings. rob kaplan of the dallas fed once greater evidence in the numbers that inflation is moving towards 2% before he stays on board with the fed hiking rates one more time this year. friday morning, consumer prices janetne, a test of yellen's inflation view, which is to say i think it will move higher. of thisimportant aspect testimony was what she said about the balance sheet. yes, it will start sometime this year and may or oil the bond -- roil the bond market little. you look at the chart, what do see? the yellow line is the inverted fed funds rate. it goes up, the fed funds rate goes down. look at that white line. that is the balanc

yvonne: ed rogers, joining us there with kathleen hays out in tokyo.egulators or sing the good thanks to raise their game next. this is number. -- this is bloomberg. ♪ betty: showing took new capital requirements in just the last two hours. paul, these bank shares are higher, that they have these new regulations. what is going on? announcing this morning that the banks will have to carry a 10.5% tier one capital ratio so that they can meet this inch market being unquestionably which was the review of the financial system three years ago. a 150 basis point increase. the average, holding 9.85%. the commonwealth bank probably holding about 9.9% around the time. still some work to do to get there. most of the banks confident they can do it, betty. a big part of the domestic bank lending comes from home loans. how much has the property market had on this decision? yvonne: you kind of overlook the impact of that. >> you kind of overlook the impact of that. the currency do not reflect the concentration of lending risk. so that is a big reason for these new ru

let's visit with kathleen hays. what do you have a kathleen?athleen: let's definitely start with the united states. index,chasing managers' this is one to watch in the united states. all of these gauges, when you look at manufacturing, if they are above 60, they are signaling growth. 57.8.mber, if you compare to previous months, the manufacturing -- what isnd the going on with purchasing managers, they have it retired. powering up again. new orders hitting a three-month high. postedof 18 industries growth. again, it was not just the u.s. you saw the survey in japan enjoying a big jump in optimism. the pmi moved back above 50, signaling growth. we have the europe pmi rising. mexico, their pmi rose as well. even in countries where it slow down a bit, the pmi still stayed above 50. how much will manufacturing pick up jobs probably? will it make much of a difference? the main conundrum for central banks is inflation. falling inhe rate is many countries, inflation is not rising. in sum, they are pulling away from the inflation target even more. rese

more oflet's look for this with kathleen hays, where she covered the boj. rd from governor kuroda, he held course, but pushed back the goalpost when they would hit inflation. what was your take? kathleen: my take is that andrnor corroded -- kuroda the team at the boj is clear, they are in it for the long haul. in the more reason to dig and continue to fight the reflation fight. i want to preface this whole discussion around the view of questioning this theme of central-bank diversion. not because of the boj, they are the side we look at when we want to say there is diversions -- divergence. a lot of questions for governor kuroda about pushing the inflation target out to 2020. he said 2% is a necessary target. he made it so clear, you have to understand, japan is fighting a 20 year deflation legacy. let's hear what he said. >> i would like to point out, there is strong deflationary mindset among japanese corporate and households, compared to the u.s. they remain cautious about raising prices, with wage growth. i do not believe it will last long. the moment to

kathleen hays is here with more. is interesting -- we do not think that by this time we would be talking so much about the balance sheet reduction. kathleen: we didn't, a year ago. march -- but no, we are ready to go. it is clear they were debating if they should reduce the balance sheet this year. the only question is, when? let's look at key phrases from the fmoc minutes. we decipher them to see what the fed was debating, what the takeaway is. several, if we are to start within a couple months. does that mean that in the july meeting they made an announcement and start winding in september? that is what it gets people thinking about. readyaid, better to get later in the year two address inflation. say, are we sure we need to start reducing the balance sheet? that the suggested danger of moving to quickly with this balance sheet reduction, especially in the face of inflation, would be that it are showing you are not on a gradual the, and that could roil markets. with so much division, can the fed start reducing the

kathleen hays here with more. tell us what happened here. we suddenly on this hawkish stance? kathleen: it has been gradually building. it kicked off when mario draghi spoke at the ecb forum last week. i want to start off what happened -- with what happened in the european bond market today. the fundamental did not change much. but there is a weak french and spanish bond option. german bund yields jumped. not as far as when mario draghi spoke last week. look at it, you will see the 10-year german bund, the benchmark germany has broken out of a range held since beginning of 2016. pointing reporters out, to really signal there is a new bear market that will go and go, they yields have to double from where it is. still, an interesting move, maybe it portends something else. draghi spoke at the conference, the ecb forum. he said deflation is over, we're looking ahead to reflation. said, they will move sooner or later to start removing bonds. buying bonds, remove the stimulus. the ecb minutes were out earlier. they suggested they discussed easing

think cap -- they keep kathleen hays. -- thank you kathleen hays.our and bloomberg anywhere app. you can customize your settings. this is bloomberg. ♪ yvonne: this is "daybreak: asia." betty: a quick check of the latest headlines. .utting fees on 14 products stock and bond index mutual funds in the sector are now cheaper. it has been challenged recently by a growing number of rivals matching are undercutting its prices. the only price reduction starts august 1 -- fidelity price reduction starts august 1. yvonne: shares have surged after "spider-man homecoming." sony pictures tv is spending budget $43 million on a 95% stake in animate distributor funimation. buying script networks. they can leverage their programming to ensure inclusion in online tv services. channels have been striking as consumers drop subscriptions in favor of streaming video services. almost it for us here on "daybreak: asia." we did see the official numbers. we are still seeing some substantial -- rishaad: there are seeing a little bit of depletion. that is something that will b

global economics and policy editor kathleen hays joins us now in tokyo.ey takeaways and how does the fold into this low inflation story? the bank of japan and ecb this week. next week, the fed meats. ets.fed -- fed me we have the cpi number on friday underscoring that, an important gauge of inflation in the u.s., so people like robert kaplan seeming to evolve on this. what he said is much as fed officials included janet yellen eave been saying there ar temporary factors there, mobile but thosee contracts, are not telling about the trend of the economy inflation. nevertheless, robert kaplan said maybe it is not all transitory and he sees structural factors like globalization and internet technology to keep a lid on prices and inflation. some of these impacts are transitory, but not all of them are. he is waiting to see more evidence that inflation is starting to move higher and this is only transitory. he if we are on that removal of accommodation path, a fed governor lyle brainard said something very interesting. no one has a satisfactory answer for the c

manus: thank you very much, kathleen hays in tokyo.et's get to our guest, chief economist at japan's macro advisers. thank you so much for joining us this morning. target,in the inflation probably until march 2019. what does that do to the credibility? time he would delay and extend and pretend. what do you make of this extension? i guess he must be regretting that he made the promise of a 2% inflation target in two years time. having said that, the last four years, do believe the japanese economy is growing strong. there is a labor shortage everywhere. i have a sympathy to the governor on this point. anna: you point to the upside, but let's focus on the thing he has promised to achieve and has struggled to come and that is around inflation. what is the risk with the current strategy that after he starts to heaven adverse impact on the government bond market, that he is forced to change his policy? >> right. there are a number of areas. it's pretty bad timing. i think it would be best if the government delayed it again. another more im

kathleen hays is here with more. wages are rising.f you are the run the paycheck is getting bigger -- which the fed wants to see, because they are about keeping inflation too low. that is the mixed bag here. for most economists, the strength of the rebounds out wages -- it may have been a week month. with the latter part going into june. payrolls were only coming up turning into 230,000. looking at btv and you could just see how they got this nice rebound over here. up to 222,000. it looks like the up of jobs is in place. this happened as new workers entered the labor force. that means we are getting more confidence. -- it includes part time. going down steadily. it bounced back up. it only rose by 2.6%. issue for then fed as jim gillen testified. we did get the fed's monetary policy on friday. they do expect to start their balance sheet reduction. she doth testify on wednesday and thursday, first the house of representatives and the senate. no doubt john williams from the san francisco dead speaking today. charlie evans from the chic

kathleen hays with more, inflation dropping. it increases the conundrum, they say, because unemployment is low, the economy has gotten stronger. not only is it not getting closer to target, it has fallen the past three months. consumer spending also looking on the weak side. here is a chart. if you give me a second -- there we go. because -- 2589. this was the personal spending and income, these are the numbers that watches closely. -- the fed watches closely. the turquoise line is down to 1.5. they got down the first time in five years. , but not as abrupt steadily lower in the core inflation rate. , the odds of a rate hike are also coming down pretty substantially from where they were earlier. what we have now is the world interest rate projection. expected inno hike july, no press conference, but september, gress what -- guess what we see the bonds have already declined. the odds were down 16%. september here, just over a one into chance. that is a coin toss. not reallyis believing this. one thing you have to keep in mind, wha

kathleen hays joins us now. it sounds quite idealistic. thleen: we know that the theident has already gotten legislature to agree with him on adding another $10 billion to the korean budget. that is a big part of what he intends to do. thes trying to shift composition of growth, how growth is created in south korea, who benefit from it away from export growth. building wealth for many koreans, but not enough. he wants to spread that out. he wants to do this by creating more income growth. he will do that by creating more jobs, many within the government. some of the key goals and plans in the five year outlook from a boost minimum wage over the five years by 30%. 16%as always put through a wage increase. the government will do a lot of it, public spending to create public-sector jobs as well. taxes on the big corporations and raises more money to support. to support gdpd in 2018.is year and exports will still be a big part of that. the boost and consumption and income through the government is important as well. public spending is expected

kathleen hays is here with a look. news that donald trump saying he might actually reappoint janet yellen to a second term. kathleen: i am not surprised. we did learn recently that gary cohn, former president and ceo of goldman sachs, now head of the national economic council, which makes him the chief advisor to donald trump, was considered the front runner. in an interview with the wall street journal, donald trump said the other contender was janet yellen. some are wondering if the donald trump might take a look at her track record, her caution on raising rates, concerns about the labor market. he does have a reason to think about it, re-appointing her when her term is up in 2018. we are the middle of a two-day meeting. no rate change is forecasted. it is the balance sheet in forecast. why no rate change? let's take a look at g #btv 7564 . key measures are running at 1.4% with a target of 2%. plateaued above 2.6%, 2.5%, 2.4%. they have a flattened out, even though employment is falling. the phillips curve is flat, m

kathleen hays joining us with more. a small improvement in inflation.ore number to be in decline, but nothing to be concerned about. bloomberg intelligence will looking for the decline, and we saw a little improvement in the core. ifould say that on balance, i was at the bank of japan, i would say this is a good batch of numbers overall. up a chart that will make it easy to tell the story for inflation. will start by looking at the white line, that is the overall cpi at 0.4%. let's start with the yellow line, that is overall. the yellow -- the white line has been coming up, that is the national number. this is the bank of japan's main number. 0.14%.s at then, the super core, which takes on fresh fruit and energy prices, tipped down to 0.1%. back to flats. there is a little improvement there. the labor market, let's take a look at that. to 2.8 percent from 3.1% in may. the job application ratio fell. 4596. this is the unemployment rate. it was supposed to go down to about 2.9%, it went down to 2.8%. ratio, to application was supposed to go to 1.51%. it i

we have kathleen hays here with more on randy quarles. criticisms coming out from the other side, from those opposed to him, saying that he's too friendly on wall street, he's not going to be able to be a good enough regulator. reporter: that is a very interesting observation. i think it's possible if you were to appoint anybody with wall street experience, anybody you has worked with banks, you are going to get that kind of criticism. people who support this would say, wait a minute, you need somebody who understands how wall street worst, how banks work, to oversee them and understand what they are doing and when they are getting off track, and when regulations need to be changed. randy qualls, let's look at his qualifications. a wealthme manager of management group in salt lake. it's private equity investments. as one of his first positions, he worked at treasury under george bush. he was undersecretary for international affairs. a lot of experience. seen as a pragmatist, not an ideologue. he was a farmer imf u.s. director, worked at t

kathleen hays with a look at this. what could be here? -- we hear? ia will have some speakers, but this is a relief for the fed. with the big slowdown in the first quarter it happened in previous years, but we had not in the expected rebound in the second quarter. the seller news is that all that happened is gdp got back on a slow, steady path, because it quarter. in the second that was up from 1.2% in the second quarter. consumer spending picked up, leaving the gdp rebound. looking at 7965, a simple chart. it shows you in the far right hand, consumer spending was up 2.8% in the latest quarter from 1.9% in the first, that was revised down here. consumer spending is better. business investment healthy, trade and export also helped gdp. the second quarter, a shortage of lots. a lot of the good cannot be found. 1.9%, and thep fed is looking for 2.2% gdp growth, so they have to get 2.5% for the whole second half. we don't know if they can. the fed is on track for the balance sheet unwind, one more 27 -- 2017 rate hike. this should give the fed enough conf

let's get over to kathleen hays watching this from new york.e pretty fast-moving and garyordinary report that cohn is the next pick for fed chairman. >> i would be surprised if someone did not ask the fed chair what she thinks of gary cohn as the replacement for her when her term ins in february 2018. we shall see. she has set in the past she is doing her job and will fulfill her term. even donald trump said he likes janet yellen, but it's not surprising and new president once a new person at the fed filling out his vision of what the federal reserve should look and how it should be run. gary cohn was goldman sachs president and ceo, now director of the national economic council. he is not an economist. he has been an investment banker and successful manager. when janet yellen testifies starting at 10:00 am wednesday, despite anything she may be asked about gary cohn, i think the markets have three big questions. is it time for the fed to sit back and let the job market run hot? should she be emphasizing that could lead to higher inflation and

our bloomberg policy editor is kathleen hays.ho is he, what are his views, and why is this important? reporter: his name is randy quarles. the bushteran of administration and under secretary of the treasury. he is considered, among other things, pivotal in terms of helping to bring to the table steps donald trump says he would like to bring to the banking system, taking another look at the dodd-frank bank overhaul. position, thes vice chair for bank supervision, was established coming out of dodd-frank, but has never been filled.barack obama raised a couple of names but could not get past republicans in the senate, so dan tarullo at the board of governors took this job on in an ad hoc kind of basis. randy quarles is expected to come in and given his background, take a look at dodd-frank, take a look at what's going on with the banks. maybe he will tear down regulations. some people think he's too close to wall street, and you think he's the wrong guy. let's take a look at his curriculum vitae. he worked at the treasury department

kathleen hays in new york. breaking down china's inflation data.tching bloomberg. ♪ rishaad: you are back with bloomberg markets. i am rishaad salamat in hong kong. haidi: i am haidi lun in sydney. the latest business flash headlines. boostys hiring to investment in market operations in japan a year after it shut its cash equity business and cut 120 jobs. andlans to hire 10 bankers sense that this fiscal year to advise on mergers and sell investment products. amongst is ranked 14th advisors in japan according to bloomberg data. pan-european stock exchange is $2.3 billion available for acquisitions and seeks to double in size and diversify. in amsterdam, brussels, paris, and lisbon, it once to capitalize on the post-brexit world. it says major transactions are possible despite the failure of deutsche's pursuit of lse. >> if you want to make money into business with the company's , the pool of savings in this group of 27 countries, 19 using the same single currency, then you have to be located in that part of the world. chinese plane maker has one re

kathleen hays is joining us from tokyo ahead of the boj meeting.t we saw on friday. >> the bottom line is still no from one ofignal those two most important inflation gauges the federal economists, u.s. watch, key deceleration in inflation has started to turn around. consumer price index, the pce deflator, two very important gauges of inflation. they are complementary to each other, but somewhat different. in the are both heading wrong direction, that is not what the fed wants to see. flat afteronth was being down 0.1% in may, so it did not get weaker on a monthly a smallut there was not move higher. downover year, june cpi, to 1.6% from 1.7%, and the pce deflator, they have been doing the same thing, decelerating. 6030.s btv choose whichever inflation gauge you want, the pce deflator is running under the cpi, heading down year over year core cpi also heading lower, the chart says it all. andissue is janet yellen fed officials saying it is ,ransitory, one-time events suddenly competition, prices falling, drug prices. i think the problem for the fed

kathleen hays here with more. e fed hike in june, yellen stress to the transitory nature of weaker inflation. but she changed her tone a little bit. kathleen: a little bit. what she did was acknowledge the uncertainty around the inflation outlook. she mentioned the transitory factors like the new mobile phone prices and drug prices. put them in a broader array that the fed is watching, bottom line is tighter later market -- labor market will push prices. she said it is to early. let's take a look at the bloomberg. you can see a redline that the picks the fed's 2% inflation target. that is where the fed wants inflation to go. you can see turquoise line that includes everything. it is above 2%, now down to 1.7%. the white line at 1.4%. they are clearly headed in the wrong direction. have a bitrket did of a rally. we were speaking earlier with the chief economist and he said, yes. the fed talk of tightening in an inflation downturn may be one reason bond guys like this. >> it blows me away. they have been tightening s

kathleen hays, thank you for joining us.o grab cash, they talk with the international president a little later. , bejewel global investors and where they see value there. this is bloomberg. ♪ ♪ betty: this is daybreak asia. >> let's talk about the asian markets now, because our next guest says the stocks in this region remain relatively cheap while breaking out of a down trend. it is head of asian equities. maybe we see stock markets soaring. the highest level since april of 2015. >> it was something that had been missing -- missing in asia. i think that can continue to push the market higher. >> as we got those figures out of china, very positive when it came to economic data, the shanghai composite taking a hit. when it comes to the chinese markets, we see this sort of negative correlation with the rest of the world. this is the charge, two to seven on the bloomberg. we see the shanghai composite , the, the world index advanced economies, of course. outperforming the mainland markets. inverse correlation, taking place. the

kathleen hays has been digging into these numbers. more.e >> the charts are great. improvement manufactures, non-manufactures, exports weaker, and fiscal stimulus, now the upset for shinzo abe in this election, but interesting japanese stocks moving ahead. the forces will not be reverse easily. #7374, and what you can see in is thenel right here large manufactures index in white. it moved up from 17 to 12, a nice gain there. the outlook, not just the second quarter, but the third quarter had a nice improvement, moving to 15 from 11 comes the things look brighter. the yellow line is the big services companies, business conditions index 23 from 20. the outlook from these companies 16, alld up to 18 from systems go, everything looking better. interesting that the outlook for the yen in the tankan is 108.31 by the end of the year, and this is all in the context of the boj meeting july 19 and 20. it is the boj survey and they use this as they look at the economy and decide what they want to signal at that meeting which is now two and a half weeks away. andusiness conditi

kathleen hays is here. kathleen: he made it pretty clear on the campaign trail. he won the election. mid-june. he sees a new vision for korea's economy, a new vision for the way they grow, create jobs, create wealth. he talks about moving from an export-driven model, dominated by large corporations, big industrial groups, more towards creating jobs across all tears s ofociety -- all tier society, and supporting small and medium businesses. that is another thing he has been hitting pretty hard. that us take a look at a very specific chart to show everybody why this is so, so important. #btv 2477. 3.8%. that is what this white bar shows the. that is a nice, low unemployment rate overall. that is older workers. korean youth, 10.5. be more specific. how about people not quite 30? 10.6%. remember, young voters gave president moon a lot of support. they were a big part of him being elected. that message has resonated with them. we know that gdp has been growing pretty healthily, 2.9% in the first quarter. we will get the new gdp numbers on thursday. overall, growth is

kathleen hays is here to connect the dots from treasury refunding to the fed in their balance sheet.nding announcement here at it always comes in the middle of the quarter. not beause the fed will buying back all the bonds that mature in its portfolio, people are saying what does this mean for refunding? refunding occurs once per quarter. there are so many bonds maturing. these are the threes, tens, and 30's, so the treasury is replacing the debt by buying new threes, tens, and 30's. the fed has decided it will not invest all the proceeds. once it makes this announcement, it will let 6 billion and treasuries roll off. this will just affect the treasuries. quarter, the treasury calls the primary dealers together, about half of them, and ask them questions. how is the street positioned? what is investor appetite for bonds? so they can adjust the size of the auction, how many threes, tens, 30's will they sell. dealers howked the do you think we should make this adjustment. these are some the things traders are talking about. they could be in the discussion and come out of this refunding

to our global economics and policy editor kathleen hays in new york to connect the dots.be talking about? >> it is a big buyer called the federal reserve. the fed has a $4.5 trillion balance sheet and it is getting ready to not continue to all ofesting those securities back into its portfolio. it will let some of them run off. meanwhile, every quarter has a refunding, and let me remind you what that is. once a quarter, it refunds of securities to keep debt at a certain level. maturing.lways it just has to issue more to replace them. is reportedly refunding three-year, 10 year, and 30 year bonds. short, longer, and very long end of the curve. what is happening? highere losing a big because the fed has made it clear it has a plan to let $10 billion of securities run off and not replace them. $16 and treasuries, $4 billion in mortgage backed securities. every quarter when the treasury is getting ready to announce its refunding, it talks to primary dealers and asks about the conditions of the market and investor appetite come as a now people are wondering whether the fed will