Rally. The bond market yesterday saying a bit of buying come back, but not much for printing. 71 basis on the 10 year right now. Action pivots over what is happening in the United States. We get to the Michigan Consumer center. A little stronger than economists seemed to have protected. 74. 1, up from 72. 8 last time around. 72. 8 was what the economists were predicting as well. Current conditions, 82. 9. That is slightly ahead of expectation which are at 60. 5. The expectations number is actually where we are seeing the strain. Lets turn to our big story of the day, we have seen that apart from the japanese Prime Minister shinzo abe, the countrys longest serving premier will be undergoing treatment for chronic illness. He spoke earlier today. Respond to ready to the mandate by the public. I made a judgment i should not continue my job as Prime Minister. To step down as Prime Minister. Indicated that he will stay on until Leaders Within his party choose the successor. That could happen in september. ,oining us now, Takatoshi Ito deputy finance minister within the administration. Muchssor, thank you very indeed. End with the departure of abe . Certainly the economics will disappear. The next guy will name it something. I do not think that there will be a disk discontinuity to the next because there is not much room for japanese to deviate from this mainstream performance strategy. That, professor, given the market concern was decisively negative, at least initially. Why would markets react that way if there was no threat of substantial policy shift . The market reacts to uncertainty. There are three or four candidates that preceded mr. Abe. Broadgh they are in the direction, but those slight differences among them. The market always uncertainty. Kuroda . T about mr. To deliverbe shock and awe. Continue hisda term . Does Monetary Policy at the boj change in any shape or form . He will stay through his 2023. Which will end april still 2. 5 years. Says the governor will if heside resign becomes incapable to carry on the duty. To protect the independence of , it istral Bank Important he stay on until the end of the term. Kailey independence aside, barada what about the path or policy . Boj reduced rates four years ago, it does not have a lot of maneuvering room. Japanoes it do next as competes with coronavirus . Four years ago, boj introduced the negative interest rate, which turned out to be unpopular. On pop there among banks, which cannot pass on unpopular among banks. Flattened. Urve was later in the same year, boj introduced yield curve control to make sure there is a slope between organized and 10 year bonds. Introducedmr. Kuroda socalled overshooting which turned out to be very similar, or the same as mr. Powell. He has done a lot of communication and guidance. Expectationy, the is not reason to the 2 . , we arefessor ito starting to see potentially the fed go down the same road as the boj did. Sheet relative to gdp significantly bigger than that in the United States with the fed. What did you make of what Jerome Powell said yesterday . Do you think ultimately we are going to see the japan ificationus japan of bond markets . Certainly there is risk all over the world. Deeper inrope is negative territory. The u. S. , the real economy growth is strong. When powell said he would continue to have the policy even after is achieved, the bond rate went up, right . That is the big difference in japan and u. S. Kailey i want to shift towards fiscal. Japan is in a record contraction, it was last quarter. Ravings val Approval Ratings have been sliding what can his successor do to help japan . Shouldink his successor focus on how to balance between the prevention of the infection spreading and opening the economy. I think we now have a good understanding of the spread of the infection. Like bars and karaoke where people shout. That is the way they spread. Places untilose vaccine or treatment is available. Still does not allow inside eating for restaurants and bars. Frankly, i think tokyo is too soft on those businesses. Right, Takatoshi Ito , perfect guest to talk about to talk to. Coming up, the aftermath of powell, we discuss the fed new policy approach with Julia Coronado and nick maroutsos. This is bloomberg. , i am live from new york kailey leinz with guy johnson. This is bloomberg markets. The fed shift in policy approach providing tailwind and helping move the yield curve. , macroe, Julia Coronado maroutsos. Nick i want to talk about japan. I just posed this question to Takatoshi Ito, are we seeing the japanification of bond markets . I think we are to some degree. I think that is the problem. Japan has been a petri dish for the slow rate, zero rate environment for the last decade plus. Many of us, including the u. S. Have followed suit. I think that has led to a decrease in yields. Just to engineer some level of growth. I think it is important. The path we are leading down is not a good one. It is ultimately leading to not only of the banking industry, but also the zombie of the entire Corporate Market as we know it. That is ultimately what is going to be the catalyst of things moving forward. Powell speak about inflation yesterday, it reeks of desperation to wouldnt do it avoid this spiral to avoid this spiral we are in. Guy why have Central Banks around the world not learned the lesson of japan . Japan has expanded its Balance Sheet very rapidly. It is massive compared with gdp. The fed in some way is still in the foothills. Nevertheless, it has not produced inflation. As nick said, quite the opposite. I would like to turn it around. As an economist i start with the fundamentals. The fundamental Building Block for japan is demographics. I am a believer in demographics destiny. It is not that the central bank necessarily, but what is the alternative . The economy in japan is shrinking. In the United States, it is not quite as extreme as that. But, we do have a basically flat projection for population growth, particularly if we restrict immigration. We are looking at a very low growth impulse, just from a topline perspective of the number of people and the buildings into the education and all of the things that you have to build to facilitate that growing population. That is flattening. That is nothing the central bank can change or effect necessarily. They have to recalibrate and reset their policies to deal with that. Yes, zero rates are a result of that. Low growth reality. Therefore, when they try to meet their dual mandates, they have to use their Balance Sheet policies. We think that that is an undesirable outcome from a Capital MarketRisk ManagementCapital Allocation standpoint. Then, we need to give the central bank more tools to affect the economy without working through the Capital Markets. Kailey to draw another line between the boj under the , is the fed going to face a credibility problem if it cant generate 2 inflation . How would it go about doing that . What is the risk if it cannot . Absolutely. We are already seeing headwaters question that inflation mandate and inflation averaging. To me, the significance of what the fed announced yesterday is not necessarily on the inflation side, but the employment side. The employment mandate from sort of a symmetric target around some natural right to an a symmetric target. They are going to shoot for full employment. They are only concerned about low employment or high unemployment. They are not concerned when the Unemployment Rate falls below some estimates of the long run rate. They are not going to raise rates preemptively to cool off a strong labor market if it is not generating inflation pressures. If the fed does not generate inflation the way they are trying to, at a minimum what we know as they are not going to do 2016they did in 2015 and where even though there is no inflation they feel they need to raise rates and cool the economy of unspecified bad things happening when the Unemployment Rate gets too low. They realize actually great things happen when the Unemployment Rate gets too low. I personally am skeptical they can achieve a symmetric 2 inflation outcome, but i think they can avoid at a minimum the mistake they made in 2015. The fed canthink get inflation anywhere close to 2 . If they cant, do you buy the long end in a way we have seen the markets sell it off over the last few days . How would you trade this . Of athink it is more situation of textbook versus reality. You cant create inflation with words. Side ofe employment things, if you look just strictly at inflation, there is no proven link between Central Banks using increasing Balance Sheets and inflation. Look what has happened over the past 10 plus years since the Global Financial crisis. Core inflation has been around 1. 6 . We never really touched that 2 . The likelihood of being able to do it now particularly with unemployment is high, in the middle of a pandemic, this is going to be a longerterm situation but we are going to have more layoffs. We are going to have more cuts as a result of budget cuts. The fact is the fed is trying to provide a bridge throughout this pandemic to get us through it. Once we are through that point, hopefully the economy can be on strong footing and hopefully we can be at a point where we start hiring more. The issue we have is that if asian demographics increasing in technological advances only furthers the deflationary picture. While you can argue along the end is attractive after a selloff like yesterday, 1. 5 percent does not really get us too excited. Looking from trading at at fixed income markets is, what do we know and what do we have High Conviction on . Most High Conviction is on the front all Central Banks and all front end yield curves globally. Why . We know that Central Banks are not going to be raising rates between now and the foreseeable future. The bar for heightening Interest Rates is so high and so far away that it makes sense to own the front end of yield curves where you can come over they are positive. Canada,s like the u. S. , australia, new zealand, these are positive yield curves. You have a high information ratio, you dont have to worry about the back end. You dont have to worry about a 10 basis point selloff over a course of the month and losing any income youre getting. Focus on the high information ratio trade, and to some degree you can lever those. Sure, it involves more risk, but that conviction is there because i do not think you can find anybody that will agree that Central Banks are going to be heightening Interest Rates anytime soon. Kailey of course you are talking about nominal yields. It in the points here u. S. , does that downward spiral continue . It has to. The trend is your friend, right . What is going to cause such to reverse . That is something we look at every day and we wonder, what is going to be the turning point for real yields . Right now, we are not seeing it. Guy in terms of where you see policy going next, the tools in the toolbox, rate cuts, negative are likely in the United States. It was interesting the bank of england said it was still in the box. It is more qe in most likely option here . , theirink that the fed assessment is the policy tools they have are doing what they are supposed to do. Qeo rates, forward guidance, is keeping financial conditions pretty well supported. That is what they can do. They are perfectly willing to do more of that. They are still sort of working out the pros and cons of yield curve targets or yield curve control. They are not there yet. They do not think they need them. There is not a problem they need to fix right now. Monetary policy is not a panacea. We have been reminded by every fed chair of that, powell is no exception. They are doing what they can do which is keeping rates low and the Financial Market conditions well supported. They cant end the pandemic. They cant address income inequality or labor market issues. That is really up to fiscal policy. For now, i think they stick with the plan, open ended qe, zero rates as far as the eye can see. And then we will see where the recovery goes from here. They are also willing to explore the margins of their credit facilities. That is something powell mentioned yesterday. They have been adjusting the terms and easing the terms to get greater take up in their. Main street facility. That is obviously not as important on the global standpoint, but it is something. It is a margin they are willing to push on to try to get money more directly to midsize businesses. Tableowell banging the yesterday once again for more fiscal stimulus. Still no fiscal stimulus emulating from washington. We will watch that again carefully. Julia coronado, thank you very much. This is bloomberg. Kailey it is time for the Bloomberg Business flash. Ritika cocacola will offer employee buyouts as part of the strategic reorganization. The program will be first offered to about 4000 employees in the u. S. , canada and puerto rico. There will be an unspecified number of layoffs. A Similar Program will be offered in over in a number of countries. Expenses could hit 550 million. More problems for boeing, it reportedly told several airlines to pull dreamliners from service according to the trade journal, the air current following structure problems that could cause the plaintiff failed. They are lazar urine united, singapore, and air canada. The shakeup in the dow industrial average has meant a new life that attracts the index. There were more than 2 billion of inflows wednesday into the state industrial ets, the largest oneday infusion in more than a decade. The dows reshuffling makes it more respective with Tech Companies dominant. Guy thank you very much indeed. First of all, that is a drop in the ocean compared with the kind of money that tracker moves in and out on a daily basis for the s p and other major indices. Into the price average, i am still stunned people stand spent so much time getting excited about it. I am excited about the apple split. I think it is going to be fascinating. Once the noise settles around this, what happens . It that rally that seems to be generated. Kailey does retail make a substantial difference . If mom and pop can afford to buy apple shares, what does it do to the trajectory that already has run up so far . It will be interesting to see. Guy we will wait, we will watch. Coming up, we are going to talk about the rnc. Republicans wrapping up their convention, that fiery speech from the president. This is bloomberg. Pres. Trump tonight, with a heart full of gratitude and boundless optimism, i profoundly accept this nomination for president of the United States. [applause] guy President Trump accepting the president ial nomination on the final night of the rnc. The nomination from his party. Kevin cirilli, bloombergs chief Political Correspondent joining us now. , he wentfter biden after mayors and cities where we are seeing violence, what did he achieve . Three things. Domestice president on policy, trying to make the case that more deregulation and tax cuts would help the u. S. Economy recover from the pandemic. He drew a sharp contrast domestically with what he said was an effort to try to portray nominee biden with the farleft plank of the party. That comes at a time which several republicans have endorsed biden. On foreign policy, he tries to connect bidens campaign to beijing. That, from a geopolitical standpoint is where this election is headed in terms of china being front and center. He vowed to take on china in terms of geopolitics and he would put the American Worker first. Comescally speaking, it at a time in which the president is trailing in national polls, though still in striking distance in the key battleground states, but still leading on the issue of the economy. That is why biden yesterday came out and said he is looking forward to hitting the campaign trail once again in key battleground states, but that his rallies would be compliant with cdc guidelines. Kailey kevin cirilli, thank you. It has been a long couple of weeks, i am sure you are looking forward to [laughter] i live for this. [laughter] kailey joining us now is jeannie dana. Did the president do what needed to be done last night . Very long he had a speech. Ratings have been down throughout the convention, they were down for the democrats as well. I think he did what he needed to do in terms of the voters he is trying to target. That is what is key. Hein just went through how tries to differentiate himself on domestic policy, particularly the economy. On foreign policy, with his focus on china, trying to attach a bite china and say china wants biden to win and they are going to do everything they can. I think he is really focused on winning those white suburban female voters. That is what much of the convention was focused on. To that extent, i think he may have done himself some good though i am unclear if he is going to get a bump. Of course, we have to note that joe biden has not gotten much of a bump out of the Democratic Convention either. Guy to the polls next week, they are going to be fascinating