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Hello and welcome to World Business Report here on the BBC World Service with me, Rahul Tandon.
Plenty coming up on the programme.
As always, we're going to be getting you the latest on what's going on with the Federal Reserve.
We'll hear from somebody who's had a position of authority within the US banking system, get their thoughts on the pressure that is mounting on the chairman of the US central bank, Jerome Powell.
We'll also talk about what is going going on with shipping.
But let us begin the programme by talking about Japan because challenging times for Japan's Prime Minister, Shigeru Ishiba.
His coalition government has lost its majority in the upper house of parliament, having already lost its majority in Japan's most powerful lower house last year.
At a news conference, Mr. Ishiba said Japan needed political stability to deal with its economic problems. We are in a situation where the US tariffs and price increases, natural disasters, and we have a very difficult position.
It certainly is a difficult position for him.
Now he will stay on as prime minister.
That is what he has said.
So why is his government so unpopular?
Here is our Japan correspondent, Shaima Khalil.
The main crux of this is the abysmal performance by the Ishiba government to tackle the slow economy to support the struggling Japanese household that have been hit by rising prices.
For the past few months, we've been looking at the rice crisis and it's a stark case in point.
The price of a bag of rice, which is a staple food for Japanese families, has doubled.
Let's bring in Christy Govella, Associate Professor at the Nissan Institute of Japanese Studies at the University of Oxford, somebody who knows the country very well.
Thank you so much for joining us here on World Business Report.
Thank you for having me.
Can we start with what we heard from our correspondent Shaima Khalil there about prices?
How much of a factor was that in this election and particularly the price of rice, which is such a staple commodity for many Japanese?
This election campaign was overwhelmingly dominated by domestic economic issues.
They've been in the news every day, and the price of rice in particular has received a huge amount of attention.
And it's really been something of a litmus test for government performance.
So the Ishiba government's inability to produce a meaningful reduction in that price and to give any kind of palpable relief to Japanese consumers has really been a key source of their defeat in this election.
It certainly has. And one of the other things that he's talked about, though, we heard that in the clip, was a need for political stability to deal with economic problems. But that doesn't seem to be something that the Japanese want.
Now is certainly a time when political stability and strong leadership seems to be at a premium.
Japan is facing a lot of different challenges domestically, as well as intense tariff negotiations with the U .S. in terms of foreign policy.
But you're correct that this election seemed to be about Japanese voters wanting to shake up the establishment and to show their leaders that they're unhappy with the way that things have been going.
Well, let's talk about those discussions.
discussions. We've been hearing for a long time that Donald Trump thinks that there's going to be a deal with the Japanese government.
After these election results, doesn't that put Donald Trump in an even stronger position when it comes to those negotiations?
It could go one of two ways.
It could perhaps actually make it more difficult for Donald Trump to get the solution he wants because after this election the LDP has lost its majority in both houses for the first time since 1955.
So it's in an incredibly weak position and in order to make any kinds of decisions it has to seek input from another party in order to push things through.
So now things are going to be slower and actually it may be more difficult to get a deal.
But you're correct that in some ways the U .S. could put more pressure on Japan.
It's just a matter of whether the Japanese government can respond now that its hands are tied to a greater extent.
Stay with us for a minute.
I want to bring in Peter Jankowskis, Vice President of Research and Analysis for Arbor Financial Services in Chicago.
The markets, haven't they, have thought for some time that Japan would be maybe the first trade deal that was struck between the U .S. and the country.
And here we are weeks on with no deal in sight, Peter.
Well, you know, it certainly is a a very challenging environment to negotiate with the US, with Donald Trump.
I'm sure that the Japanese have been working very hard to find a deal, but it's been very difficult given that the goalposts keep changing, to borrow a phrase.
Christian, let's go back to you in terms of what we saw in Japan politically was this move to the the right, wasn't it?
What could that mean economically, do you think, in terms of some of the policies that we may now see put in place?
You're correct that some of the parties that experienced gains were on the conservative or perhaps ultra -conservative side, but the real appeal of their platforms was essentially populist in nature.
So these parties managed to make the argument to voters that they could make a meaningful difference with issues like taxes and basically pocketbook issues.
So it wasn't really a vote for a conservative platform per se so much as a desire to see these everyday concerns addressed more strongly.
There was a discussion of immigration that received quite a lot of attention and in that respect, these populist parties managed to package a whole range of discontent about foreign workers and an influx of tourists and other things into a platform where they essentially claimed that controlling these things more strictly would benefit Japanese middle class citizens.
But it isn't clear that that's a real meaningful part of the platform so far.
That is an interesting statement, though, isn't it?
Because one of the big problems that Japan faces economically, we've talked about it a lot on this program, is its aging population.
And one way to tackle that in terms of the problems that leads to in the workplace is immigration, isn't it?
Yes, that's correct.
Correct. So fundamentally, Japan is facing labor shortages and demographic change such that they will need to find new sources of labor from immigrants or women or automation or some other source.
So really, these populist parties were touching on a nerve that has been perhaps activated by recent economic woes in the Japanese population.
But to be clear, the absolute number of foreigners in Japan is still quite small, as is the absolute number of foreign workers.
Listen, thanks so much for joining us on the program.
I'm sure we'll be speaking to you again about what is happening in Japan.
On World Business Report, we have, haven't we, been looking at the shipping industry over the past few months, in particular container volume, as our way of looking at the impact of tariffs on global trade.
So these findings in the U .S. certainly caught our eye.
They're from John D.
McCowan, who's a senior fellow at the Center for Maritime Strategy.
The past couple of months, inbound volume into the U .S. has declined, and that's kind of a downward trend, certainly versus last year.
We had a strong year.
And, you know, these last two months in May, my data shows a 7 .9 % decline versus a year ago, a little bit higher than we had in May.
And prior to that, we had small increases.
So it's all related to the tariffs and tariff effect from my analysis looks like it's going to be even stronger.
So unfortunately, we're kind of moving into uncharted waters.
Container volume into the U .S. has never really gone down on an annual basis other than what turned out to be short lived both in the financial crisis and during the pandemic.
The tariffs seem to be with us for a while.
So it's really a different situation.
Let's bring in Gene Soroka, the Executive Director of the Port of Los Angeles in North America, one of the busiest in the country.
Gene, thanks so much for joining us again here on World Business Report.
You heard there from John.
What are you seeing at your port?
It's been an up and down year, to say the least. Through the first six months, we're up by about 5 % here at the Port of Los Angeles on our container business.
And in the last two, where we've seen most of the activity back and forth on trade policy, we're about flat or even with the average volume of cargo during the last five years.
You heard what John said there about, you know, a lot of ports seeing a drop in containers coming in, and he was worried about that being a long term situation now.
What did you make of that?
We simply don't know.
No. Right now, we're dealing with yet another changed goalpost for a new series of tariff deadlines by August 1.
With the elevated cargo we've seen come in over the past three or four weeks, that tells me that importers here in America are trying to bring product in under the wire of these next deadlines.
And usually, the fastest way is through Los Angeles.
Yeah. So we've seen a lot of front loading, haven't we, as companies have worried about tariffs coming in and trying to beat them.
Are you saying you're still seeing some front loading?
That's right, Rahul.
And what we've seen with the benefit of recent history is that when hard trade policies go into place, cargo declines rapidly.
And when those policies are loosened or deadlines extended, the cargo picks up again.
And that is the micro environment we're in right now.
Stay with us, Gene.
Let's bring Peter Jankowskis back in.
Now, the problem for Gene, and a problem for a lot of businesses, Peter, is we don't really know where these tariff policies are going to end up still, do we?
Yes, that's a major problem.
It's causing people, in some instances, where the environment is favorable to them.
They are front -loading, as has been discussed.
In other cases, I know of businesses that are right now holding back, hoping that there'll be a favorable resolution on tariffs with the countries they're dealing with.
Yeah, that is an interesting point there, isn't it, Gene?
As you look forward, you know, as you plan for the future, what are you planning for at the moment?
Do you have any idea where we're going to be in six months' time?
No, and that's probably the most difficult aspect because a lot of our decisions around investment and infrastructure, digitalization, and cybersecurity all have long planning horizons.
Although we've had strong financial policies for the last decade, it'll get us through this particular environment that we're in right now, this business cycle that's so uncertain, but not a lot is going to change.
That's why many companies have told me directly they've simply hit the pause button.
They're not hiring in big numbers.
They're not making commitments on capital investment.
And very similar to the port of Los Angeles, a wait and see approach is one that's been very prudent thus far.
Peter, the problem with a wait and see approach is for businesses, you can't wait forever, can you?
That's correct. Correct.
You know, at some point you have to you have to realize you have customers out there that are depending on you and you have to meet their needs or they'll go elsewhere.
So it's a it's a very difficult time for businesses right now.
Do you think we are entering the end game, though, here, Peter, that over the next few months?
And I know that seems like a long period of time, but, you know, if you look in the in the scheme of business, that is a short period that we'll have to have answers.
And the Trump administration will want answers themselves about where they're going to end up with these policies.
Yes, I think so. I think you'll see greater pressure from the business community, from industry insiders that within the Trump administration to basically, you know, take what you can get and move on.
I think that's the ultimate end game, but it can't go on too much longer.
There's just too much uncertainty.
Gene, I was intrigued when you said when you talk to businesses, this wait and see approach is there.
What will make them change that approach?
What are they waiting for?
Some permanency to the federal oversight of international trade, whether it's reaching accords with trading partners across the globe or even closer to where the density of trade happens today.
We only have two trade framework agreements completed at this juncture, the third which has been disputed by the other country, Vietnam in that case, and a looming deadline here in another 10 days that could set the course for how businesses look at their upcoming fiscal years.
There's a lot of work to do.
There is a lot of work to do.
You deal a lot with China, don't you?
And we've had, we started this conversation with you saying it's been up and down.
That relationship has been up and down, but it seems to be settling a little bit more.
Have you seen a big pickup in trade from China?
Only to get in under this latest wire.
Back when tariffs were first put in on China in 2018, 60 % of our business portfolio here in Los Angeles emanated from China's business.
business and now it's 45 % dropping yet we've still grown.
So I don't think the story has been completely written here on the China -US trade relationship.
Final thoughts from you on the ports themselves.
Obviously you have a lot of business inside the ports.
You also employ a lot of people.
You also have a lot of people who rely on you.
These are uncertain times for that side as well, aren't they?
It certainly is. And most of my effort happening right now is to keep Our workforce rallied, and they've answered the bell every single time.
A drop in cargo showed that half of the dock workers looking for a job went home every day without one in the second half of May.
And then when the cargo picked up again in the back half of June, they were out on the docks moving record amounts of business with no backups.
backups. So I've got to keep these troops rallied to the best of our ability until we can see some permanency in the direction from Washington.
Gene, it's always a pleasure having you on the program.
Thanks so much for joining us once again.
Peter, final thoughts from you on shipping in a way, going back to what John McCann was saying at the beginning, if that trade falls off in a way, isn't that what Donald Trump wants?
He wants to see less imports, doesn't he well it's hard to say because on one hand yes that satisfies the base that wants more u .s manufacturing but on the other side um you know he sees tariffs as a revenue source so it's kind of where do you go yeah where do you go in business they say you can have better cheaper or faster but you only get to pick two what if if you could have all three at the same time.
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You're listening to World Business Report here with me, Rahul Tandon, on the BBC World Service.
We talk a lot about shipping, don't we?
Let's talk about another story that we've been focusing on, and that is the future of the chairman of the US Federal Reserve.
Of course, that is Jerome Powell, because this morning the New York Times published an extraordinary warning from two former chairs of the U .S. Federal Reserve, Ben Benenke and Janet Yellen, basically looking at the future independence of the Central Bank of the United States, which is an important economic concept or has been.
So what would a politicized Fed mean for inflation markets and America's global financial credibility?
Live with us is James Bullard, former president of the St. Louis Federal Reserve, now dean of the Daniel School of Business at Purdue University.
Thank you so much for joining us on the program.
Thanks for having me.
How much of a threat is the U .S. Central Bank, the Federal Reserve, under at the moment when it comes to its independence?
Well, they're getting a lot of pressure from the Trump administration and they're kind of used to dealing with the rough and tumble of inside the Beltway politics.
So I think they'll do pretty well this time as well.
If you read Fed history, you know that other presidents like Lyndon Johnson or Richard Nixon, even Ronald Reagan, and I would say even others, put a lot of pressure on the Fed.
So they're kind of used to it, and I think it's something that they can handle.
When you say they're used to it, what makes this different then?
There's always been political pressure on the chairperson of the Federal Reserve, hasn't there?
Of course, President Trump has a different style.
He's more outspoken and he comes from the real estate industry.
And of course, that's all about borrowing money and building.
And so, you know, he's got some expertise in the area.
And so he's more outspoken than other presidents who maybe didn't have that kind of background.
And he certainly, you know, he can express his opinion just like anyone else in the country about the state of monetary policy.
And he's doing it. Yeah, and there's nothing wrong with that, is there?
And I suppose that leads to the question that if he's more vocal than other presidents, Jerome Powell still doing what he wants to do.
So is the independence really being threatened?
You know, I stopped using the phrase independence and went to the phrase of arm's length from politics because the people on the board of governors, those are political appointees.
So obviously there's some politics involved.
It's just meant to be a little bit of distance between, you know, the current meeting of the Senate Banking Committee or something like that and the current interest rate decision.
And that's why you have this staggered appointments and you have the reserve banks all around the country having a bit of a voice on monetary policy.
And it's a brilliant design, really, because it distributes the decision -making power all across the country, which is exactly what you'd want in a democracy.
But it's a little complicated to understand, I think, if you're not used to it.
But the U .S. had a lot of trouble with central banking early in the republic, and two of the central banks failed, and they had to think about a way to do this that would – certainly if somebody is in power for a long time, they do get a lot of control over the central bank, but they have to be in power for a while in order to make all those appointments and get it the way they want.
Stay with us, if you don't mind, just bringing in Peter Jankowskis, who's guiding us through the program.
Where do you think we are exactly on this?
At one stage last week, it did look possible that Donald Trump may be considering firing Jerome Powell, then he moved away from it.
Do you expect Jerome Powell?
Do you think the markets expect Peter Jerome Powell is going to see out his term?
him? I think the markets do expect that to be the case.
You know, certainly it was about a month ago when it was first broached that President Trump was considering removing the Fed chair.
You know, the markets took a drop and he quickly recanted his statements on that front.
I think, you know, Chair Powell has made it clear that he intends to fight to keep the chairmanship.
And there really isn't much sense in President Trump taking on that fight.
It will just draw out any changes that he wants to make.
I wonder, James, when you look at what's happened already, do you think when you talk about, you know, keeping politicians at an arm's length rather than using that independence phrase, has the damage already been done by Donald Trump?
Do you think other future presidents may follow a similar strategy of being so outspoken?
I doubt it. It depends where they come from professionally, but most people wouldn't have enough confidence about their macroeconomics to get into the fray the way President Trump has.
So he feels very strongly that he knows interest rates and he knows markets and that's why you're hearing a lot from him on this particular topic.
And so as the damage already been done, I do think that if you feel like that the central bank in the U .S. is not arm's length from politics and that you're getting some kind of fiscal dominance, what will happen is that market participants have to take that into account.
And they will do it by demanding an inflation risk premium in tenure rate and other longer term interest rates that are based on the tenure.
year. So you actually get higher interest rates from that.
So that's what's counterproductive about all this.
It's all going in the wrong direction from the point of view of trying to keep longer term interest rates as low as you can and run a responsible monetary policy at the same time.
Peter, one thing that Donald Trump has said continually is he felt that Jerome Powell was too too slow you know in dealing with inflation and there's now too slow in cutting rates he's not the only person who says that is he no he's not um but whenever you're talking about interest rate policy there there always is that question how long are the lags that operate wait to get good data and see trends so uh you know all in all the fact that some people say he's been slow, etc. It's not at all unusual.
There never has been a clear consensus as to what really the lags are or how the Fed should react to them.
James, thanks so much for joining us on the program.
Final thoughts from you.
I suppose in a way, what we're seeing at the moment is a clear sign that the system works.
We are seeing intense pressure from the President of the US to have a change in monetary policy.
And we're seeing the Chairman of the Federal Reserve deserve, keeping that desires of the president at arm's length and doing what he thinks is best?
Absolutely. Sorry, James, you go first. Hey, James.
I think we've lost James, Peter, do you want to just pick up on that?
Yes, I think he's been doing a very good job of continuing to, you know, keep the discussions internal uh with the board and uh keeping them focused on on inflation you know that that is their main concern right now they have a dual mandate of course to support employment but the labor market looks good uh for the moment um and that's the real question is how how quickly does that change and and uh ultimately that'll decide whether they were too late or or or didn't move strongly enough okay let's end the program by looking at the business of charity and one one charity shop that's suddenly doing
very well. It's been a busy few days at the Oxfam Bookshop in Hove in South England.
The Australian singer Nick Cave deposited a couple of thousand books there and so fans descended upon the store to pick up a piece of Nick Cave. My sister told me that Nick Cave had dumped something like 2 ,000 books in Hove and we decided to come down for the day and see if there was anything left. I have this biography of Houdini Which has an inscription in the front of it It's very moving Because I'm a massive Nick Kay fan So I've been to see him several times in concert And I've read his autobiography So to actually have something that belongs to him Is quite special really Yeah, it's a very
kind donation for him And I know that he's had a rough few years Especially with what happened to him in his personal life So I'm just glad that he is able to give back to the community So my son's really interested in philosophy and history.
So I've taken a lot of time to think, you know, what books would Nick Cave have found really interesting and why and which ones would relate to what my son's really interested in.
So really excited that I can get one and I might just get four.
Beg your ways, deputy manager of the Oxfam bookshop in Hove.
So are they selling those books at higher prices than normal?
We're not pricing higher because they were his.
That's for fans to discover.
And as those customers have attested to, you know, it's more about owning something that he owned.
Peter Jankowski is still with us.
Peter, if you're a charity, if you can get a celebrity involved in your charity, as we've seen there, good for business.
Indeed. Yeah, it certainly raises awareness among people of the charity and brings in other browsers, if you will, to a store as they've described.
So it's bravo for them for landing that relationship.
Yeah, very good. Are you a Nick Cave fan?
Would you like to pick up a book?
There's still some left. Sure, why not?
There we go. A good thing for charities to do.
We often see them, don't we?
Like to see themselves endorsed by celebrities because it can help in bringing in the money in what is an extremely competitive world.
We will be back with Business Matters in a couple of hours' time.
We'll be looking at more detail at those Japan election results.
