# Effects of Slow Growth on the Bank of Japan, China's AI Race

An episode of [Bloomberg Daybreak: Asia Edition](https://invisiblenetwork.ai/podcast/1663863437), 17 Aug 2026, 18 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/58e85be7-dbb5-4043-afed-af80014dc0b3/1895f7b5-ea02-43ae-bac4-b4a900342ed6/audio.mp3?utm_source=Podcast&in_playlist=27143354-63aa-4ac5-965d-af80014dc0d3

Business and finance news from the Asia-Pacific. Japan saw economic growth slow down unexpectedly in the second quarter with Real GDP growing at an annual rate of only 1.1%. The weakness reflects a slump in capital spending, given uncertainties stemming from the conflict in the Middle East. This potentially complicates the Bank of Japan's policy communications as it weighs the timing of its next rate increase. For more, Bloomberg TV hosts Paul Allen and Haidi Stroud-Watts spoke with Homin Lee, senior macro strategist at Lombard Odier on the Asia Trade. The AI race in China is making a shift towards cyber defense. Z.ai has announced that its latest model, GLM-5.3, is designed with cyber defense in mind. For a deeper look at the AI race in China, Bloomberg TV hosts David Ingles and Yvonne Man spoke with Bloomberg Strategist Anthony Stephens and Bloomberg Analyst Robert Lea. See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
[0:10] Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. We
[0:14] Speaker 2: begin in Japan, where economic growth unexpectedly slowed in the
[0:18] Speaker 2: second quarter. Real GDP grew at an annual rate of
[0:22] Speaker 2: just one point one percent. Now much of that weakness
[0:25] Speaker 2: reflects as slump in capital spending given the uncertainty stemming
[0:29] Speaker 2: from the conflict in the Middle East, and that in
[0:31] Speaker 2: turn could complicate efforts from the Bank of Japan to
[0:35] Speaker 2: fine tune communications as it weighs the timing of the
[0:38] Speaker 2: next interest rate increase. For more, we caught up with
[0:41] Speaker 2: home and Lee. He is senior macro strategist at Lombard Odier.
[0:45] Speaker 2: He spoke with Bloomberg TV host Paul Allen and Heidi
[0:48] Speaker 2: Stroud Watts. Paul started the conversation with a question on
[0:52] Speaker 2: whether the Bank of Japan has now an excuse to
[0:56] Speaker 2: keep doing nothing and if the carry trade is still
[0:59] Speaker 2: alive and well.
[1:00] Speaker 3: Well, we would push back a bit against the idea
[1:03] Speaker 3: that one point one percent quote end quoter is an
[1:06] Speaker 3: anemic number for an economy like Japan, that in fact,
[1:10] Speaker 3: the two point zero percent consensus might have been a
[1:14] Speaker 3: little too aggressive especially in the quarter when we had
[1:18] Speaker 3: the full impact of energy market disruptions. The bottom line
[1:22] Speaker 3: is that we have a positive growth and it's entirely
[1:25] Speaker 3: possible that given the history of revisions in the Japan's
[1:29] Speaker 3: economic real GDP data after capex numbers come out from
[1:33] Speaker 3: the Ministry of Finance, you could actually see a bit
[1:35] Speaker 3: of upgrade. And this positive growth is good enough in
[1:40] Speaker 3: our view for the Bank of Japan to still consider
[1:43] Speaker 3: some additional rate hikes. And if you look at the
[1:46] Speaker 3: deflator series for the same release, in fact it was
[1:49] Speaker 3: above consensus, right, so we do have this underlying inflation
[1:54] Speaker 3: and of course in the context of a fairly weak end.
[1:58] Speaker 3: So we still think it's quite likely for the Bank
[2:01] Speaker 3: of Japan to actually try to lean against some aggressive
[2:05] Speaker 3: carry trade by raising short term rates. And also we
[2:09] Speaker 3: don't rule out the possibility of the BOJ bringing forward
[2:13] Speaker 3: their tightening plans for the remainder of the year, and
[2:17] Speaker 3: the joint intervention that you mentioned in fact raisings at
[2:20] Speaker 3: stake for the policymakers to consider that kind of again
[2:24] Speaker 3: supporting measure in the remainder of the year.
[2:28] Speaker 4: All I said, you are overweight Japan.
[2:31] Speaker 5: Are there any particular sectors that you're looking at, or
[2:33] Speaker 5: is it just all about the AI story right now.
[2:39] Speaker 3: AI is certainly a key theme for the Japanese equity market,
[2:43] Speaker 3: but also industrials and materials. Basically, you have the cyclical
[2:47] Speaker 3: sector in the Japanese equity market firing on all cylinders,
[2:52] Speaker 3: and that's actually quite normal to expect this kind of
[2:56] Speaker 3: outcome in a global cyclical book, given the market a
[3:02] Speaker 3: usual sensitivity and a high operating leverage. So even if
[3:07] Speaker 3: there is a bit of setback on rage front and
[3:10] Speaker 3: the dala Yan front, and certainly for the letter, we
[3:13] Speaker 3: don't expect a major appreciation from here, even if the
[3:16] Speaker 3: BOJ races rates a bit.
[3:19] Speaker 6: Given the on demanding valuation.
[3:22] Speaker 3: And fairly a good setup for the earnings out look,
[3:26] Speaker 3: we think the broad.
[3:27] Speaker 6: Market will perform pretty well.
[3:29] Speaker 3: But if you really have to delve into the sectors financials,
[3:33] Speaker 3: some industrials and materials, I think these sectors are quite
[3:36] Speaker 3: nicely positioned for the remainder of the year, and of
[3:39] Speaker 3: course the AI theme.
[3:43] Speaker 1: I's staying with the AI theme. I know that you're
[3:46] Speaker 1: constructive when it comes to South Korea, when it comes
[3:48] Speaker 1: to China as well as not underweight with the US, So.
[3:53] Speaker 4: How are you kind of splitting where.
[3:55] Speaker 1: You see those opportunities Because we've seen the disruptive force
[3:57] Speaker 1: of China really continuing to make leaps and bounds. Is
[4:01] Speaker 1: there better value there for the AI plays versus the
[4:05] Speaker 1: sort of more Western oriented markets.
[4:10] Speaker 3: So we think that the debate in terms of the
[4:14] Speaker 3: competition between the US tax stack and China tax stack
[4:18] Speaker 3: will not be resolved in any time soon, simply because
[4:22] Speaker 3: there is a significant amount of uncertainty surrounding that debate.
[4:27] Speaker 3: But given what has happened so far and the steady
[4:31] Speaker 3: progress in technology that we see in the China tax stack,
[4:34] Speaker 3: we think it's worth having it as a hedge in
[4:37] Speaker 3: the portfolio in a diversified portfolio setting, having a bit
[4:41] Speaker 3: of exposures to Chinese equities, especially with this very cheap
[4:45] Speaker 3: valuation for multiple run maybe slightly below eleven times for
[4:50] Speaker 3: the offshore listings, it's worth having it at least as
[4:54] Speaker 3: a hatch so in case there are some unexpected significant
[4:58] Speaker 3: innovation and advancements in the China ecosystem, you can benefit
[5:02] Speaker 3: from that. For the US, our position is neutral. You know,
[5:07] Speaker 3: the hyperscaler free cash flows and the financial financing debates
[5:12] Speaker 3: they are certainly not going away anytime soon, but the
[5:15] Speaker 3: software sector is performing pretty well and we still like
[5:18] Speaker 3: that sector. And finally, for South Korea, memory still remains
[5:22] Speaker 3: the battleneck Jevons paradox still valid for the dynamic between
[5:26] Speaker 3: price and volume.
[5:28] Speaker 6: So after with this coming down.
[5:30] Speaker 3: Of volatility related to the leverage positions among retail investors, we
[5:34] Speaker 3: think it's actually worth having that exposure as one of
[5:37] Speaker 3: the preferred exposures within the emerging market equity allocation.
[5:44] Speaker 1: Marcus at this point pretty happy to kind of shrug
[5:46] Speaker 1: off the risks right namely the macro weakness that we're
[5:49] Speaker 1: still expecting out of China. We've got the domestic activity
[5:52] Speaker 1: numbers coming through this week, as well as obviously the
[5:56] Speaker 1: lack of resolution in the Middle East and what happens
[5:58] Speaker 1: with oil prices. Are these sizeable risks to the downside.
[6:04] Speaker 3: These are risk factors that we need to live with,
[6:10] Speaker 3: and of course we have to be vigilant about them,
[6:13] Speaker 3: but it really comes down to the conviction about the
[6:17] Speaker 3: how these risks will actually affect the markets for the
[6:20] Speaker 3: remains of the year. And if you think about the
[6:23] Speaker 3: Middle East conflict, that the rhythm of you know, a
[6:27] Speaker 3: sporadic flair offs followed by a period of calm. You know,
[6:32] Speaker 3: that's basically been the situation for the region, and we
[6:37] Speaker 3: still think there is a very strong political incentive for
[6:40] Speaker 3: both sides to basically maintain that framework despite very harsh rhetoric.
[6:45] Speaker 3: And for the you know, the China data, we're going
[6:49] Speaker 3: to get the July data, and it's entirely possible that
[6:51] Speaker 3: it's a bit of disappointment. But if you think about
[6:55] Speaker 3: the fiscal policy and the underutilized resources that has to
[6:59] Speaker 3: be implemented more aggressively for the remain of the year,
[7:02] Speaker 3: we still think we still think the likely outcome for
[7:06] Speaker 3: Chinese economy for the remain of the year is that
[7:09] Speaker 3: of a rebound, and so that really leaves especially for
[7:13] Speaker 3: the emerging markets and the broader risk asset class, the
[7:17] Speaker 3: key factor actually could be the fad policy. But for
[7:21] Speaker 3: that again there is a debate. We're siding with the
[7:24] Speaker 3: extended pause view here, and if you're right in that prognosis,
[7:30] Speaker 3: then the risk assets could actually continue to grind up
[7:34] Speaker 3: for the remain of the year, and that's the reason
[7:36] Speaker 3: why we maintain our pro risk tilt in our portfolios.
[7:40] Speaker 2: That is Home and Lee senior macro strategist at Lombard Oda,
[7:44] Speaker 2: speaking with Bloomberg TV host Paul Allen and Heidi Stroud Watts,
[7:48] Speaker 2: bringing you their conversation here on the Daybreak Asia podcast.
[7:57] Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm Derek Chrisner.
[8:01] Speaker 2: We turn next to AI in China, Ali Baba's Quinn
[8:05] Speaker 2: has become the world's most downloaded family of open models,
[8:09] Speaker 2: over three billion downloads globally in the past six months,
[8:13] Speaker 2: and now the Chinese artificial intelligence firm Zai is set
[8:17] Speaker 2: to upgrade its flagship model within two weeks. So in
[8:21] Speaker 2: rolling out the upgrade, Zai would join a series of
[8:24] Speaker 2: Chinese open weight offerings looking to outcompete with US firms
[8:28] Speaker 2: and Thropic and Open AI. That was the topic of
[8:32] Speaker 2: conversation on Bloomberg TV's China Show. Host David and Glase
[8:36] Speaker 2: and Ivon Mann spoke with Bloomberg strategist Anthony Stevens and
[8:40] Speaker 2: Bloomberg analyst Robert Lee.
[8:42] Speaker 7: Anthony, let's start with you and really caught your eye
[8:44] Speaker 7: with some of the headlines here.
[8:46] Speaker 8: So let let's start with macro and kind of drilled
[8:48] Speaker 8: down right. So it's very interesting that Chinese macro is
[8:50] Speaker 8: as weak as Japan macro, which is as weak as
[8:53] Speaker 8: the US macro outside the AI ecosystem. So we're in
[8:56] Speaker 8: a bit of like a groundhog day with regards to AI.
[8:59] Speaker 8: But you know, investors are not bored about making money ever, right,
[9:02] Speaker 8: So that's kind of dragging in even more money into
[9:05] Speaker 8: the AI space as the macro conditions around literally everything
[9:08] Speaker 8: else becomes more difficult.
[9:09] Speaker 4: Now within that trade.
[9:11] Speaker 8: It's becoming very interesting the pressure the Chinese models are
[9:14] Speaker 8: putting on everybody else and themselves, right, So you see
[9:17] Speaker 8: Jaapu and Minimax actually struggle after results after the new
[9:21] Speaker 8: model results are out in terms of beating those elevated
[9:24] Speaker 8: expectations for continual technological progress.
[9:27] Speaker 4: Right now, that bar keeps moving higher.
[9:29] Speaker 8: People expect the Chinese to catch the Americans and start charging.
[9:32] Speaker 8: And if that's not the case, then you see this
[9:35] Speaker 8: big share price replacement. So you saw minimacs and Japu
[9:37] Speaker 8: get whacked on Friday and jepus again. Z dot AI
[9:41] Speaker 8: is weak again today, right, So that that's kind of
[9:43] Speaker 8: a new dynamic where people are either asking for extraordinary
[9:46] Speaker 8: progress on the technology front or signs of progress on
[9:49] Speaker 8: the monetization front. And that's where it's kind of the
[9:52] Speaker 8: sense time move can be put into context. It's a
[9:54] Speaker 8: marginal player in the AI race, but they're monetizing, so
[9:57] Speaker 8: the market is rewarding them today, So that back and
[9:59] Speaker 8: forth interesting on the AI software side. On the hardware side,
[10:03] Speaker 8: life is much more simple. They're making money handover fist
[10:07] Speaker 8: from whoever is renting out the compute, whoever is building
[10:11] Speaker 8: out the data centers, and the shortages are extending into
[10:14] Speaker 8: the most simplest of components, which is driving down one.
[10:19] Speaker 4: Rob can to bring it in here.
[10:20] Speaker 9: So we talked about Anthony just went through really a
[10:23] Speaker 9: very interesting set of numbers, right, whether that's the Downald
[10:26] Speaker 9: and Baba or everything else that we've heard in the
[10:29] Speaker 9: last let's call it two hours and I'm exaggerating there.
[10:32] Speaker 4: But why this sudden acceleration.
[10:34] Speaker 9: And announcement and the developments in the Chinese AIA space.
[10:37] Speaker 5: That is an excellent question because for the best part
[10:41] Speaker 5: of twelve to eighteen months, Chinese models were between ten
[10:44] Speaker 5: and fifteen percent, you know, based on US data in
[10:47] Speaker 5: performance terms, and then suddenly, over three consecutive months, they've
[10:51] Speaker 5: narrowed the performance gap significantly. So based on a note,
[10:55] Speaker 5: we put out this morning, the gap is around five
[10:58] Speaker 5: percent currently, threeconsecutive months of improvement. It really it's hard
[11:04] Speaker 5: to be entirely sure, but there's definitely been a shift
[11:08] Speaker 5: up into larger, more complex models, where previously China, with
[11:12] Speaker 5: deep Seek being the flagship leader in the sector, was
[11:15] Speaker 5: far more focused on smaller, more computationally efficient So we've
[11:19] Speaker 5: seen this shift up to larger models, which inherently will
[11:21] Speaker 5: be more powerful. But also, you know, as I repeatedly say,
[11:25] Speaker 5: China's got a very deep expertise in software. It's home
[11:29] Speaker 5: to some of the world's larger software companies like by Dance,
[11:31] Speaker 5: Tent and Alibaba. Chinese developers are good, and China has
[11:35] Speaker 5: an approximate five to four numerical advantage in terms of
[11:38] Speaker 5: the absolute number of professional software developers.
[11:42] Speaker 10: So China's really good at software.
[11:43] Speaker 5: They were a little bit behind the curve initially because
[11:45] Speaker 5: America had the lead, and they've progressively narrowed a gap,
[11:48] Speaker 5: and from where we sit at the moment, that will continue.
[11:51] Speaker 7: So do you think China can one day overtake the US?
[11:54] Speaker 7: And does it really matter?
[11:56] Speaker 10: Again, that is a very good angle.
[11:58] Speaker 5: I think yeah, ultimately they can it neck and neck now,
[12:02] Speaker 5: but again it doesn't matter because we live in this
[12:04] Speaker 5: bifurcated world. So realistically, Chinese companies are going to make
[12:09] Speaker 5: most of their export dollars in emerging markets in the
[12:12] Speaker 5: global self realistically, are they going to sustainably monetize in
[12:18] Speaker 5: Western markets which are largely dominated by Western models Open
[12:22] Speaker 5: Ai and Anthropic Then it remains to be seen. And
[12:26] Speaker 5: also just to flag, we saw Secretary Besence comments a
[12:29] Speaker 5: few weeks ago about you know, really being concerned about
[12:33] Speaker 5: potential IP theft, although individual companies were not named, but
[12:38] Speaker 5: Anthropic did name a couple of companies, including moonshet Ai,
[12:41] Speaker 5: which are accused of distilling its own models. So we
[12:45] Speaker 5: have to see how that plays out. There's a lot
[12:46] Speaker 5: of geobolitical risk tying into.
[12:47] Speaker 9: This relative almost the same question to both of you.
[12:51] Speaker 9: I think you touched on this earlier, but if you
[12:52] Speaker 9: could talk a little bit more about this. The market
[12:54] Speaker 9: seems to be punishing your boot today. Does this said
[12:57] Speaker 9: move make sense to you?
[12:58] Speaker 4: Rob?
[12:59] Speaker 9: You don't seem to think that his new model will
[13:01] Speaker 9: actually help Tirpu.
[13:02] Speaker 4: But yeah, let me start with you.
[13:03] Speaker 8: Yeah, so the first part of the Jopu model thing
[13:06] Speaker 8: is it doesn't really move the needle in terms of
[13:09] Speaker 8: what it can do on the software side as much
[13:11] Speaker 8: as investors had hoped. So they've made it much more
[13:14] Speaker 8: about cybersecurity, which is important, fair, right, But that's not
[13:18] Speaker 8: what people are paying up for in DJAPU. They're paying
[13:20] Speaker 8: up a better coding performance, right, and they have to
[13:22] Speaker 8: close that gap with fable five, with cursor and all
[13:26] Speaker 8: the rest of it, right, And that gap has not
[13:28] Speaker 8: closed materially.
[13:29] Speaker 4: In the meantime, you.
[13:30] Speaker 8: See other Chinese competitors start to close that gap, so
[13:33] Speaker 8: like for example, Moonshot or the deep Sake new model
[13:36] Speaker 8: on the flash side. So there's this accelerated sense of
[13:39] Speaker 8: progress where the bar has now moved higher. You cannot
[13:43] Speaker 8: just have a bunch more parameters or a new capability
[13:46] Speaker 8: and then the market celebrates. It has to be materially
[13:48] Speaker 8: better than the Chinese players you're competing against, right, So
[13:51] Speaker 8: that dynamic now becomes much harsher into the back end
[13:54] Speaker 8: of the year. Everybody knows the Chinese are good, as
[13:57] Speaker 8: Rob said, now, so who is the best becomes the
[14:00] Speaker 8: toughest question, and that's a very tough question for Jobu
[14:03] Speaker 8: as it sits on the absolute top of the stock
[14:05] Speaker 8: market performance league.
[14:07] Speaker 9: In the market on the company itself. You don't think
[14:10] Speaker 9: that this actually the company can capitalize specifically on this
[14:13] Speaker 9: new model.
[14:14] Speaker 5: That's right, because it lacks the scaling resources that the
[14:17] Speaker 5: tech giants like Alibaba, Tenent, Huawei have. At the end
[14:20] Speaker 5: of the day, their AI operations in cash terms are
[14:24] Speaker 5: loss making, but they are being subsidized by the cash
[14:26] Speaker 5: cow businesses.
[14:28] Speaker 10: So for example, by Dance.
[14:29] Speaker 5: Generates an enormous amount of advertising revenue. Tencent again is
[14:34] Speaker 5: a social media giant, So you've got these core businesses
[14:36] Speaker 5: which are subsidizing the AI developments. Juphu doesn't have that,
[14:41] Speaker 5: so it lacks scale in comparison to these big tech
[14:43] Speaker 5: platforms in every respect in terms of developers, et cetera.
[14:47] Speaker 5: And actually, since ipoid in January, Consensus has revised up
[14:51] Speaker 5: the operating losses for this year by eighty five percent,
[14:56] Speaker 5: so things are actually moving in the wrong direction. One
[14:58] Speaker 5: last quick point when we sat down here and talked
[15:00] Speaker 5: about Jupu in detail, was on the last major model
[15:03] Speaker 5: launch in June. So this was again the five point
[15:06] Speaker 5: two model made them headlines. If you look at that
[15:09] Speaker 5: model now, it's ranked twenty seventh in the global rankings
[15:13] Speaker 5: and as Anthony said, you've got so many model launches
[15:15] Speaker 5: almost every other day at the moment, companies continually leapfrogging
[15:19] Speaker 5: each other. It's very, very hard for all players, not
[15:22] Speaker 5: just Jupu, to gain a sustainable competitive edge in a
[15:26] Speaker 5: market when a China context is commoditized. You've got nearly
[15:29] Speaker 5: one thousand large language models competing against each other in China.
[15:33] Speaker 5: So we need to see a shakeout, we need to
[15:35] Speaker 5: see price rises, and we need to see the advent
[15:38] Speaker 5: of AGI or artificial general intelligence, which at this point
[15:42] Speaker 5: still remains a long way off.
[15:45] Speaker 7: Yeah, you were talking a little bit more of Taiwan
[15:47] Speaker 7: earlier as well. I mean you're saying that Hung kolds
[15:49] Speaker 7: how would I started to look similar to this question.
[15:52] Speaker 8: Remember, right, And it speaks to what Rob was saying.
[15:55] Speaker 8: It's so hard to pick an LLLM winner. It's much
[15:58] Speaker 8: harder to do. It's much easier to pick a hardware winner, right,
[16:01] Speaker 8: and especially since all hardware is in shortage.
[16:04] Speaker 4: Right.
[16:04] Speaker 8: And that is where Hong Kong and Ta Wanta starting
[16:07] Speaker 8: to look similar, Where the top end of the index
[16:09] Speaker 8: in terms of performance is being dominated by companies that
[16:12] Speaker 8: are not making very difficult stuff. Right, It's Kingboard, Laminades
[16:17] Speaker 8: or it's Nannia PCB or Uni Micro. This is just
[16:20] Speaker 8: basically plastic and wire put together in a very complicated way.
[16:24] Speaker 8: But it's a lot easier than doing an LM, right.
[16:27] Speaker 4: But it's just in shortage.
[16:28] Speaker 8: Not enough capacity exists on the planet on this stuff
[16:31] Speaker 8: given the scale of the data center buildouts, and this
[16:34] Speaker 8: obviously you know, is becoming geopolitical as well, with the
[16:38] Speaker 8: optical names in focus, for example between the US and Chinnel.
[16:41] Speaker 8: So where this capacity comes online becomes a big constraint
[16:45] Speaker 8: and who can build out that capacity quicker? Right? And
[16:47] Speaker 8: that is where China perhaps has an advantage. They can
[16:50] Speaker 8: start to ramp this stuff up a lot quicker than
[16:52] Speaker 8: maybe any other major economy can.
[16:54] Speaker 2: That is Bloomberg strategist Anthony Stevens and Bloomberg analyst Robert
[16:58] Speaker 2: Lee speaking with Bloomberg TV host David Englase and Ivon
[17:02] Speaker 2: Men bringing you their conversation here on the Daybreak Asia podcast.
[17:06] Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak
[17:10] Speaker 2: Asia Edition podcast. Each weekday, we look at the story
[17:13] Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You
[17:17] Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
[17:22] Speaker 2: or anywhere else you listen. Join us again tomorrow for
[17:25] Speaker 2: insight on the market moves from Hong Kong to Singapore
[17:29] Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg

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