It's been a big week for data in Korea, and there was more today, with the end-month activity numbers. Retail sales bounced, but other sectors remained subdued. Data for Japan today showed retail sales being weak, but consumer confidence has improved, and UE has fallen to a new post-covid low.
The fall in the UE rate in July to 2.3% isn't substantively important. The mechanics behind it were more noteworthy, in particular a ticking down in the part rate. Other data today show a softening of inflation in Tokyo in August, and nationwide retail sales falling to the lowest level in 2 years.
There's been enough data on Korea already this week, so just briefly on today's end-of-month July data. There was a nice bounce in retail sales, reflecting the impact of fiscal policy. But IP was flat, and construction ticked down, so all economy output remains range-bound.
Today's big event was Korea's MPC, and the separate release of the local version of JOLTS data. In Japan, July unit sales at Toyota and nationwide exports in the first 10 days of August were stable. Taiwan's monitoring index in July was also unchanged, suggesting GDP growth has slowed, but not much.
The BOK didn't change rates today. It did note signs of cycle improvement, a sense reinforced by separate labour market data reported today. But it only raised its GDP forecast by 0.1ppt, one member voted for a cut, and the governor said the easing stance was likely to persist through 1H26.
Today my focus was again Korea, with the important business sentiment survey for August, and a longer review of the cycle before tomorrow's BOK meeting. Elsewhere, China released profits data for July (weak again) and there was August consumer confidence in Taiwan (also soft).
Slightly in advance of the BOK meeting tomorrow, a review of the economy and policy. My base case is the bank ends up cutting below 2%, because cycle stabilisation is tentative, and structural downside risks loom large. In monitoring that, my key indicators are business sentiment and services CPI.
Business sentiment in today's BOK survey for August improved again. The DI also rose, suggesting the bounce is not yet completed. Some of the details were encouraging, but the sharp rise in confidence in the accommodation sector warns the overall rise is vulnerable to the ending of fiscal handouts.
In today's update, a slowdown in upstream services price inflation in Japan, and firm property price expectations in the Korean consumer confidence survey. In Taiwan, retail sales are still falling, while IP shows the industrial sector is now also starting to lose some momentum.
Consumer confidence eked out another increase in August. But both inflation and house price expectations also rose. The BOK has been expecting higher food prices, so that isn't unexpected. However, the bank would have wanted to see more of a cooling of the property market by now.
The BOJ's inflation outlook is based on two dynamics: a waning of imported price inflation, but firmness in wages and inflation expectations. Services PPI is consistent with that framework. Headline is softening, but in sectors with high labour-intensity, it remains solid.
This is a dashboard I've been working on, where you can map China's auto exports by country and type of vehicle over time. It now includes volume and prices at a national level. I'll be adding more series over the next few weeks. I also have a favour to ask.
BOJ Governor Ueda's Jackson Hole remarks at the weekend on the labour market have relevance for interest rates in Japan, and, given demographic trends, economics more broadly in the region. Also, an update on high-frequency price data in China.
Governor Ueda's weekend speech on demographic decline was interesting for the nuance and stress he gave around the BOJ's usual narrative. Given Asian demographic trends, it also has relevance beyond Japan. For the cycle, they show that post the tariff scare, the BOJ remains on track to hike further.
The regional themes: the equity market rally in China; the persistence of inflation in Japan; the downside risks to potential growth in Korea; and the loss of momentum in the TWD.
The CPI release in Japan was the most important today, showing the three main measures of inflation moving in different directions. In addition, labour market data in Taiwan show the unemployment rate continuing to creep lower.
Headline inflation eased in July, BOJ core was unchanged but still higher than 12M before, and international core was stable. High-frequency indicators and recent minimum wage dynamics suggest inflation is here to stay. I'd expect the BOJ to go in October.
Today's main releases were in Korea, with trade data for the first 20 days of August, and July PPI. S&P released the flash August PMI for Japan. Also, some charts on foreign trade and monetary data in China from the detailed releases that follow the headline data published earlier in the month.
20-day exports for August were a bit stronger than 10D, and recent signs of life in non-tech are persisting. PPI inflation in August was unchanged overall. Industrial goods prices look stable, though food prices are rising in August. Services PPI inflation is still much lower than services CPI.
Quite a lot today, starting with a longer thematic piece on the outlook for Japanese consumption. In terms of the cycle, there's June machine orders and July exports for Japan, and July export orders and Q2 BOP data for Taiwan.
July export orders data show a continued reshoring, but overall export orders have clearly peaked. Today's Q2 BOP data show the rise in exports has further boosted the current account surplus. With the surplus so large, the TWD is vulnerable to the sort of shifts in capital flows seen in Q2.
Auto export prices continued to fall in July, although not as steeply as in Q2. Overall export volumes also dropped, though there have been some offsets in recent months from IT sales and stronger shipments to China. Machine orders for July softened, but not by enough to signal a big problem.
The population peaked in 2010, and aggregate consumption stopped growing shortly thereafter. With the number of people now set to decline on a continuous basis, can consumption – and thus the broader economy – ever grow again?
Korea's Q2 household debt release is important, given it is such an important issue for BOK thinking about monetary policy in the short-term, and the economy in the longer-term. The structural issues facing Korea are nicely analysed in a BOK report looking at the similarities with Japan.
I've done lots of work comparing China and Japan. Now, the BOK has done the same for Korea. There are clear similarities: demographics, debt, export-led development. It doesn't have deflation, but the scale of reforms the BOK recommends shows a Japanese-style slowdown is a real risk.