In staying on hold today, the BOK put slightly more emphasis on the KRW and household debt. The bank is moving towards a cut, but that decision now seems a bit more tied to the Fed and rate differentials.
After faltering in 2023, wage growth is now back on the stronger trend that began in 2021. The recovery in the manufacturing cycle gives us confidence that this can at least be sustained, but we'd still like to see a clearer lift in exports.
Today's May data confirm recent signs of wages recovering back to the stronger post-covid rate of growth, and so provide a reason for price inflation also to remain higher than before 2020.
With the labour market another sign of economic weakness, rate cuts are getting closer, but the pick-up in exports continues to give the BOK time to confirm that inflation does indeed drop to target.
The rebound in YoY import prices continued in June. The acceleration was base effect, but still, it suggests the recent rise in goods price inflation won't be reversing yet.
PPI deflation has been more cyclical than structural, and the strengthening in Q2 should continue into Q3. But core CPI remains very weak. Inflation is too low to support rates.
Taiwan's exports were a bit better in June. But they still aren't as strong as TSMC sales suggest they should be.
The one-off firm survey undertaken as part of its long-term policy review has allowed the BOJ to reiterate its positive stance, and provide more of the evidence underpinning it.
May data give us more confidence that wage growth is accelerating. Other data today for activity aren't as robust, but don't suggest conditions are worsening further.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The BOJ's consumption index has ticked up so far in Q2. That is welcome, but even now, the index is 2% below the pre-covid level. Consumption remains the weak spot in the economy.
The moderation in core CPI inflation in June likely won't be enough to keep the central bank on hold if exports rise anywhere near the extent that equities are signalling is possible.
We combine quarterly household survey data with recently released annual GDP data to show why consumption isn't weak, what that means, and what there still is to worry about.
Latest data show that even before the BOJ makes its postponed decision about cutting gross new JGB purchases, on a net basis, the flow of new buying is already falling.
Industrial prices in China have hardly changed since September 2023. So there isn't upstream price deflation...but equally, there are no signs of inflation either.
The BOJ's latest estimate of the official output gap turning negative in Q1 is puzzling when the Tankan, also produced by the central bank, shows utilisation not just tight, but tightening further.
The June drop in the Caixin/S&P services PMI closes the gap with the already-weak official version. This might be noise, but there's a risk that the muddle through of the last few months is running out of road.
Like high-frequency local data, global commodity prices indicate PPI deflation in China has largely been a cyclical phenomenon, and will end in the next couple of months.
CPI inflation dropped more convincingly in July. Services CPI is though still running at a bit over 2%, and input prices have rebounded. With exports growing, we still aren't convinced that BOK cuts are imminent.
The BOJ has been expressing confidence that inflation is getting to 2%. The Tankan can only reinforce that: the labour market tightened, and output prices rose again. The BOJ should be tightening.
An update of our regional slide pack.
The gap between the weak official and strong Caixin manufacturing PMI shown again in the June data is puzzling. But the Caixin version does make some sense given the loosening suggested by an FCI.
The PMIs suggest that the regional export cycle is gaining momentum. The lift is strongest in Taiwan, where the non-mfg PMI also lifted in June.
We've been expecting a transition away from domestic services growth to externally led mfg. Instead, both exports and services are picking up. The non-mfg PMI has rarely been higher than it was in June.
Semiconductor exports are growing strongly, but they only account for one-fifth of total exports. Without other products rising too, there's limited upside for exports overall.