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Region – monthly chart pack
Our monthly slide pack, going through the main themes for each economy, as well as a structural section focusing on demographics.
Paul Cavey
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Japan – bucking regional trends
While headline inflation and exports are falling in Korea and Taiwan, CPI and external shipments are holding up in Japan. Weaker import prices should still mean some downwards pressure on CPI through to year-end, but there will be an offset if the labour market tightens and rentals rise.
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China – prices not quite as weak
Property prices weakened in July, and are highly likely to fall further in August. However, overall economy-wide inflation ticked up in July, boosted by the rebound in PPI. We are cautiously optimistic that can continue.
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China – a way forward
This speech from Liu Shijin is well worth a read, both because it outlines a comprehensive policy approach that could address China's current cyclical and structural challenges, and also because it acknowledges that there is no consensus in Beijing yet on the way forward.
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Japan – early in the recovery
NGDP growth in Q2 surged, but RGDP growth was less impressive, and driven all by exports. Last week's EW survey suggests the recovery still has room to run. Missing so far is private consumption, which needs inflation to fall and wage growth to rise. There's more sign of the former than the latter.
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China – one more negative surprise
As expected, China's July activity release was weak, and also as expected, the PBC cut rates. The one new negative development was the NBS's decision to stop publishing the youth unemployment rate. That decision won't improve confidence in China's macro situation.
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Korea – employment softer
For the first time in a few months, Korea's labour did soften a bit in June. The decline was led by private services, rasiing the risk that domestic momentum is stating to fade. That will become an important issue for the BOK into Q4 if by then exports haven't started to revive.
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Taiwan – desynchronisation through Q3
Desynchronisation remains the theme, with services supporting inflation and wages even as exports remain in recession. This theme probably gets the economy through Q3, but into Q4 and the trajectory of activity and inflation will likely be determined once more by what is happening to exports.
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China – the case for a sentiment floor
Fundamentals in China remain poor, with no turnaround in sight. But there are some indicators suggesting that inflation and exports are close to bottoming. If the government can find a new way to alleviate the financial squeeze in the property sector, market sentiment towards China should improve.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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Korea – CPI not very soft
Headline YoY CPI continues to fall fast. Core is also easing, and on our model, the BOK is now out of tightening territory. However, sequential CPI ticked up in July, so we doubt the BOK becomes much more doveish through Q3. Beyond that, much will depend on whether exports turn up in Q4.
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Taiwan – still no turn in the PMI
Inventories are coming down in the PMI, which is a pre-condition for manufacturing to rebound. But there's no sign of a turn up yet, with export orders in July remaining weak. At the same time, the non-manufacturing PMI continues to hold up, showing desynchronisation of the cycle remains a theme.
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Korea – exports still falling
Exports weakened again in July, but imports fell more, so the trade surplus is now back in surplus for the first time since early 2022. Leading indicators are mixed, but if exports are going to bounce as equities suggest, we'd think exporter business sentiment will first start to rise.
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Japan – one bullish chart
Consumer confidence in Japan is recovering, even though inflation expectations remain high. That hints at a bullish, positive reflation dynamic. That would seem more convincing if the labour market was running hot, but June data show labour demand and supply dynamics remaining merely warm.
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Japan – more uncertainties
The BOJ's detailed Outlook report is always worth reading, with two special boxes in today's report looking at inflation. They contained interesting material, but the conclusions were equivocal, fitting with the bank's warning about "extremely high uncertainties".
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China – not getting worse
Both the construction and services PMIs fell in July. The manufacturing PMI was also soft, but doesn't seem to be worsening, with some improvement in pricing. We aren't optimistic about growth prospects, but think there could be some second-derivative improvement, helped by the weakening of the USD.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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Japan – CPI risks "skewed to the upside"
In raising rates on Friday, the BOJ said that it wasn't tightening because inflation was still below its 2% target. But while it didn't raise its inflation forecasts, it did alter its assessment of risks. In that context, the labour market tightening we expect becomes even more important.
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Taiwan – Still desynchronised
The defining characteristic of Taiwan's current cycle remains the desynchronisation of activity between weak exports and strong consumption. That can probably persist through Q3 but not much longer, with the next step for the central bank thus being dependent on whether exports recover from Q4.
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Japan – Goods prices down, services up
Upstream inflation continues to ease. That is feeding into headline CPI, and given lags, that process is far from over. However, there are some signs that the fall in commodity prices has now reached a floor, and core CPI is starting to look sticky. We'll find out soon what the BOJ thinks of this.
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Japan – not tight enough
To the extent it is possible to have an analytical framework for a BOJ that is making generational rather than cyclical assessments, ours centres on sustainable inflation. That doesn't seem in the bag, with the labour market not running hot, so we'd guess that the bank doesn't move on policy yet.
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Korea – Going sideways
Consumer and business sentiment are helpful indicators for mapping out the direction of Korea's cycle. The July versions this week show inflation peaking, but the domestic cycle bottoming. Business sentiment is still soft, but there's a hint of bigger improvement in Q4.
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China – Taking stock
The Politburo meeting excluded the phrase "housing is for living, not speculation", which seems one step towards our idea of last week, that officials say "property is for speculation". The markets liked the change, but we'd still want more help for households to get excited about a cyclical upturn.
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Japan – PMI a little weaker
Services activity remains at a strong level in Japan, but the Markit PMI shows that momentum is now fading. Manufacturing, meanwhile, continues to contract, albeit only mildly.
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China – USD lifting prices?
Industrial prices have ticked up in July. That isn't especially surprising, given the freefall since April. More interesting is whether this reversal shows domestic prices are beginning to feel the effect of the weaker USD.