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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.
Paul Cavey
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Japan - peaky inflation
This month's data do not definitively show that inflation is peaking. But the drop in international core since April, and the sharp fall in import price inflation over the course of the last 12M, all look consistent with the BOJ's view that inflation will ease in 2H of FY23.
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Region – double-dip, then up again?
Exports were soft in June, and Korea's 20-day data shows no change in July. Indeed, the cycle looks engaged in a double dip. Market indicators are more optimistic for the next 6M. That still seems like the risk case, but would be a big deal for central banks in Korea and Taiwan.
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The China Diviner – what if "property is for speculation" after all?
Because of property, China's GDP is as weak as 2008 or 2015. Short of saying housing is for speculation, there's not much that can be done to loosen property policy. Structural change helps, but we'd imagine there's going to have to be more monetary loosening.
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The East Asia Economist – Korea's "she-covery"
Labour demand is at record highs in Korea, but so is supply, boosted by a rise in female participation. In the short-term, that takes a bit of pressure off inflation. In the longer-term, it is another reason to think Korea can avoid the sort of malaise associated with Japan-style demographics.
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China – more weak data
In its release today of Q2 GDP data, the NBS highlighted high double-digit growth in NEVs and solar batteries. But there weren't too many other signs of strength, with property and consumption remaining weak.
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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.
Subscribers Only
Japan – import prices falling
Perhaps the most important data point this week was the double-digit decline in import prices in June. That should reinforce the BOJ's conviction that headline inflation will fade in the coming months.
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China – weakest inflation since 2008
Property prices fell again in June. That takes our measure of all-economy inflation back to the lowest since 2008. The deflation back then was reversed by enormous policy easing, but that sort of easing isn't at all likely this time.
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The China Diviner
The PBC continues to ease policy. But that isn't reducing market rates. There are a few possible reasons: the PBC is cutting slowly; rates never move with fundamentals; the market expects growth to improve. All have some validity, but we think there is a real risk of policy being behind the curve.
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China – trade goes sideways
The statistical surge in exports of March and April has now disappeared from the data. That leaves both exports and imports falling YoY, and leading indicators don't point to either recovering yet.
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Korea – BOK still hawkish
The BOK governor today did acknowledge the fall in core inflation in June, but otherwise the tone of the today's policy meeting remained rather hawkish.
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China – weak money and credit
Credit and money supply growth were soft in June. Without something changing, it seems unlikely there will be a rebound soon, with loan demand slowing, the property market weak, and liquidity preference still deteriorating.
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Taiwan – wages resilient for now
Taiwan's desynchronised cycle can also be seen in wage growth, which is accelerating in services but slowing in manufacturing. This likely can't persist, and for wages and inflation to hold up, manufacturing demand needs to rebound. That isn't happening yet, with exports in June still subdued.
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China – deepening deflation
Both PPI and CPI inflation fell in June, with the overall momentum in real economy prices is now the weakest since 2008-09. There are some tentative signs that a floor will soon be reached for PPI, but no signs of any significant upturn in inflation.
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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.
Public Post
Region – cycle summary
A short video discussing our current views.
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Japan – wage growth accelerates
Regular full-time worker wages lifted in May, just the sort of step-change that the shunto seemed to make likely. That is an important development. But part-time wage growth is more modest, and there was no big lift in the consumption activity index from the BOJ that was also released today.
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Taiwan – core CPI holds up
Headline inflation is receding fast, but core inflation in Taiwan remains elevated, consistent with the low rate of unemployment. That will become important for the CBC if there is now any upturn in export growth.
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Japan – no change
The BOJ Tankan suggests continued modest growth and easing inflation. There are reasons to think the risks around this outlook are to the upside. But until those risks become reality, and in particular that the labour market tightens, the BOJ likely won't be in a rush to move policy.
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Taiwan – much stronger official PMI
The surge in the official PMI in June is at odds with other manufacturing indicators. But it is in line with the message being sent by the equity market, and recovery is worth keeping on the table as a scenario when unemployment is low and non-manufacturing sentiment continues to rise.
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Korea – finally, core inflation drops
Headline inflation dropped in June, but there was also a first significant easing in core. That justifies the BOK being on hold, with the direction from here being dependent on external demand: does that now rebound on the back of AI demand for tech, or is DM about to take a dive into recession?
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Region – Taking stock
The key issue for macro in the region is whether exports are about to lift in the way equity markets are suggesting. Korean semiconductor exports did bounce in June. But manufacturing sentiment surveys in the region in June weren't strong, and early indicators for DM demand have weakened.
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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 – labour market still soft
Two sets of data were released today. The Tokyo CPI statistics for June were mixed. More important for us were the national May labour market numbers, which continued to go sideways, and don't look strong enough to us to persuade the BOJ that this time really is different.