The platform for tracking and understanding East Asia macro
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.
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.
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 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.
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 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.
There's nothing in the Q2 Tankan to change the BOJ's view of the economy, with sentiment stable, the labour market tight, and inflation elevated. Separately, consumer confidence in June ticked up.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The official PMIs for June show China's cycle remains weak, weighed down by construction. There is unlikely to be a recovery until the property cycle stabilises.
Today's data releases show stronger Tokyo inflation, headline and core; no big change in the labour market; and a rise in IP.
Business confidence remains weak, and prices haven't fallen back. The one change in the June surveys was a further rise in exporter sentiment. That is starting to look more significant.
April SPPI was revised down, but the SAAR through May remains around 4%. With wage growth up, the BOJ's new measures of SPPI by labour content suggest inflation remains well-supported.
Catching up on wages, inflation, activity and the BOJ. Overall, growth is weaker, and inflation stronger, trends that are likely to intensify after the bank's lack of action earlier this month.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Given the confidence the bank has been expressing, the BOJ meeting this week was disappointing. By raising the RRR, Taiwan's CBC, by contrast, was somewhat hawkish.
A slide pack looking at cyclical and structural issues. The story is strongest in Japan and Taiwan; there's the potential for a break in trends in China; while we find Korea less interesting right now.
There's obviously noise from month to month, but the step-change in wage growth since the pandemic – following an earlier acceleration in 2017 – looks to be holding.
On a headline basis, the labour market is tight, but the details aren't so strong. Moreover, while employment hasn't fallen much, it does feel peaky, particularly given the weakness of the cycle.
PPI, as expected, was stronger in May. But any positive impact on market sentiment will be dampened by renewed weakness in core CPI.
A refreshed slide pack looking at China today and the experience of Asia in the 1990s, with a focus on deflation and rates, exports and mfg, and household income and consumption.