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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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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 - 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.
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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.