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Headline PPI inflation is softening, but a real correction is unlikely without a bigger fall in import prices. In July, import prices ticked up, as did auto export prices, but only slightly. In other data, non-manufacturing sentiment in the August Reuters Tankan remained firm.
The export surge is boosting demand for labour, with data today showing manufacturing overtime hours in June near the highest in 15 years, and wage growth of close to 4% YoY. Overall wage growth has also trended up, but less quickly, because the demand:supply balance in services isn't as tight.
After adjusting for workdays, export growth remained solid at around 9% YoY in the first 10 days of August. The growth is all because of semi and ships – exports of other products fell. That perhaps shows an end to front-loading, though exports to the US directly haven't been particularly volatile.
Data themes remain unchanged. As tariffs – perhaps – stabilise, official sentiment is catching up to the data in Japan, with growing concern about inflation. In China and Korea, market sentiment has improved ahead of the data. Given Trump's desire for a deal, that's probably more justified in China.
Today's official data show core CPI has rebounded to almost +1%. That would be an important change, but at best it looks narrow, with almost all the rise coming from "miscellaneous goods and services". The leads from PPI and the PMI remain soft. Separately, yesterday's CA data for Q2 were stable.
The surge in exports continued in July. Exports have now grown 30% just this year, and the trade surplus has risen to 20% of GDP. But the underlying dynamics shifted last month. Rather than semi exports to the US, the big driver was other exports to ASEAN. That looks more like tariff front-loading.
Today's EW survey suggests stabilisation of sentiment following the sharp deterioration through Q1. As that happens and high-frequency price measures stop falling, officials, both on the BOJ MPC and in the wider government, are expressing more concern about the continued strength of inflation.
The BOK recently published a report on the consequences of Korea's "exceptionally rapid" ageing: lower real rates, lower inflation, and weaker financial stability. The report is interesting, but the wide range of reforms suggested shows just how difficult it will be to head off those consequences.
The BOJ's consumption proxy ticked up MoM in June. That followed a dip in May, so in Q2 as a whole consumption is only just higher than Q1. Based on the BOJ's data, in level terms, aggregate consumption is still 7% smaller than at the end of Q319. But the growth run-rate is now similar to pre-covid.
Overall exports still don't show a tariff hit, with shipments to ROW offsetting the weakness of direct sales to the US. Imports are more interesting, with signs emerging of an upturn. That so far is (very) mild, but has been enough to cap the trade surplus, albeit at the high level of USD100bn.
The main flow dynamics didn't shift in June. The CA surplus remained large, while NPS and FDI outflows were solid. But the revival of domestic equities has caused some changes, with less household overseas buying, and more foreigner domestic buying.
The biggest takeaway from today's July price data is the big fall in TWD import prices – and thus PPI and goods in CPI – on the back of currency appreciation. Core actually ticked up in July, and probably isn't going back to the sub-1% rate of pre-covid. But I doubt it gets back above 2% either.
The shunto has boosted full-time regular wages, which increased more quickly in May and June than last year. Part-time hourly wage growth has also picked up again, and will get a further boost from the recently announced hike in the minimum wage. But for now, real overall wages are still falling.
The BOK hasn't sounded concerned about inflation for a while, and the July CPI data is unlikely to change that, with headline and core remaining close to 2%. Food prices will rise in August following the recent bad weather, but energy prices should fall. Core is also now starting to look softer.
Deflation looks like 1990s Japan. But China's exchange rate doesn't. Real CNY depreciation helps exports substitute for the weakness of domestic demand in a way that didn't happen in Japan. It also postpones the sort of stimulus that would ease deflation and provide more direction for markets.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Two things. First, my latest video, discussing what's not surprising about the trade surplus (the rise in capital goods), and what is (that for exports China's global market share gains have accelerated, while for imports, they've fallen). Second, an interactive dashboard on China's auto exports.
The PMIs haven't been great lead indicators this year: they've been mainly below 50 in Q2, and yet export data have been absurdly strong. Some of that is because the export story has become so concentrated in semiconductors. Still, it is likely that the real economy will be quite a lot weaker in 2H.
Unusually, the BOJ's quarterly outlook report doesn't focus on wages and inflation. Instead, it looks at this year's two shocks – tariffs, and food prices. The bank argues that the rise in the part rate, seen again in today's June labour market data, has helped offset the impact of food prices.
The lift in exports in June was sustained in July. But I'd be sceptical that marks the start of an upcycle. The strength is all about semis, and today's PMI, like last week's BOK business sentiment survey, was sluggish. If there are upside risks for Korea, they are likely domestic, not external.
It isn't news, but the strength of exports in today's GDP release is still eye-catching. It keeps Taiwan on the much higher post-2020 plane of growth. But with consumption weakening, GDP is now almost all about exports. If there's been lots of tariff front-loading, 2H25 will look very different.
The BOJ today was a bit less worried about tariffs, and a bit surer on inflation. That keeps a rate hike as a probability for later this year. But macro remains messy, with considerable disagreement about the contents of the US-Japan "deal", and consumer inflation expectations ticking up in July.
June data continue to suggest retail sales have bottomed. There was also a decent bounce in construction last month. Industrial and services output are creeping up. However, production overall remains in the range of the last 23M. So, while a bit less vulnerable, the cycle hasn't yet lifted.
The weakness was true even for pricing, which is the focus of the most recent policy push: input prices did improve MoM, but not to over 50, and output prices fell further. That Beijing has turned its attention to oversupply should help equities, but I am doubtful that alone produces macro recovery.
Today's release of local JOLTS data shows the labour market remained soft in June. Vacancy and quit rates continued to fall, hiring of temp workers eased, and filling rates are trending up The fall in the vacancy rate in particular is a sign that wage growth remains under pressure.