Data today show more feed through into PPI from the easing of import prices. Weekly rice prices have also dropped again. These trends lower goods price inflation, but will boost household spending power. At the same time, the sharp fall in auto export prices shows the negative impact of tariffs.

Nominal wage growth remains firm, but real wages to continue to fall. That in turn is weighing on consumption, which other data today show remained sluggish in May. The cycle in 2H will likely depend on goods prices, because that will determine the strength of real wage growth and consumer spending.

The renewed tariff threat is a dominating issue for Japan. Yesterday's debate among leaders of the political parties didn't reveal any new strategy to head off the risk. But today's services PMI was firm, and in an interesting speech, board member Takata continued to sound cautiously constructive.

In terms of inflation, the details of the Tankan were stronger than yesterday's headlines. Output prices – a good lead for underlying CPI – rose to another new post-1980 high. However, President Trump, as had seemed likely, is now threatening Japan with yet higher tariffs.

In recent months, Japan has encountered two headwinds: higher tariffs which threaten exports, and rebounding inflation which reduces consumer purchasing power. Inflation expectations eased in June, allowing consumer confidence to rebound. That is helpful in offsetting the pain coming from tariffs.

For reasons I have yet to understand, the BOJ's Tankan is published over two days, so we won't get the full picture until tomorrow. But first impressions from today's summary are quite strong, with business sentiment holding up, and only small deteriorations in prices and employment.

A review of the cycle, and three scenarios for the BOJ: 1) no more hikes; 2) hikes on the back of a firm nominal cycle, and 3) tightening because it is already too far behind the curve. My base case is 2, but the factors to watch are tariffs, the labour market, and the continued weakness of the JPY.

I'm just starting to catch up with things, and one of the first things I've made sure to look through is yesterday's speech by BOJ Monetary Policy Board member Naoki Tamura. He doesn't represent the majority view, but his speeches are well worth reading, and this one was no exception.

Today's quarterly business outlook survey shows more incremental weakness in business sentiment, led by manufacturing. That's another sign that tariffs in particular have taken the edge of the cycle. However, there's not yet signs of real deterioration, which capex firm and employment still tight.