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.

Today's full-month June export statistics show exports finally breaking out of the range of recent months. I wouldn't think that will continue. It is all because of semi, big exporters like Samsung, Kia and Hyundai haven't benefited from the recent Kospi rally, and exporter sentiment remains weak.

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.

Inflation is likely declining, the labour market continues to weaken, and business confidence remains poor. So the fundamentals are weak. But consumer confidence, the DRAM price, Kopsi and house prices have all rebounded. The latter changes the BOK outlook. Further rate cuts will take longer.

Recent data show investment fell in 2024 to under 40% for the first time since 2008. On the flip side, consumption edged up, helped by a stabilisation of the savings ratio and a rise in welfare spending. But none of these changes are happening fast enough to boost the cycle.

At a headline level, the industrial PMIs were better in June, but the details were weak, and there was no improvement in the services PMI. The rise in the credit impulse is taking away some of the downside risk for the cycle, but there aren't indications that the cycle is about to really improve.

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

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.

Profits fell 9% YoY in May, and are now close to 5% of GDP, a level that's only been breached twice in the last 15 years. The driver is more demand- than supply-side, in the sense that the upstream profits, hit by the property downturn, are weakest. But even in machinery, profits aren't rising.

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.

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

Given regional history, China's transition to exporting more capital goods shouldn't be unexpected. More unusual is that 1) this transition hasn't been accompanied by slower overall export growth, and 2) has occurred at the same time as a sharp slowing of imports. Chart pack attached.