Today's summary of opinions of the July meeting had two themes: first, AI-related demand, and second upside risks to inflation – and the need for monetary policy to control them. The data flow showed a modest slowdown in bank lending, a somewhat sluggish EW survey, and a fall in the CA surplus.

China macro is again a contrast between export strength and renewed deflationary pressure. Takaichi's sales tax cut doesn't look like the policy approach Bessent wants. For Korea, data an BOK analysis points to upside risks. In Taiwan, the key issue is lagged spillover from the 24-25 export boom.

Inflationary pressure turned down again in July. That wasn't a surprise, given the decline in global energy prices. The sharp MoM drop in CPI was, however, still notable, being comparable only to the global financial crisis and the initial covid outbreak.

The BOK this week published a nice report on spillovers from the terms of trade boom. It wouldn't be fair to say that this pays only lip service to the usual concerns on why spillovers might be limited. But the report's central expectation is that the impact will be "both sizable and persistent"

Both headline and core CPI inflation ticked down in July as energy prices eased. However, underlying inflation feels firm, with sequential core failing to break below 2%; import price, PPI inflation and CPI computer price inflation rising to decade highs; and services inflation running at 2.6%.

Underlying regular wage growth at a bit under 3% is probably still a touch lower than the BOJ would like. But part-time hourly wage growth is 5%, and anyway, with today's services PMI showing more sharp rises in output prices, underlying wage growth isn't the only factor that matters for inflation.

The BOK expects core inflation to be pushed up by the chip boom, via both cost-push for electronic devices and demand-pull from the big boost to national incomes. In today's July data, the cost-push element is more obvious, though there are some tentative signs of demand-pull appearing.

The analytical boxes from the BOJ's full outlook report have three conclusions: AI won't help macro as much as headline figures suggest; but both AI and oil mean continued upside risks for inflation; and the household sector should be able to cope with rate hikes.

Current themes: export and tech strength preventing broad policy easing in China; policy messiness in Japan isn't yet over, though it is important that pricing of the BOJ has started to move; growth in Korea and Taiwan is strong, and also spreading from export sectors to domestic demand.

The BOJ didn't change inflation forecasts, but even so, it continues to expect inflation at or above 2% throughout the forecast period, and says risks for prices remain skewed to the upside with "medium- to long-term inflation expectations continuing to rise". September for me is a live meeting.

But output growth and capex were strong in June. Output was lifted by both goods and services, while the tech sector gave a boost to capex. Retail sales and construction orders were weak, but overall, the data signal a bit of upside risk for the next release of Q2 GDP data in September.

The across-the-board weakening of the official PMIs will reinforce cycle pessimism, with px indicators point to an end of the recent upturn in PPI inflation. The likelihood of renewed monetary easing is growing, but detailed data – and the Politburo statement – suggest only incremental change.