In China, yesterday's monetary data and today's detailed Q2 GDP release. In Japan, the BOJ's consumer survey showing a further rise in inflation expectations. In addition, a hawkish BOK meeting, motivated by the strong semi cycle, which, with bullishness commentary from TSMC, still seems intact.
As expected, the BOK hiked rates by 25bp today. The bank expects 2026 GDP growth to be "considerably" higher than the previous forecast of 2.6%, partly because it expects the cycle to broaden into domestic demand. That will in turn support inflation. Relative to market pricing, that feels hawkish.
The continued slowdown in credit growth is led by households and CGBs – corporate borrowing has been firm. But the M1:M2 ratio is slipping again, warning that the domestic dynamic that had contributed to lessening deflation and a less dovish PBC is now once again fading.
Longer notes on the Q2 data release in China, and an outlook for Korea before tomorrow's BOK meeting. In addition, services output and machine orders point to the recent lift in economic momentum in Japan sustaining, and terms of trade data for Korea suggest very strong income growth again in Q2.
The BOK discussion tomorrow should have two levels, the usual analysis of growth, CPI, housing, and the KRW, but also analysis of how the huge semi terms of trade shock affects medium-term economic prospects. The first justifies rate hikes. I think the second argues for more hawkishness still.
Q2 GDP data were weak, but the damage was done at the start of the quarter, with a clear improvement in industrial momentum thereafter. With the deflator also positive for the first time since 2022, that's likely enough for policymakers, even though domestic demand remains a mess.
Strong exports but weaker upstream prices in China. In Taiwan, TSMC's June sales suggest the upcycle in exports isn't over yet. At the same time, rapid growth in GDP is boosting tax revenues.
China's exports continue to be strong. The rise in prices of semiconductors is playing a role, but so is the sharp increase in auto volumes, which is now over 1mn vehicles a month. Protectionism in the rest of the world has yet to disrupt these trends, which thus continue to support China's GDP.
Korean early trade data is always noisy, but today's numbers for the first 10 days of July don't show any significant change in underlying strength in exports and the trade surplus. Wage growth in Taiwan of around 3% likely means a floor for core CPI of 2%.
Cycles show signs of broadening, towards capex and services in Taiwan and Korea, and exports and consumption in Japan. This provides an opportunity for CBs, especially the BOJ, to become more hawkish. The question for markets is whether this can finally stop currencies from weakening.
Corporate price data for Japan show the impact on the terms of trade of costlier oil imports continues to be offset by higher prices for chip exports. Nonetheless, rising import costs are pushing up PPI. In Taiwan, headline data show the gradual acceleration in underlying wage growth is continuing.
Lots today: no-change inflation data in China, a strong sakura regional report from the BOJ, Taiwan's foreign trade showing peaky exports but strong capital goods imports, and evidence that the strong rise in nominal GDP growth is boosting tax revenues in Korea.
My latest video, discussing why inflation risks won't end even if the Iran War eventually does. The reasons: both cost-push and demand-pull from the semiconductor boom, dynamics that are being reinforced by the cheapness of currencies.
Average CPI and PPI inflation remained relatively elevated in June. However, most of the rise has been because of external factors, and leading indicators show that for now, the peak has likely been seen.
The dip in Japan's CA surplus in May was not enough to alter the upwards trend, bank lending was strong in June, but the EW survey recovered only modestly in July. In Korea, the huge CA surplus rose further in May, but so did selling of domestic equities by foreigners.
The flow story behind KRW weakness has transitioned from overseas buying by domestic retail to domestic selling by foreigners. Two other factors help inform the exchange rate: correlation with the JPY and, perhaps, a BOK that is late in hiking given the huge acceleration in NGDP growth.
Today, an update on the household sector in Japan with May wage and consumption data. Also, inflation data for Taiwan in June, and the Q1 flow of funds in Korea showing equities now account for 30% of household assets, up from 20% just a year ago.
June's core inflation of 2.3% isn't high in an absolute sense. But outside LNY, it is the highest since the 1990s, and, remarkably, above both the policy rate and 10-year yields. Energy inflation will ease, but with wage growth of 2.7% and rising, and equity prices strong, rates really look too low.
Today's May consumption activity data were stronger again. That rise can be explained by three factors: a temporary boost as purchases of household appliances are brought forward, decent – though in May, not necessarily stronger – wage growth, and perhaps, a wealth effect as asset prices rise.
Upstream prices in China fell at the end of June, showing the feed through from the decline in the global oil price. Data on Friday showed a modest positive output gap in Japan. FX reserves in Taiwan dropped moderately in June.
China's cycle looks more mixed rather than bad. In Japan, there are clear signs of an acceleration in both activity and inflation. For Korea and Taiwan, the theme is a broadening of activity as the semiconductor export boom feeds into domestic economies.
Some summary charts of a (much) longer chart pack summarising regional themes. In terms of the data flow, the S&P services PMI for Japan ticked up in June, but the consumer confidence survey earlier in the week was still soft. The S&P services PMI for China was once again puzzlingly strong.
A slide pack laying out themes for the region overall, and for each individual economy.
The strength of corporate sentiment and prices in the BOJ Tankan is significant for the policy outlook. The rise in inflation in Korea slowed in June, but cost-push and demand-pull point to core inflation remaining firm. After withdrawing liquidity in recent months, the PBC changed course in June.
The detailed release of the Tankan confirms the message of yesterday's summary: price pressures are rising again, and momentum in the corporate sector is strong. There is some sluggishness in autos, but as in export data, that is being offset by AI demand for electronics.