Highlights of the BOJ meeting, and charts of the CPI release. China export data for August show some weakness in EV shipments, but that is likely noise after a very strong July. PPI inflation in Korea ticked up in August, and with the rise in oil prices, is likely to be higher again in September.
Japan's Q2 flow of funds data give an update on several underlying aspects of the economy. Some charts on Korea's 2027 budget. And also, a couple of pieces on Taiwan, covering the CBC's on-hold decision today, and why I thought rates would (should) be higher.
Consensus was right, and the CBC didn't change rates today. The vote wasn't unanimous, with two members voting for a hike. However, some of the property measures were loosened. To me, this suggests that policy is too loose, and thus that the gradual warming up of inflation will continue.
Q2 flow of funds: 1) firms remain net savers; 2) the fiscal deficit is under 2% of GDP, and government assets continue to rise; 3) GPIF, foreigners and households are absorbing JGB supply as the BOJ steps back; 4) household equity holdings are up sharply, but mainly because of valuations.
I expect the CBC to hike. That was also my view 3M ago, and then I was wrong, and the strong consensus is that I'll be wrong now too. Underlying my view is that the CBC can't be confident inflation has peaked. Instead, with real rates negative and the TWD weak, price pressures are likely to persist.
Machine orders and trade data for Japan confirm an upturn in the manufacturing sector. China's fx settlement data yesterday show August was another month of decent capital inflows. The renewed upturn in property prices in Taiwan is continuing.
Japan is now seeing the first real upswing in both manufacturing and non-manufacturing since 2017-18. Rising CPI and the JPY aren't the only factors pushing the BOJ towards hikes.
Lot of data released in China, none of which show any change in the story. Japan's service growth remains strong, but manufacturing output is now also rising too. August terms of trade data in Korea indicate yet faster nominal GDP growth in Q3. Outbound FDI in Taiwan remains strong.
Domestic demand remains soft, with no break in the property market collapse. But helped by exports, IP is growing near 6% saar, which keeps the GDP growth target for this year in reach. So I doubt much changes in terms of policy, but the emerging weakness in services is something to be monitoring.
A longer note today catching up on last week's interesting Q2 GDP release in Korea. Also, charts covering today's release of August monetary data in China, and July wages in Taiwan.
Last week's GDP data showed nominal growth of over 25% YoY in Q2. Most of that was in the form of corporate profits, but employee compensation still rose 8% YoY. With the government planning growth in fiscal spending of 12% in 2027, there are more signs of the IT sector lifting the broader economy.
I am away the next few days, so this week's summary focuses on what appeared on the site in the last week. I am back on Monday 14th September.
Korean BOP data for August, an update on upstream prices in China, which have been stronger than I had been expecting, and PBC liquidity operations through August. Foreign exchange reserves in Taiwan rebounded in August. I am away next week, so the next update will be Monday 14th September.
Today's BOP data show that after selling more than USD30bn of domestic equities in June, foreigners purchased USD6bn in July. That swing goes a long way to explain the sudden appreciation of the KRW. That should be able to continue, given CA surplus of over 20% of GDP, strong economy, and BOK hikes.
An update on import price pressures across the region, as well as the services PMIs for China and Japan in August, and my monthly regional chart pack.
50 slides covering regional themes, and dynamics in the individual economies.
The main release today was Korean CPI inflation for August, which remained firm. Japan tax revenue ticked down last month, but the uptrend of recent years remains intact. However, the monetary base is falling fast. Also today, a comprehensive guide and online model to Japan's fiscal position.
I thought the underlying data in today's CPI release were firm. Despite an easing in travel expenses, core inflation (excluding mobile phone bills) remained at 2.8% YoY, the trimmed mean rose, and the diffusion across all items ticked up.
A step-by-step guide to understanding Japan's fiscal position. By using this, you will have a better idea of how to make the assumptions needed for each component of the standard gross debt equation, which can then be plugged into our online model.
A busy day of data today, with regional PMIs, Q2 profits data for Japan, and foreign trade in August for Korea. Japan is leading in both relative manufacturing activity and prices. Taiwan activity is also strong, and not benefiting from the ccy appreciation that is dampening input prices in Korea.
The PMIs show Japan's manufacturing cycle is the strongest in the region. That might be because the measures in Taiwan and Korea struggle to capture the macro impact of chip strength. Even so, it is still an important take-away, especially when the PMIs show Japan also leads in price strength.
Defying BOJ fears of a slowdown, this year's surge in corporate profits continued in Q2. The big driver this year has been manufacturing, and today's PMI shows the recovery in the sector isn't over yet. Relative to the strength of profits, capex and wages are sluggish.
The PMIs continue to show no change in China's economic cycle. By contrast, the cycle in Japan is improving, and in Korea output, capex and fiscal revenue in July were all strong.
Output in July retained the gains of June, and capex spending rose further. Both suggest a strong start for GDP in Q3. Retail sales were weaker last month, but the household sector should start to benefit as the government spends the 20% growth in tax revenue of recent months.
The PMIs continue to show no economic cycle. Construction activity continues to drop, but the manufacturing PMI continues to hover around the 50 mark. Input prices have rebounded again, so this year's recovery in PPI isn't ending just yet. None of these changes point to a shift in policy.
