The content of deputy governor Himino's speech today was thoughtful and so interesting, covering both tariffs and the outlook for prices. But consistent with the ponderous tone, the conclusions weren't particularly forceful.
Two shocks affected CPI in August: bad weather that pushed food prices up, and big cuts in mobile phone bills. The latter impact was bigger. Excluding all that and core remains around 2%, and the BOK expects that to continue. I would have expected more downside risk, but there's no sign of that yet.
My latest video discussing the inflation outlook. Apart from the anti-involution drive, the stabilisation of demand deposits and property do ease the downwards pressure on prices. But the weakness of aggregate demand remains, and as yesterday's PMI suggested, the outlook for prices remains subdued.
As usual, the first day of the month is busy for data, with PMIs across the region, and also Korean export data for August, and Q2 corporate profits in Japan. The picture painted is a regional manufacturing cycle that remains soft, but hasn't been delivered a new blow by tariffs.
Full-month exports in August were firm, but that still leaves growth in single digits, and neither data nor commentary from the business sentiment surveys suggest that is about to change. Indeed, today's August PMI remained well below 50, and reported a "sharp decrease in incoming business inflows".
The Q2 rise in the labour share promises support for consumption, but without yet depressing profits. Manufacturing earnings did drop in Q2, and that questions the sustainability of capex. But IT investment was also strong, and the PMI suggests that overall, manufacturing is coping with tariffs.
China's structural downturn since 2021 has likely bottomed. But I think real recovery is needed for a further rally in equities. Japan's growth and inflation have survived the tariff hit, putting the BOJ back in play. For Korea, I am questioning the BOK's outlook for inflation and thus rates.
While the PMIs don't point to any real improvement, in nominal terms there's been a lift, with input prices above 50 again. That's in line with the credit impulse. But the credit impulse might already have turned, and while PPI deflation has lessened, output prices don't suggest stronger CPI.
It's been a big week for data in Korea, and there was more today, with the end-month activity numbers. Retail sales bounced, but other sectors remained subdued. Data for Japan today showed retail sales being weak, but consumer confidence has improved, and UE has fallen to a new post-covid low.
The fall in the UE rate in July to 2.3% isn't substantively important. The mechanics behind it were more noteworthy, in particular a ticking down in the part rate. Other data today show a softening of inflation in Tokyo in August, and nationwide retail sales falling to the lowest level in 2 years.
There's been enough data on Korea already this week, so just briefly on today's end-of-month July data. There was a nice bounce in retail sales, reflecting the impact of fiscal policy. But IP was flat, and construction ticked down, so all economy output remains range-bound.
Today's big event was Korea's MPC, and the separate release of the local version of JOLTS data. In Japan, July unit sales at Toyota and nationwide exports in the first 10 days of August were stable. Taiwan's monitoring index in July was also unchanged, suggesting GDP growth has slowed, but not much.
The BOK didn't change rates today. It did note signs of cycle improvement, a sense reinforced by separate labour market data reported today. But it only raised its GDP forecast by 0.1ppt, one member voted for a cut, and the governor said the easing stance was likely to persist through 1H26.
Today my focus was again Korea, with the important business sentiment survey for August, and a longer review of the cycle before tomorrow's BOK meeting. Elsewhere, China released profits data for July (weak again) and there was August consumer confidence in Taiwan (also soft).
Slightly in advance of the BOK meeting tomorrow, a review of the economy and policy. My base case is the bank ends up cutting below 2%, because cycle stabilisation is tentative, and structural downside risks loom large. In monitoring that, my key indicators are business sentiment and services CPI.
Business sentiment in today's BOK survey for August improved again. The DI also rose, suggesting the bounce is not yet completed. Some of the details were encouraging, but the sharp rise in confidence in the accommodation sector warns the overall rise is vulnerable to the ending of fiscal handouts.
In today's update, a slowdown in upstream services price inflation in Japan, and firm property price expectations in the Korean consumer confidence survey. In Taiwan, retail sales are still falling, while IP shows the industrial sector is now also starting to lose some momentum.
Consumer confidence eked out another increase in August. But both inflation and house price expectations also rose. The BOK has been expecting higher food prices, so that isn't unexpected. However, the bank would have wanted to see more of a cooling of the property market by now.
The BOJ's inflation outlook is based on two dynamics: a waning of imported price inflation, but firmness in wages and inflation expectations. Services PPI is consistent with that framework. Headline is softening, but in sectors with high labour-intensity, it remains solid.
This is a dashboard I've been working on, where you can map China's auto exports by country and type of vehicle over time. It now includes volume and prices at a national level. I'll be adding more series over the next few weeks. I also have a favour to ask.
BOJ Governor Ueda's Jackson Hole remarks at the weekend on the labour market have relevance for interest rates in Japan, and, given demographic trends, economics more broadly in the region. Also, an update on high-frequency price data in China.
Governor Ueda's weekend speech on demographic decline was interesting for the nuance and stress he gave around the BOJ's usual narrative. Given Asian demographic trends, it also has relevance beyond Japan. For the cycle, they show that post the tariff scare, the BOJ remains on track to hike further.
The regional themes: the equity market rally in China; the persistence of inflation in Japan; the downside risks to potential growth in Korea; and the loss of momentum in the TWD.
The CPI release in Japan was the most important today, showing the three main measures of inflation moving in different directions. In addition, labour market data in Taiwan show the unemployment rate continuing to creep lower.
Headline inflation eased in July, BOJ core was unchanged but still higher than 12M before, and international core was stable. High-frequency indicators and recent minimum wage dynamics suggest inflation is here to stay. I'd expect the BOJ to go in October.