This to me is the interesting question about yesterday: given weak prices, and now CNY appreciation, why wasn't the rate cut bigger?
Services PPI inflation eased back in August, but that was partly base effect. The BOJ's new high-labour content measure isn't that different, and remains near 3%. Sequentially, SPPI is running around 2%, but all the volatility since 2022 makes it difficult to discern the underlying trend.
Confidence and overall inflation expectations fell in September's consumer confidence survey. But property price expectations ticked up. The change wasn't big, but is enough to cloud the outlook for a BOK that in recent months has explicitly associated its monetary stance with the property market.
August export order data don't signal any change in direction in the modest export upturn of recent months. The more interesting shifts are structural. China orders are flat, and are now only 60% of US levels. The overseas production ratio is the lowest since 2009.
The BOJ's stance now has two clear dimensions. One, as before, is its constructive view of the domestic economy. But now there's also an explicit concern about US growth. As long as one offsets the other, the BOJ has time. However, if the US soft lands, then the BOJ will have ground to make up.
Against the backdrop of today's flurry of policy announcements, a reminder of how much policy need to do. Industrial prices so far through September have continued to drop with building material prices now the lowest since 2016.
There's still little sign of economic damage from the market volatility of July and early August. Like other surveys, today's flash services PMI was strong. Input prices eased, but output prices didn't as "firms looked to pass higher cost burdens in to clients".
After adjusting for working days, the pick-up in YoY export growth seen in the 10-day data was repeated in today's 20-day update. But that is largely base effect. Sequential growth has ticked up, but isn't repeating the upswing of 1H24.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
So, no surprise from the BOJ today. But the bank's statement remained constructive, revising up consumption. Today's separate services inflation data for August was also firm. Import prices have receded on the rising JPY, but we'd think the BOJ should be hiking again with a strong Q3 Tankan.
Taiwan's CBC kept rates on hold yesterday, but hiked the RRR to control housing. More interesting was the bank's very benign outlook: growth neither fast nor slow, and inflation falling to just within its target range. Particularly regarding inflation, that doesn't allow much room for error.
While data for the corporate sector are distorted by regulatory changes, this is still one of the most important charts for China macro. As long as companies and especially households are locking up their money in time deposits, it is highly unlikely that inflation and nominal growth rebound.
Core machine orders are one of the BOJ's standard leading indicators, always getting a mention in the bank's economic outlook reports. The data are, however, volatile, and today's numbers for July don't show any new direction being established.
China's imports are two-speed. That's like the economy, but with a big difference: whereas for macro it is property that is weak while mfg is strong, for imports it is commodities that are more resilient than capital goods. Like the overall macro muddle through, that resilience likely can't last.
Japan's exporters haven't reacted in standard fashion to JPY weakness, not cutting prices to increase volumes. Indeed, volumes fell YoY in August. That contrasts with the clear recovery in the rest of the region. It means higher JPY earnings for exporters, but less incentive for domestic capex.
Exports feel a bit peaky, and CPI inflation has eased. But property price inflation isn't cooling. Perhaps an export slowdown changes that – the fastest price gains are in Hsinchu, home of TSMC. But unless and until that happens, it is very difficult for the central bank to turn doveish.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
This week's announced rise in the retirement age is economically welcome. But the rise of 3-5 years, implemented over 15 years, is modest. In that time longevity is likely to rise almost as much, meaning by the time this week's changes are completed, China will still be at square one.
August data suggest GDP is now only growing by around 4% YoY. The headwinds remain property activity, which dropped again in August to new lows, and retail sales, which has now contracted MoM in five of the first eight months of 2024. Sustaining muddle through is getting much more difficult.
Today's industrial price data for the first 10 days of September and property prices for August show intensified deflationary pressure. Yesterday's monetary data were weak. The PBC said yesterday that it will focus on price stability, but it also said it has plenty of other things to do as well.
More than 12M ago, we argued yields should fall. In that respect, today's drop to record lows isn't a surprise. We don't see anything fundamental yet to cause a change in direction. That's based on four factors: the PBC's reaction function, inflation, household savings, and the CNY.
It is clear that the market moves that accompanied the BOJ's July policy changes are impacting prices. But it isn't obvious that they have derailed the underlying path for the economy. It seems to us the door remains open for an October hike, with the obvious risk being events in the US.
The shift in $JPY is clearly having an impact, with JPY import price inflation dropping from July's +10.8% YoY to just 2.6% in August. But BOJ officials suggest they remain confident in the underlying outlook, which isn't unreasonable given the resilience of survey data such as today's BSI.
A critical part of the BOJ's positive narrative is the labour market tightness shown by the Tankan. That survey will be released next in early October, but early signs are positive, with today's BSI survey from the MOF, also quarterly, showing tightening over all three of its measurement periods.
Data today show exports still growing, and UE still low. The BOK hasn't been ignoring exports, but the bank has been more focused on weak domestic demand. The labour market data don't suggest that weakness is disappearing, with strength in employment concentrated in state and part-time positions.