Today, some charts on a longer examining fiscal policy in Japan. In today's data releases, exports in the first ten days of August ticked down. Likewise, growth in tax revenue in Taiwan slowed.
A longer note on fiscal policy: the rhetoric of loosening versus reality of tightening of Abenomics and the early part of Takaichi's administration, the costs of that for the household sector versus the benefits for corporates, and what all that means for Takaichi's stance going forward.
Summaries of three notes, covering: 1) yesterday's weak July inflation print in China; 2) today's summary of opinions of the July BOJ meeting and a few data releases in Japan; and 3) Taiwan's June wage data showing the slow but steady acceleration in wage growth is continuing.
Annualised regular wage growth in both manufacturing and services has been above 3% since 2024. In Q2 in manufacturing, it has been near 4%. The risk remains that the export cycle now slows, but TSMC's strong sales and elevated manufacturing overtime don't suggest that is happening yet.
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 longer note today looks at a BOK report on spillovers from the chip boom. Exports in both China and Taiwan were softer in July, but probably because of noise. Japan released consumption data for June, exports for the first 20 days of July, and BOJ transaction data for the full month.
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"
Korea's current account surplus, already enormous in May, rose further in June. That, and the easing of foreigner equity selling, has allowed (at last) some strengthening of the KRW. Taiwan headline inflation ticked down in July, but underlying price pressures remain firm.
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%.
What global commodity prices tell us about the outlook for upstream inflation in the region; data in China showing another fall in building materials prices, and a sharp decline in the services PMI; decent wage growth data for Japan; and in Taiwan, another fall in fx reserves in July.
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 main data release today was Korea July CPI, with one takeaway from that being the clear evidence of cost-push pressures from the chip boom. Elsewhere, the PBC again injected liquidity in July, Japan's monetary base contracted at a double-digit rate, and an update on Taiwan's property market.
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.
China's RatingDog mfg PMI dipped in July, and isn't far above 50, though that's still higher than the official version. PMIs elsewhere remain better. The main driver is exports, which in Korea rose again in July. But Taiwan's non-mfg PMI is also strong, at a headline level, and for output prices.
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.
Lots today. Bad PMIs in China, BOJ meeting, and all the usual month-end data releases in Japan and Korea. In Japan, the data were mixed, but in Korea, generally strong, as was Q2 GDP in Taiwan. Finally, the new data packs I've been working on.
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.
I am trying out a new version of my interactive chart packs that makes navigation between economies and issues easier. It has almost 1,000 charts, and isn't yet behind a paywall. Please forward to anyone who might find it useful.
A few data releases today. In Japan, export data for the first 10 days of July, consumer confidence for the full month, and Toyota June sales. In Korea, the big release was business confidence, but also JOLTS labour market data for June, and wages for May.
In manufacturing, sentiment is rising for both exporters and domestic firms, and capex intentions are strengthening too. That suggests support for the cycle not apparent in recent equity market moves. However, non-manufacturing sentiment is weak, and the labour market still isn't recovering.
