The PBC has been signalling unhappiness with falling rates. But as long as price inflation and money supply growth remain so weak, it is difficult to see why interest rates don't fall further still.
The June data are exaggerated by flows that are likely one-off, but still, Taiwan offers one of the clearest illustrations of how the direction of FDI is shifting away from China and towards the rest of Asia.
Today's GDP release shows property activity is still collapsing and economy-wide pricing is weak. The PBC will struggle to hold up rates – and thereby the currency – if this week's Plenum doesn't provide a real boost to sentiment.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Even allowing for a change in credit intensity, June headline credit and money data are bearish. The one positive trend is data through May showing household demand deposits no longer falling so quickly. That shift continuing would help sustain China's macro muddle through.
In the BOJ's Q2 survey, 65% of respondents saying they felt more positive cited higher incomes, an outcome helped by policy stimulus. But 90% of people saying they felt worse blamed higher prices, with low rates and the weak JPY also the result of policy.
Exports were flat in June. The big change was lower imports, and so a further rise in the trade surplus. Monday's data will likely show net exports once again boosted GDP growth in Q2.
We don't have conviction about what the Plenum will deliver, but we are confident that with next week's meeting, and then the US election, the macro and market muddle through of the last 18M is likely ending.
In staying on hold today, the BOK put slightly more emphasis on the KRW and household debt. The bank is moving towards a cut, but that decision now seems a bit more tied to the Fed and rate differentials.
After faltering in 2023, wage growth is now back on the stronger trend that began in 2021. The recovery in the manufacturing cycle gives us confidence that this can at least be sustained, but we'd still like to see a clearer lift in exports.
Today's May data confirm recent signs of wages recovering back to the stronger post-covid rate of growth, and so provide a reason for price inflation also to remain higher than before 2020.
With the labour market another sign of economic weakness, rate cuts are getting closer, but the pick-up in exports continues to give the BOK time to confirm that inflation does indeed drop to target.
The rebound in YoY import prices continued in June. The acceleration was base effect, but still, it suggests the recent rise in goods price inflation won't be reversing yet.
PPI deflation has been more cyclical than structural, and the strengthening in Q2 should continue into Q3. But core CPI remains very weak. Inflation is too low to support rates.
Taiwan's exports were a bit better in June. But they still aren't as strong as TSMC sales suggest they should be.
The one-off firm survey undertaken as part of its long-term policy review has allowed the BOJ to reiterate its positive stance, and provide more of the evidence underpinning it.
May data give us more confidence that wage growth is accelerating. Other data today for activity aren't as robust, but don't suggest conditions are worsening further.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The BOJ's consumption index has ticked up so far in Q2. That is welcome, but even now, the index is 2% below the pre-covid level. Consumption remains the weak spot in the economy.
The moderation in core CPI inflation in June likely won't be enough to keep the central bank on hold if exports rise anywhere near the extent that equities are signalling is possible.
We combine quarterly household survey data with recently released annual GDP data to show why consumption isn't weak, what that means, and what there still is to worry about.
Latest data show that even before the BOJ makes its postponed decision about cutting gross new JGB purchases, on a net basis, the flow of new buying is already falling.
Industrial prices in China have hardly changed since September 2023. So there isn't upstream price deflation...but equally, there are no signs of inflation either.
The BOJ's latest estimate of the official output gap turning negative in Q1 is puzzling when the Tankan, also produced by the central bank, shows utilisation not just tight, but tightening further.
The June drop in the Caixin/S&P services PMI closes the gap with the already-weak official version. This might be noise, but there's a risk that the muddle through of the last few months is running out of road.