Last week, next week

This is what happened on East Asia Econ this week.

Highlights

Thematic

Japan - taking stock. The huge moves in markets may well have an impact on the extent and pace of further BOJ policy normalisation. But when markets settle down, developments in the real economy will also matter. It will be particularly important to track SME wages, service prices, and consumption.

China – imports more interesting than exports. July exports fell, but it is premature to call the start of a downturn. That's partly because of market share gains. These are solid, though not impressive enough to validate over-capacity. In terms of structure, the much bigger shift is in imports, which have completely over-turned pre-20 trends.

Cycle

Region

China

Cycle update – core CPI deflation again. The July price data offer more evidence that the food price cycle has turned. With less PPI deflation too, it is likely that headline CPI gets a bit of a lift. But core CPI inflation in July was once again very weak, which is enough of a reason to assume that the PBC will continue to cut rates.

Japan

Cycle update – solid wage data. The June jump in earnings was almost all about bonuses. But the details were solid: for full-timers, wage growth didn't slow much, and it accelerated for part-timers. There's also now a greater likelihood of a trend rise in real wags as the less-weak JPY dampens import prices.

Cycle update – confident but not dogmatic. In the BOJ's first comments since last week, Uchida says that policy is dependent on the economic outlook, which could be affected by market moves, particularly the JPY. However, he also reiterates confidence in the underlying changes that the BOJ has been talking about throughout this year.

Korea

Taiwan

Quick take charts

QTC: China – building material prices fall even faster

It really is striking that while policymakers have been trying to stabilise the property market for months, construction price data show no let up in the pain. Indeed, if anything, through late July it looks to be getting worse.

East Asia EconPaul Cavey

QTC: Japan – strong services PMI

Whatever else might be true, the BOJ isn’t changing policy at a time of cycle weakness. The full PMI confirmed the strength of the flash, with firm employment, “marked” inflation and robust business confidence. That was all true even though foreign demand contracted.

East Asia EconPaul Cavey

QTC: China: S&P PMI better, but still no mojo

The better tone of the headline Caixin services PMI in July wasn’t reflected in the commentary: “Instances of service providers raising selling prices.....were offset by others lowering selling prices to support sales.”. The level of business confidence was “the second-lowest since March 2020″.

East Asia EconPaul Cavey

QTC: Taiwan – inflation now low enough

Today’s July data show the moderation of core inflation in Q2 has been sustained. If there’s now a global slowdown, the central bank will likely stop worrying about prices. But if the export cycle proves to still have legs, more work likely needs to be done to cap the post-2020 step-up in inflation.

East Asia EconPaul Cavey

QTC: Japan – solid Economy Watchers survey

The Economy Watchers survey for July has the same message as the PMI: at least before the market volatility of the last few days, Japan’s cycle was in pretty good shape.

East Asia EconPaul Cavey

QTC: Taiwan – export growth struggling

Asia data is showing an industrial recovery that remains sluggish. Today’s data for Taiwan, similar to Korea’s earlier in July, shows export growth struggling to get into double digits. That’s modest, when both economies should be the biggest beneficiaries of AI-related demand for tech hardware.

East Asia EconPaul Cavey

QTC: Taiwan – strong TSMC sales

TSMC’s sales rose to another record high in July. Set against that, Taiwan’s July export data look rather soft. I still haven’t found a good explanation for the gap. I wouldn’t have thought it can be the fabs in Japan?

East Asia EconPaul Cavey

Next week

There aren't any pre-announced policy meetings this week. So the focus will be on the data, particularly China with the big official July releases on Thursday. We'll be going through those in detail, but it is doubtful they will contain anything that changes the market mood. Elsewhere, there's the first release of Q2 GDP data for Japan, and the second release for Taiwan. There's also wage data today for Taiwan, which are important, as they have been suggesting a structural shift in wage (and thus inflation) dynamics. The only major release in Korea is labour market data on Wednesday.