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Japanese PPI inflation rose sharply to 2.6% in July from 2.2% in June, well above the consensus for a modest rise.
Japanese firms hand out a significant portion of labour compensation through bonuses, with the largest lump awarded in December.
The external environment was relatively benign for China in July. The euro and yen appreciated as markets began to question how long policy can remain on their current emergency settings.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
China's FX reserves rose to $3119B in November from $3109B in October. But the increase is explained by simultaneous yen, euro and sterling strength, which raises the dollar value of assets denominated in these currencies.
Governor Kuroda commented yesterday that he doesn't think Japan needs more easing at this stage. If he means that the BoJ does not have to change policy to provide more easing then we think he is right, on two and a half counts. First, Japan is likely to receive a boost under its current framework as external rate rises exceed expectations, driving down the yen.
At the end of last year, we highlighted a tail risk that strain in currency basis swaps markets signalled looming yen appreciation.
The BoJ kept policy unchanged last week, but made a significant change to its communication, dropping its previous explicit statement on the timing for hitting the inflation target.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
The Tankan survey--published on Monday--points to still buoyant sentiment, a further tightening of the labour market, and building inflation pressures.
The last few years have thrown up surprise after surprise for establishment parties. Mr. Abe's Liberal Democrat Party is about as establishment as they come.
Japanese data continue to come in strongly for the second quarter. The manufacturing PMI points to continued sturdy growth, despite the headline index dipping to 52.0 in June from 53.1 in May. The average for Q2 overall was 52.6, almost unchanged from Q1's 52.8, signalling that manufacturing output growth has maintained its recent rate of growth.
Japan's CPI inflation has risen sharply in recent months, driven by non-core elements. The headline faces cross-currents in coming months, but should remain high, posing problems for BoJ policy.
Mr Abe's Liberal Democratic Party took a drubbing at the polls in Tokyo's Assembly election over the weekend. The consequences for fiscal spending probably are minimal but the vote strengthens the case for increased emphasis on the structural reform "arrow" and less focus on monetary policy.
Chinese New Year effects were very visible in Japan's December trade data. Export growth slowed sharply to 9.3% year-over-year in December, from 16.2% in November.
Geopolitical tensions have risen sharply for Asia in the last few months, yet the RMB has appreciated sharply. China's currency appears to be playing some kind of safe haven role.
We aren't convinced that China's recovery is in train just yet.
China's trade numbers for July surprised to the upside, with both exports and imports faring better than consensus forecasts in year-over-year terms.
Japanese average regular wages increased at an annualised rate of 0.6% in the three months to August compared with the previous three months, matching the rate in July.
The BoJ voted by an 8-to-1 majority yesterday to keep the policy balance rate unchanged at -0.1%, with the 10-year yield curve target also unchanged at around zero.
At their March meeting FOMC members' range of forecasts for the unemployment rate in the fourth quarter of this year ranged from 4.4% to 4.7%, with a median of 4.5%. But Friday's report showed that the unemployment rate hit the bottom of the forecast range in April.
In terms of one-day moves, the drop in U.S. equities yesterday and Asian equities in the past two days has been pretty bad.
In his second confirmation hearing, Governor Kuroda continued his dance with markets, dialling down the exit talk.
Japan's Nikkei services PMI dropped to 51.0 in September from 51.6 in August, continuing the downtrend since June. For Q3 as a whole, the headline averaged 51.5, down from 52.8 in Q2; that's a clear loss of momentum.
October likely was the peak in Japanese CPI inflation, at 1.4%, up from 1.2% in September. The uptick was driven by the non-core elements, primarily food.
Japan's manufacturing PMI rose to 53.3 in April, from 53.1 in March. The index weakened earlier this year, but remained at levels unjustified by the hard data.
An inverted curve is a widely recognised signal that a recession is around the corner, though it's worth remembering that the lags tend to be long.
Japan's producer price inflation levelled off in June and, for now, both commodity prices and currency moves in the first half imply that inflation should fall in the second half.
Japan's GDP growth came roaring back in Q2, thanks to a strong rebound in private consumption, and an acceleration in business capex.
Japan's official seasonally adjusted current account surplus rose to ¥2.27T in August from ¥2.03T in July. But we don't trust the seasonals, and our adjustment model shows the surplus fell slightly, to ¥1.91T in August. A further small decline likely is coming in Q4.
The BoJ left its policy levers unchanged at the Monetary Policy Committee meeting on Friday. At the press conference, Governor Kuroda was repeatedly asked about the status of the ¥80T annual asset purchase target and what the exit strategy would be.
Japanese M2 growth slowed sharply in December, to 3.6% year-over-year, from 4.0% in November, with M3 growth weakening similarly. It is tempting to ask if the BoJ's stealth taper finally is damaging broad money growth.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
The PBoC hiked its 7-day reverse repo rate by 5bp yesterday, stating that the move was a response to the latest Fed hike.
Two major themes emerged from the Chinese Party Congress last week, namely, further opening of the financial sector to foreigners, and the threat of a Minsky moment.
The Eurozone's current account surplus almost surely fell further in Q4.
Abenomics has had its successes in changing the structure of Japan. Notably, large numbers of women have gone back to work and corporations have started paying dividends. These are by no means small victories. But overall, the macroeconomy is essentially the same as when Shinzo Abe became prime minister.
he frequency of North Korean missile tests and attention-grabbing moves has increased markedly in recent months. Media reports now suggest that North Korea is preparing to follow its weekend nuclear test with another intercontinental ballistic missile test, in an unprecedented show of technological advancement.
The RMB has risen strongly in recent months, initially with the euro and the yen, but China's currency rose on a trade-weighted basis in August.
Japan's trade activity slowed sharply in Q1. The yen value of exports fell 0.8% quarter-on-quarter in Q1, after a 5.5% jump in Q4.
Japan is the only major advanced economy to have recently experienced an exchange rate depreciation as large as Britain's. Between July 2012 and May 2013, the yen f ell by 24%, matching sterling's depreciation since its peak in August 2015.
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