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Japan’s trade deficit widened again in July, thanks to a surging import bill.
Energy costs are a big part of the problem, but recent yen weakness is more curse than blessing.
Exports are yet to benefit from the currency’s fall, and key imports are insensitive to price changes.
Supply chains are recovering, with delivery times and shipping costs improving in East Asia.
Lower raw material costs are reducing cost-push inflation, and should feed through to output prices.
The main supply-side risks now are political, as China retaliates for Speaker Pelosi’s Taiwanese trip.
Japan’s Tokyo CPI inflation was marginally stronger than expected, but still driven by cost-push factors.
Yen weakness should relieve pressure on the BoJ, and confirms an outlook of policy stability into 2024.
China’s Politburo has emphasised zero-Covid over growth, with few signals of significant stimulus.
Japan had been recovering reasonably well from its Omicron wave, but a new outbreak now looms.
Growth is already under pressure, even before official restrictions are rolled out.
Inflation looks manageable, especially with demand pressures now waning.
Thursday’s BoJ meeting followed the usual script, with added emphasis from Governor Kuroda.
The central bank’s current forecasts imply no change in policy until 2024, at least.
Early Korean export data suggest global demand is still waning, and China’s reopening boost is over.
The Caixin manufacturing PMI confirmed a healthy rebound for China in June.
Domestic demand, however, remains weak, and data from Korea suggest external demand is fading.
Japanese inflation surprised to the downside in June, reinforcing the BoJ’s dovish position.
Japanese CPI inflation was unchanged in May, andremains above the 2% target.
We think inflation will remain above target for the rest of the year, thanks to recent yen weakness.
But the BoJ will still see no reason to hike, with cost-push inflation viewed as “unsustainable”.
Japanese manufacturing slowed further in June, likely reflecting weakening global demand.
The service sector extended its recovery from the Omicron-induced lows, but will peak soon.
Price pressures rose further, but the labour market still looks soft, so no change likely from the BoJ.
The BoJ stood pat on Friday, leaving policy settings unchanged, despite pressure on the yen and JGBs.
Governor Kuroda was at pains to assert the primacy of growth and inflation as drivers of monetary policy.
Currency volatility, rather than weakness, bothers the BoJ, warranting only limited intervention.
Renewed yen weakness has drawn policymaker attention, with markets on alert for intervention.
Fighting currency weakness, however, is difficult, and Japan has few tools available.
Policymakers will likely be limited to fighting a rearguard action, reducing volatility on the way down.
Inflation is stabilising in Japan, after its April surge, and we do not expect much movement from here.
Yen weakness has partially reversed, thanks to U.S. data, easing the pressure on the BoJ.
Chinese industry is under pressure, particularly the private sector, and policy offers only limited support.
Japanese flash PMIs for May show a domestic recovery facing headwinds from external factors.
The most obvious culprit is China’s zero-Covid policy, with restrictions loosening only slowly.
New stimulus from China is underwhelming, but, importantly, contains new money this time.
Japan’s CPI inflation is finally back above its 2% target, but this won’t prompt a change from the BoJ.
The surge has been driven almost entirely by base effects, rather than any pick-up in demand.
Falling rates in China, aimed at propping up the property sector, will have little effect.
Japanese exports slowed more than expected in April, thanks to China’s lockdowns.
The disruption to regional supply chains, stemming from factory closures in China, was also visible.
It is getting harder to argue that the yen’s weakness is a net positive, as imports ex-China climb higher.
China+ Document Vault, Pantheon Macro, Pantheon Macroeconomics, independent macro research, independent research, ian shepherdson, economic intelligence