MNI Asia Pac Weekly Macro Wrap:

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Executive Summary:

JAPAN 

• Japan real labour earnings and household spending remained negative in y/y terms, which continues to highlight the difficulty in achieving sustained positive growth for these parts of the economy. BoJ Governor Ueda highlighted the significant uncertainty facing the policy outlook. 

AUSTRALIA 

• The May meeting minutes confirmed that staying on hold, 25bp and 50bp rate cuts were discussed. It appears that not only is there considerable uncertainty regarding the outlook but that the Board prefers to remain cautious and move “predictably”, as a result it cut by the widely expected 25bp.
• While Q1 GDP was weaker than expected and slower than Q4, it was impacted by extreme weather events in the quarter which impacted exports and domestic demand. Thus, there is likely to be some positive payback in Q2 and so a reaction by the RBA to the weakness at its July 8 decision is not assured.
• Weak Q1 productivity along with rising compensation per employee drove unit labour cost inflation higher.

NEW ZEALAND

• While the Q1 merchandise terms of trade rose less than expected at 1.9% q/q, it was the fifth straight monthly increase after it was up 3.2% in Q4. Statistics NZ notes that the softer kiwi “contributed” to higher export and import prices.

SHORT TERM RATES 

• Interest rate expectations across dollar-bloc economies were mixed over the past week for December 2025. Canada stood out as the outlier, with a roughly 8bp increase in the expected year-end rate. In contrast, the US saw a 6bp decline, while Australia and New Zealand experienced more modest softening of 2-3bps.

CHINA 

• China's May CAIXIN PMI contracted in May, surprising forecasters. May's result of +48.3 was materially down from +50.4 in March and a surprise to market survey's predicting a rise to +50.7. May's result was the worst since Q3 2022.
• April CAIXIN PMI Services delivered a +50.7 result and below market expectations of +51.0.

SOUTH KOREA 

• May's CPI declined further providing room for the BOK to cut rates again. The YoY CPI declined to +1.9%, from +2.1% in May.
• The South Korea bond curve steepened post the Presidential election, with more fiscal stimulus seen coming. 

ASIA 

• The May S&P Global ASEAN manufacturing PMI continued to show a decline in activity in the sector but at a slower pace with the index rising 0.5 points to 49.2, the second straight month below the 50-breakeven level. Q2 growth is shaping up to be soft. Only the Philippines and Thailand showed some growth, with the latter outperforming the rest of the region. The RBI surprised by cutting rates by 50bps. 

ASIA EQUITY FLOWS 

• Outflows emerged this week, although South Korea bucked the trend following the Presidential election result.