MNI Asia Pac Weekly Macro Wrap:

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Executive Summary:

JAPAN 

• Japan wages data was weaker than forecast, although slumping bonus payments played a role. The PPI was also below forecasts, with import prices continuing to fall sharply in y/y terms. If the current USD/JPY bounce holds, we should see import price falls stabilize at some stage in Q3. 

AUSTRALIA 

• The RBA surprised the market by keeping rates on hold this week. The strong sell-side consensus (and market pricing) was for a 25bps cut. The central bank stating it wanted to see more signs of inflation sustainably trending towards the 2-3% target band before easing again. This shifts the focus to the Q2 inflation print, due at the end of this month. 

NEW ZEALAND

• As expected, the RBNZ kept rates steady but maintained an easing bias. The central bank considered a rate cut on the basis of softer growth momentum but is mindful that inflation pressures are likely to be stronger in the near term. Again, the Q2 inflation print, along with inflation expectations, will be eyed closely for RBNZ easing risks. 

SHORT TERM RATES 

• Interest rate expectations across dollar-bloc economies were largely unchanged over the past week, except in Australia, where rates firmed by 16bps.

CHINA 

• China’s inflation outcomes saw headline CPI rise, but PPI deflation worsened. Weaker PPI trends should aid lower global CPI trends all else equal. The China authorities look to be stepping up efforts to curb excessive competition in key sectors. 

SOUTH KOREA 

• The BoK held rates steady as expected this week. The central bank maintained an easing bias as it expects domestic growth to remain low. Financial imbalances, particularly in terms of household borrowing and Seoul property price gains, prevented an easing this week. 

ASIA EQUITY FLOWS 

• South Korea and Taiwan equity inflows have remained firm. Trends elsewhere have been less positive.