MNI Asia Pac Weekly Macro Wrap:

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Executive Summary:

JAPAN 

• Japan July household spend was well below forecasts, continuing to diverge from firmer wage/earning outcomes. High inflation, for key consumer items, like food, is cited as a headwind.
• BoJ OIS policy rate pricing has firmed this week, supported by more hawkish BoJ speak. Currently, pricing assigns a 97% probability to a 25bp hike to 1.25% at the September MPM, with a hike more than fully priced by October. The market is also pricing fully pricing in a second 25bp hike by January 2027 and a third by June 2027.

AUSTRALIA 

• The Q2 national accounts showed that productivity growth remained elusive in Australia and ran at the same level as the average since Q1 2023 – no improvement for more than three years.
• Australia's Melbourne Institute inflation gauge for August rose 0.5% m/m bringing the annual rate to 4.8% y/y from 4.0%, while excluding volatile items rose to 4.4% y/y from 4.2%. This data adds to the case for another rate hike as there are increasing signs that the upside risks the RBA fear are materialising.

NEW ZEALAND

• The RBNZ hiked rates 25bp to 2.75% to bring inflation back to the 1-3% target band by “gradually removing stimulus”. Governor Breman emphasised that the MPC is not on a “pre-set course” and it is important to take time to monitor the impact of the higher OCR as well as new data and information.
• While ANZ business confidence and the activity outlook moderated slightly in August, the Q3 averages are their highest since Q4 2025 and activity compared to a year ago, which has a good correlation with GDP, was higher than July driven by services.

SHORT TERM RATES 

• Interest-rate expectations through December 2026 were mostly firmer across the $-bloc over the past week, led by Canada (+9bps) and the US and Australia (+4bps). New Zealand was the outlier with its 4bp softening.

CHINA 

• China PMI’s mostly improved in August relative to July readings, particularly for the private sector RatingDog measures. This, at the margin, likely reduces near term stimulus risks. We get more data on trade and inflation next week. 

SOUTH KOREA 

•  Data this week on South Korean inflation and external trade continued to highlight BoK tightening risks. 

ASIA 

• ASEAN manufacturing activity continued to grow in August, although at a slower pace than in July, and the outlook improved as orders rose strongly.

ASIA EQUITY FLOWS 

• Equity outflows have mostly been evident from the region in the past week, with elevated UST yields and higher oil prices key macro headwinds.