Asia Week Ahead: People’s Bank of China to set rates and Japan’s revised GDP

The People's Bank of China will set its one-year medium-term lending facility rate on 15 March, with markets looking to see if there will be a 10bp cut as part of a coordinated policy support push. Given that the tone on monetary policy at the Two Sessions was kept unchanged - continuing to highlight “prudent monetary policy” - the probability of a cut next week has fallen somewhat.

Next week also features the publication of February aggregate financing, loans, and money supply data. We expect a typical seasonal moderation in aggregate financing and loans, which could be magnified by the Lunar New Year falling in February. While there should be some support from lending activity to whitelisted property projects, this is unlikely to offset the seasonal effects. China’s FDI data will also be released sometime next week.

With seasonal vegetable prices settling back down again, we anticipate February CPI coming in just 0.1ppt higher than the previous month, which would leave the inflation rate at 5.05% year-on-year, hardly different to the 5.10% recorded for January. While this is still in the upper half of the Reserve Bank of India's target inflation range, it is unlikely to prove a substantial impediment to easing once global conditions (i.e. the Federal Reserve) have become more conducive to rate cuts in the region.

Next week’s highlight should be Japan’s revised 4Q23 GDP release and preliminary Shunto results (annual wage negotiations). The flash 4Q23 GDP result previously showed a disappointing contraction of 0.1% quarter-on-quarter (seasonally adjusted), pushing the economy into a technical recession. However, with updated better-than-expected activity data for December, we believe that quarterly growth will be revised up to 0.3% QoQ (sa). This is an important development as it could give the Bank of Japan more confidence in the economic recovery.

If 4Q23GDP beats the market consensus and the preliminary Shunto results come in stronger than last year, then market speculation for a March hike is likely to resurface. But, we still believe that April is the right time for the BoJ to change its policy settings.

Both Indonesia and the Philippines report their latest trade figures next week. Indonesia could see both exports and imports rise for February with the trade surplus possibly widening to $2.7bn from the previous month’s $2bn. A wider surplus could translate to additional support for the Indonesian rupiah.

Meanwhile, the Philippines releases January trade data with exports possibly managing to revert to growth of roughly 3% year-on-year. Meanwhile, imports are likely to remain in contraction of roughly 7% YoY which would translate to a trade deficit of around $4.2bn. The wide trade gaps suggest the current account remains in deficit, which would suggest the Philippine peso remains pressured in the near term.