27 July 2018
Asia week ahead: Will July data testify to trade war impact?

Korea’s July trade data and central bank policy meetings in Japan and India will be the highlights next week

Some relief on the trade front, but not a whole lot

A raft of economic data for July will come as the first test of the trade war that kicked off earlier this month.

While the 'soft' data on manufacturing purchasing managers' indexes (PMIs) may show the impact on sentiment, the hard data on trade should provide some sense of the actual hit. This keeps Korean trade data for July, the first for the month from Asia and probably the world, in the spotlight. 

We expect a small annual decline of 2.6% in Korean exports - the second consecutive negative print.

Japan: Policy confusion

Japan’s Central Bank (BoJ) dropped any reference to meeting its inflation targets in 2019 in its April statement. Since then, pundits have been trying to figure out what is coming next. The next monthly policy meeting on July 31, for so long a complete non-event, is now moving markets. Read further to see what we think.

Is there more than meets the eye to the BoJ’s inflation target tweak?

That earlier statement change has prompted some to suggest that the BoJ was going to downgrade its inflation forecast and adopt a lower target – perhaps at the forthcoming 31 July meeting.

We strongly doubt it. But there are good arguments for doing so.

  1. The likelihood of Japan ever reaching its 2.0% inflation target without either a massive devaluation of the yen, surge in consumption tax, or ballooning of oil or other energy or food prices is vanishingly small.
  2. Who said 2% was a sensible number anyway? For an economy with a potential real GDP growth rate of only about 1.0%, inflation is likely to be similarly muted – perhaps 1% would be a better target to aim for, and one that the BoJ might actually hit from time to time?
  3. There appears to be very little room for expanding the policy to make up the inflation shortfall - more leeway could be engineered by reducing the target to, or even below the current rate.
Reading time around 2 minutes

Good MornING Asia - 27 July 2018

Draghi re-hashes the same lines to a sun-baked Europe - rates on hold until after "summer" 2019

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