5 March 2018
Japan: Something fishy

Rising prices for salted fish-guts (among other things) could force the Bank of Japan to trim its qualitative and quantitative easing programme

Japan’s inflation emerged from negative rates in September 2016, and is now comfortably above 1% (1.4% headline). With a 2ppt consumption tax due in April 2019, the next 18-months to two years offers to be one of unexpectedly robust inflation for Japan. So is it time for the Bank of Japan (BOJ) to ditch their Qualitative and Quantitative easing (QQE)?

The answer to this partly depends on why inflation is rising and what else is happening in the economy.

China: Stability guaranteed

Constitutional changes in China will allow President Xi Jinping to serve as president indefinitely. What does this mean for the economy?

Xi extends his tenure as the leader of the country

Although Xi’s (pictured) tenure will no longer be limited by the constitution, it will end at some point. Let’s assume that the arrangement would be similar to a Kingdom. Whether the Monarch eventually abdicates or passes away, the monarchy passes to someone else. The same arrangement is likely to apply to Xi, who is now 64. That means he could be the country’s leader for a long time yet.

Overall, this could be positive for the economy because economic policies are likely to be consistent.

This is positive for the economy because economic policies are likely to be consistent.

In contrast, democratic countries’ policies often get overturned at elections, and sometimes fail to achieve their goals. China does not have such hindrances. So Xi can set his policies with a long-term vision.

Xi has already initiated several important projects for the economy. These need time for the results to be seen.

  • Firstly, the anti-corruption campaign.
  • Secondly, the Belt and Road Initiative.
  • And finally, to modernise society, that is, to have a society that is wealthy and high-tech.

With Xi likely to be in place for some time, there is a higher probability that these projects will conclude and achieve their results, and in turn, provide economic stability. To maximise the benefit of Xi’s longer tenure, he will also need his advisory team to be as stable as possible. That means he will engage people who share his thoughts (Xi’s new era thoughts), which will be added to the State Constitution after they have been added to the Party’s Charter.

Thailand: Just keeping afloat

The latest price data dashes the central bank’s hopes of inflation hitting the 1-4% policy target in the coming months

A downside inflation surprise

Thailand’s consumer price inflation surprisingly slowed to 0.4% year-on-year in February from 0.7% in January. The consensus forecast was no change from January’s level. Food and transport prices were the main drags. Core CPI measure at 0.6% was unchanged from January.

The central bank's inflation optimism

Data dashes the Bank of Thailand’s, the central bank, hopes of inflation rising up to the 1-4% medium-term monetary policy target in the coming months. It may get there on a technical ground, the shift to low base in March 2017, rather than an underlying price recovery. The target was raised from 0.5-3% in early 2015, an odd timing when the economy plunged into deflation, and has been hardly achieved since (see chart). Inflation averaged at -0.9% in 2015 followed by a modest recovery to 0.2% in 2016 and then to 0.7% in the last year.

We think it’s now time for the BoT to lower policy inflation target.

A sustained weak domestic spending will keep demand-pull inflation low, while strong Thai baht (THB) mitigates spill over of rising global commodity price. Another year of below-target inflation is the baseline. We are reviewing our 1.1% forecast for 2018 for downward revision. We reiterate our forecast of no change to the BoT rate policy all year.

Keep an eye on reforms in China’s Two Sessions

This year's "Two Sessions" will be different from previous years, as President Xi extends his tenure. Reforms will be under the spotlight. We share our thoughts on what reforms to expect and the risks and opportunities for some sectors

This time would be different

With President Xi's tenure extended, talking points in the Two Sessions will be different from previous sessions.

As Xi has consolidated power in the Party and also the State, he will demonstrate to the country and also to the world that he is capable of achieving results that previous leaders of China could not fulfil. These include raising the profile of China in international platforms, in terms of economic power and in influencing international opinion. In other words, Xi would like China to play a more prominent role in international politics. At first, this may be imperceptible, but over time, Xi would like China to be a country that is impossible to ignore.

Reading time around 4 minutes

Good MornING Asia - 5 March 2018

If exit polls can be trusted Italy is headed for political gridlock, or perhaps eventually new elections after Sunday's voting. Germany has solved its political indecision, with an SPD / CDU coalition now agreed. Trump's tariff announcement last week seems to be heading towards global trade wars, with apparently no exemptions. Constitutional changes in China will allow President Xi Jinping to serve as president indefinitely.  

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