Rhythmic Reasoning_Highlights_SWM_EN - Flipbook - Page 12
J A PA N & C H I N A
Japan: Stable economy and persistent inflation point to another BoJ hike
Japan’s economy posted its fifth consecutive quarter of growth in 2Q25 with
household consumption rising to 1.5% QoQ from a stagnant reading in 1Q25,
offsetting a slowdown in private investment. The U.S.-Japan trade deal – while not
ideal given that levies on Japanese goods are much higher relative to the pre-Trump
era – has mitigated the cloud of uncertainty over the Japanese economy.
Of course, these developments were not enough for Shigeru Ishiba to stay on as Prime
Minister. Opposition parties are keen on implementing policies that reduce taxes and
raise spending, potentially adding to Japan’s already bloated debt loads and giving
the bond market some pause. These concerns have driven Japanese bond yields
higher, particularly for the 30-year tenor.
Despite uncertainty around the fiscal policy front, economic resilience and persistent
inflation likely give the BoJ enough backing to resume rate hikes. Officials opted to
leave the policy rate unchanged at their latest meeting in September. While the
decision to hold was widely expected, the meeting was not an uneventful affair as two
out of nine board members dissented and favoured a 25 bps hike. The BoJ also plans
to begin offloading ETFs and J-REITs, another step toward monetary policy
normalization.
Concerns around rising fiscal outlays have driven JGB yields
higher in recent months
3.4%
1.7%
3.2%
1.6%
3.0%
1.5%
2.8%
1.4%
2.6%
1.3%
2.4%
1.2%
2.2%
1.1%
2.0%
Jan 2025
1.0%
Mar 2025
May 2025
JGB 30-yr yield - LHS
Jul 2025
Sep 2025
JGB 10-yr yield - RHS
China: Slowing activity momentum has raised calls for more stimulus
Owing to the resilience seen in 1H25, we have revised our 2025 real GDP growth
forecast higher. However, China’s August activity data shows momentum is slowing,
with all major indicators falling short of expectations. The overall picture is of an
economy losing steam despite earlier policy efforts, reinforcing doubts over whether
the 5% growth target can be achieved without another round of stimulus.
Rerouting of shipments to other markets has kept Chinese
export demand afloat as shipments to the U.S. have fallen
30.0%
20.0%
The rerouting of shipments has been an important offset to domestic economic woes.
Shipments to the U.S. have unsurprisingly been in free-fall, but stable demand from
other markets has kept exports afloat. That said, this tailwind is at risk of slowing as
tariffs take a bite out of global growth.
Policymakers now face a trade-off between preserving ammunition for longer-term
goals and shoring up near-term growth. The risk is that incremental measures may be
too slow to arrest the slowdown. With core inflation weak and investment contracting,
the case for additional monetary stimulus has grown, in our view.
10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
Mar-22
Nov-22
Jul-23
China Exports to U.S. (USD YoY%)
Mar-24
Nov-24
Jul-25
China Export Trade (USD YoY%)
