Asia FX Talk - Likely upward revision to Japan's GDP

  • Mar 05, 2024

Ahead Today

G3: Eurozone Composite PMI, US Durable Goods Orders, US ISM Services Index, US ISM Services Prices Paid

Asia: China National People’s Congress, China Caixin PMI Services, Philippines CPI, Thailand CPI, India Services PMI, Singapore Retail Sales

Market Highlights

Capital spending out of Japan for 4Q surged by a stronger than expected 16%yoy, up from 3.4%yoy, while company profit growth remained robust at 13%yoy. These capex datapoints are also in line with the optimistic business outlook presented in the Tankan surveys. These numbers would likely imply an upward revision to the 1st estimates of Japan’s 4Q GDP estimate, and also importantly, allay some fears that the economy is slowing down meaningfully. Meanwhile, Japan’s Tokyo CPI estimate was roughly in line with expectations at 2.6%yoy. Our Japan research team expects the BOJ to have the confidence and policy space to shift away from its negative interest rate policy by the March meeting, and they have also added in one more BOJ rate hike in 4Q2024 (see Global FX Monthly March 2024). We expect JPY to be a key outperformer this year.

Atlanta Fed President Bostic said he expects the Fed’s 1st interest rate cut to come in 3Q, and followed by a pause to assess how the policy shift is affecting the economy. Meanwhile, he also mentioned concerns about overexuberance among US businesses, and cited that as another reason not to rush rate cuts.

Regional FX

Asian FX markets traded somewhat stronger against the Dollar, with MYR (+0.43%), PHP (0.4%), and THB (+0.41%) outperformed. The key event is China’s National People’s Congress, and the release of the 2024 Government Work Report. There was initial news saying that the government is targeting “around 5%” GDP growth for 2024, which is roughly in line with both what we and the markets are expecting. Beyond the GDP target, markets will watch closely for fiscal deficit budget, coupled with other policies such as on the property market, local government debt and demand-side stimulus to boost consumption. South Korea’s industrial production rose by a stronger than expected 13%yoy in January, helped by semiconductor production. Looking ahead, the Philippines CPI is expected to show some slight uptick in February to 3%yoy, but overall we think the BSP should still have policy space to cut rates starting from 2H2024 as the Fed cuts and inflation settles down further.