Asia’s two major economies are moving in opposite directions. Japan’s stronger-than-
expected inflation and strong domestic demand indicate that the economy is heating up.
Rising price pressures have raised expectations of a possible interest rate increase by the Bank
of Japan, while bond market rates have climbed to their highest levels in years.
China, meanwhile, is showing clear signs of cooling. Declines in both services and the
Manufacturing Purchasing Managers’ Index (PMI) point to weakening consumer demand,
while falling industrial profits and a debt-extension request from property giant China Vanke
highlight growing fragility. Deflationary risks are also growing.
As Japan and China are moving in different directions is creating a fragile balance for the
broader region. Uncertainty remains over Japan’s future policy path, while meaningful signs
of a sustained recovery in China have yet to appear.
