China Economic Outlook & BOJ Policy (with Paul Allen)

Asks to what degree China's strong industrial production numbers were boosted by AI-related industry and exports.

Paul Allen

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A confluence of factors: AI trickling through the system, energy resilience/diversification boosting demand for China's green-tech exports, and China's manufacturing competitiveness plus the US-China trade truce providing stability.

The Strait of Hormuz closure triggered many countries to rethink energy resilience.

Asks about the outlook for China's oil demand, particularly after inventories are restocked.

Paul Allen

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There has been demand destruction in sectors like petrochemicals. China has been sitting on reserves and will come back to replenish once the situation eases, but they are conscious of oil prices and may take longer.

Asks what conditions are needed for sustainable improvement in Chinese consumer sentiment, given weak retail sales.

Paul Allen

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China is undergoing a structural change. The high base last year makes headline retail sales look weak, but services sector is stabilizing. Recovery will likely be seen in a new set of indicators rather than a broad-based recovery, hinging on household confidence.

We need to look at consumption from a slightly different angle.

Asks how much of a drag the property market is, given contracting house prices and investment.

Paul Allen

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The property market has been a drag for years and may become a smaller part of GDP. It's too early to say it's stabilizing, but transactions in higher-tier cities are coming up, reflecting stabilization of income and employment expectations in those areas.

The relevance of the property sector will be different from past cycles.

Asks what number for months to sell existing homes would restore confidence.

Paul Allen

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Hard to pinpoint a magic number due to structural change. The key is whether green shoots broaden from tier-one to tier-three cities. The market will likely remain bifurcated, with focus on larger cities with population inflows.

Asks where the BOJ is heading after the hike, and what to watch in the press conference.

Paul Allen

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The hike was fully telegraphed. The dovish dissent from a new board member is interesting. More rate hikes are expected as real rates are still accommodative. The focus is on how domestic-driven reflation pans out. Uchida's assessment of inflation and its interaction with growth, especially with the US-Iran resolution, is key.

The BOJ is in the middle of policy normalization.

Asks for analysis of where Japanese inflation is headed, given potential energy price relief.

Paul Allen

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Japan's reflation momentum remains stable, with inflation likely to anchor close to 2% in the medium term. This gives the BOJ room to continue hiking. The long-term focus is on the interaction with fiscal policy, as the Takaichi administration is gearing towards structural fiscal expansion, which has implications for JGB markets.

The base case is that Japan's inflation will be on a higher trajectory in a new regime.

Asks about the RBA, whether they overdid it with three consecutive hikes, and if inflation has peaked in Australia.

Paul Allen

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The RBA is expected to hold. With the US-Iran resolution, central banks in the region may get more breathing room. The RBA can stand to assess the impact of earlier hikes, given bifurcated growth in Australia with soft domestic activities despite strong capex.

Many central banks in the region can afford to be more patient in the short term.

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