It's the usual week for a large amount of end-of-month data in Japan. We expect the overall data to suggest a recovery, and therefore believe the Bank of Japan will continue on its path of policy normalization. However, concerns that excessive market volatility could harm growth and inflation mean the Bank of Japan will likely normalize policy at a slightly slower pace than previously expected. We have withdrawn our forecast for an October rate hike by the Bank of Japan, but a December rate hike remains a possibility.
Tokyo's consumer price inflation is expected to ease to 1.9% year-on-year in August from 2.2% in July, mainly due to the government's temporary energy subsidy program. However, services sector prices are likely to rise at a faster pace than in the previous month as wage growth remains robust. Elsewhere in the region, industrial production is expected to recover to a seasonally adjusted 3.0% month-on-month (-4.2% in June) as automobile production gradually starts to recover and recent export data shows semiconductor-related production is also improving. The labor market is expected to remain challenging as chronic labor shortages persist.
