FXT Economic Data Summary (Asia-Pacific | 08/28)

Australian Household Spending Remains Strong

Australian household spending continued to grow strongly in July, rising 1.1% month on month, well above the 0.3% market forecast, following gains of 1.2% in May and 1.0% in June. Annual growth accelerated from 6.1% to 7.0%, the strongest since June 2023. Spending increased across several categories, including recreation and culture by 1.5%, healthcare by 1.2%, hotels, cafés and restaurants by 1.1%, and food by 1.0%, highlighting continued resilience in household consumption.

However, higher spending does not entirely reflect stronger real demand, as rising prices also played a significant role. Nominal fuel spending increased 2.2% in July, while experimental volume estimates showed fuel consumption falling 4.7%. Food and dining spending was also partly lifted by higher prices. FXT analysis suggests that three consecutive months of strong household spending indicate that high interest rates have yet to significantly restrain consumption. With adjusted average inflation still at 3.6% year on year in July and monthly inflation accelerating to 0.5%, the RBA is unlikely to conclude soon that demand and price pressures have sufficiently cooled.

Bank of Japan Continues to Signal Further Rate Hikes

Bank of Japan Deputy Governor Ryozo Himino further stressed the need for interest rate normalization. With underlying inflation gradually approaching 2% and financial conditions remaining accommodative, there is still room to raise policy rates. Although the policy rate reached 1% in June, the BOJ continues to view this as an adjustment to the degree of monetary accommodation rather than a full shift toward restrictive policy. As Japan moves further away from its prolonged period of weak inflation, policymakers are paying greater attention to upside inflation risks.

Yen weakness is becoming an increasingly important driver of inflation. A weaker currency supports exports and inbound tourism but also raises the cost of energy, food and other imports, eventually affecting consumer prices and real household income. FXT analysis suggests that with financial conditions still accommodative, the direction toward further BOJ rate hikes is becoming clearer. If the yen remains weak and its pass-through to prices continues to strengthen, the BOJ may need to accelerate policy normalization.

German Consumer Confidence Improves

German consumer confidence continued to recover heading into September. The GfK and NIM consumer confidence index rose from a revised -29.4 to -26.6, beating expectations of -29.2. The improvement was driven mainly by a sharp rebound in income expectations, which climbed from -14.5 to 1.7, while economic expectations improved from -6.3 to -3.9. The propensity to save also declined from 17.0 to 15.5, suggesting some easing in household caution.

Actual consumption appetite, however, showed little improvement, with the willingness-to-buy indicator edging up only from -9.9 to -9.8, while price expectations rose from -2.1 to 0.2. FXT analysis suggests that the recovery in German consumer sentiment remains concentrated in income expectations and the broader economic outlook rather than actual spending. Whether stronger income confidence translates into purchasing power will be crucial in determining whether household consumption can provide more sustainable support for Germanys economic recovery.

ECB Pause Does Not Mean Tightening Is Over

Although the ECB unanimously kept interest rates unchanged at its July meeting, the meeting accounts showed considerable support for further tightening. Some members believed incoming data already justified another rate increase, arguing that resilient economic activity and faster credit growth suggested current rates might not be sufficiently restrictive. Hawks were particularly concerned that higher energy costs could spread into wages and underlying inflation, making inflation more difficult and costly to control later.

Most members ultimately supported holding rates because inflation had eased from 3.2% to 2.8% in June, wage growth was moderating and longer-term inflation expectations remained anchored near 2%. Current price pressures were also still largely supply-driven. FXT analysis suggests that the July pause was primarily intended to allow policymakers to assess September projections and incoming GDP, inflation and wage data. If price pressures strengthen again, or wages and credit remain firm, further ECB tightening will remain a possibility.