Diverging growth and policy in Asia: delayed stimulus in China, tighter bias from Japan and ASEAN central banks

Overview

This report is J.P. Morgan’s Asia macro data tracker, covering economies including China, Japan, Australia, New Zealand, ASEAN, and Taiwan, China. The core conclusion is that growth and policy paths in Asia are clearly diverging: weak domestic demand in China leads to a downgrade of the 2Q growth forecast, but export resilience, the tech cycle, and delayed fiscal stimulus support the second half; Japan’s growth momentum is better than previously feared and the BoJ continues policy normalization; ASEAN central banks continue to hike in response to inflation or FX pressure; Australia maintains a hawkish pause, while New Zealand’s growth recovery strengthens the case for rate hikes.

Core views

For China, economic activity weakened further in May, with real estate still the main drag. The lack of sufficiently front-loaded fiscal bond issuance and fund disbursement weakened infrastructure momentum, while private investment and household consumption were also restrained by confidence, income, and employment expectations. The report lowers China’s 2Q GDP forecast to 3.3% q/q saar, but raises 3Q to 3.5% and 4Q to 3.7%, citing continued export resilience, support for high-tech manufacturing from the global tech upcycle, possible easing in energy and supply-chain pressures, and room for subsequent stimulus because fiscal support was not fully deployed in 2Q. For Japan, the BoJ raised rates to 1.00% and downplayed the constraint of neutral-rate estimates on policy; manufacturing sentiment, exports, and machinery orders all point to upside risk for 2Q growth. For Australia, the RBA kept rates at 4.35%, but inflation remains high and the board retained the option of further hikes; for New Zealand, 1Q GDP and upward revisions indicate a more solid recovery.

Analysis framework

The report uses a regional macro tracking framework, combining high-frequency economic data, central bank meeting outcomes, policy statements, inflation and labor-market indicators, trade and machinery orders, and the pace of fiscal execution to assess revisions to growth forecasts, central bank reaction functions, and asset-price risks. The analysis compares actual data against J.P. Morgan and market expectations, while also focusing on forward policy guidance and the constraints that upcoming data releases may impose on the forecast path.

Methodology notes

• Macro forecast revisionGDP growth forecast and nowcast tracking

  Adjust quarterly GDP forecasts based on activity data, consumption, investment, exports, and policy execution.

  The downgrade to China’s 2Q forecast mainly comes from weaker domestic demand, fixed-asset investment, and consumption; the upgrade to second-half forecasts comes from export resilience, support from tech manufacturing, and potential fiscal stimulus.

• Monetary policy analysisCentral bank reaction function

  Assess the future rate path through inflation, exchange rates, growth, political constraints, and policy statements.

  BI’s hike was mainly to support the IDR, BSP’s hike was mainly to address inflation, the BoJ’s hike reflects easing downside growth risks and upside inflation risks, while the RBA retains a tightening bias during its pause.

• Cycle and sector transmissionAI-related manufacturing demand tracking

  Observe how demand for AI-related materials, electronics, machinery, and capital goods drives manufacturing sentiment, exports, and orders.

  The improvement in sentiment among large Japanese manufacturers is concentrated in sectors such as chemicals, metals, machinery, and electronics that benefit from AI demand, while the breadth of machinery orders also points to upside risk in capex.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macro and RMB assets

  Related to fiscal stimulus, the real-estate cycle, exports, and the strength of tech manufacturing.

  Strengths

  Export resilience, the global tech cycle, and subsequent fiscal room should help support second-half growth.

  Weaknesses

  Weak real estate, soft consumption, falling fixed-asset investment, and insufficient private-sector confidence drag on near-term growth.

  Comparison

  Compared with Japan and New Zealand’s improving growth, China’s 2Q domestic demand performance is weaker, but delayed policy support provides room for later recovery.

  Risks

  Further delays in fiscal stimulus, a broader real-estate downturn, rising energy costs, or weaker external demand.

• Japan rates, JGBs, and yen-related assets

  Directly affected by BoJ rate hikes, the pace of JGB purchases, and inflation expectations.

  Strengths

  Manufacturing sentiment, the rebound in exports, and strong machinery orders show better economic momentum than previously expected.

  Weaknesses

  Political friction over rate hikes, a slower QT pace, and uncertainty around the neutral rate may affect policy credibility.

  Comparison

  Japan’s policy direction is more clearly in a normalization phase than most Asian economies, but it is still constrained by the government’s dovish bias.

  Risks

  Inflation exceeding expectations, markets questioning the BoJ’s ability to execute, or more hawkish overseas central banks increasing rate pressure.

• ASEAN rates and foreign exchange

  Affected by rate hikes from central banks such as BI and BSP, the US dollar environment, and energy prices.

  Strengths

  Central banks acting as expected helps stabilize policy credibility, and some countries can use hikes to address inflation or FX pressure.

  Weaknesses

  Indonesia faces IDR pressure, while the Philippines still needs to deal with high inflation.

  Comparison

  BI’s hike is more motivated by FX stability, while BSP’s hike is more motivated by inflation control.

  Risks

  A more hawkish Fed could intensify FX pressure, or falling energy prices could reduce the need for further tightening in the Philippines.

• Australian and New Zealand rate assets

  Driven by RBA and RBNZ policy expectations, CPI, employment, and GDP data.

  Strengths

  New Zealand’s GDP recovery is stronger, and Australia’s inflation may come in below RBA staff forecasts.

  Weaknesses

  Australia’s inflation remains high, unemployment is rising, and demand is slowing; the strength of New Zealand’s recovery still needs confirmation from future data.

  Comparison

  Australia is in a hawkish pause, while New Zealand data more strongly support further RBNZ hikes.

  Risks

  The expiry of Australia’s fuel tax could push up 2H headline inflation, while an unsustainable New Zealand recovery would weaken the case for rate hikes.

Key data

• China 2Q GDP forecast3.3% q/q saarLowered due to weak domestic demand, fixed-asset investment, consumption, and fiscal execution.
• China 3Q and 4Q GDP forecasts3.5% / 3.7%Second-half forecasts were raised due to export resilience, the tech cycle, and room for subsequent fiscal stimulus.
• China full-year growth range assessment4.5%-5%The report believes subsequent stimulus will help keep full-year growth within the target range.
• Bank Indonesia policy rate5.75%Raised by 25bp, mainly to support the IDR; terminal rate forecast remains at 6.00%.
• BSP policy rate4.75%Raised by 25bp to address elevated inflation; terminal rate forecast remains at 6.00%.
• Taiwan, China CBCRate unchanged2026 growth forecast was raised to 9.5%, CPI forecast is 1.9%, and 4Q rate-hike risk has increased.
• BoJ policy rate1.00%Raised by 25bp; the report expects another hike in October and then about once every six months in 2027.
• BoJ JGB purchase planAbout JPY 2 trillion/monthWill stop further reductions in purchases after April 2027; the balance sheet will still shrink, but the pace slows after 2028.
• Japan April core private machinery orders+8.7% m/m saBoth manufacturing and non-manufacturing orders increased, creating upside risk to the 2Q capex forecast.
• Japan May export volume+4.0% m/m saThe rebound was stronger than expected, mainly supported by auto exports to the US.
• Australia cash rate4.35%The RBA paused as expected, but still emphasized that inflation is too high and retained the option of further hikes.
• Australia April unemployment rate4.5%The highest since 2021, though the report believes some of the volatility may reverse in later data.
• New Zealand 1Q GDP0.8% q/q；1.5% oyaIn line with J.P. Morgan’s and consensus strong expectations, and accompanied by upward revisions to prior data.

Impact & implications

In investment terms, the report points to a divergent trading environment for Asian macro assets: China’s growth is under short-term pressure, but delayed policy support implies stabilization expectations in the second half; Japan’s rate normalization continues, and JGB and yen assets should watch the BoJ’s execution ability and political frictions; ASEAN rates and FX remain affected by a hawkish Fed, energy prices, and local currency pressure; Australia and New Zealand policy paths will continue to be repriced around inflation, the labor market, and growth resilience.

Risks

• China’s fiscal spending continues to underperform expectations, delaying the recovery in infrastructure and effective investment.
• China’s real-estate downturn spreads further from sales and prices to employment, income, and consumer confidence.
• Recurring energy-price or supply-chain shocks suppress Asian manufacturing and consumption.
• A more hawkish Fed or other major central banks amplifies pressure on Asian FX and local rates.
• Political resistance to BoJ policy normalization leads markets to repeatedly question its hiking path.
• The expiry of Australia’s fuel tax and oil-price fluctuations may push up headline inflation in the second half.

What to watch

• The pace of China’s subsequent government bond issuance, fund disbursement, and infrastructure project implementation.
• Whether stabilization in China’s tier-one-city existing-home market can spread to the broader market.
• Whether China’s exports and high-tech manufacturing can continue offsetting weakness in traditional domestic demand.
• BoJ summary of opinions, June PMI, Tokyo CPI, and signals for an October rate hike.
• The impact of subsequent BI and BSP meetings and Fed policy on FX pressure in Asia.
• Australia’s monthly CPI, employment data, and the price path after the fuel tax expires.
• Whether the RBNZ will deliver its first rate hike based on 1Q GDP and revised data.