AsiaThis week, we highlight recent developments in China and Japan, alongside movements in gold and their relevance to Asia. Investors remained broadly unfazed after China’s “super golden week” holidays, with equities buoyed by AI optimism despite recent weak economic data (chart 1). US President Trump’s Friday threats of additional 100% tariffs, however, dented sentiment, with the escalation underscoring China’s delicate external environment. This week’s trade figures show a continued divergence, with exports to Asia still growing while those to the US slumped further (chart 2), amid a backdrop of subdued domestic inflation. Attention is also on the IMF’s upcoming economic forecasts for China. Past projections, including the IMF’s July WEO and the World Bank’s recent report, suggest sub-5% growth, though late-year stimulus has sometimes lifted growth above expectations (chart 3).
In Japan, Sanae Takaichi’s victory in the LDP leadership race positions her to become the country’s first female Prime Minister. Yet, the exit of long-time coalition partner Komeito has left much uncertain. Nonetheless, markets have priced in Takaichi’s pro-growth stance, with a weaker yen and rallying equities (chart 4), though rising inflation (chart 5) may constrain policy ambitions. As for gold, the precious metal continues to attract attention, with prices surpassing $4,000 per ounce. The rally has strengthened Asian currencies that are usually correlated with the precious metal, such as the Thai baht. A slower-moving but significant driver of the gold rally remains the accumulation of reserves by major Asian central banks, including China and India (chart 6), likely reflecting efforts to diversify away from the US dollar.
China China has just come out of its “super golden week”, an eight-day stretch of consecutive holidays from October 1st to 8th, resulting from the overlap of the National Day and Mid-Autumn Festival breaks. This extended holiday period was closely watched for a potential spike in domestic tourism, retail spending, and broader growth momentum. Preliminary data show that key retail and catering firms recorded a 2.7% y/y increase in sales, a notable slowdown from the 6.3% growth seen during the Labour Day break earlier this year. This suggests that consumer spending was more restrained during the recent holiday period. Given Beijing’s increasing emphasis on consumption-led growth over traditional drivers such as exports and investment, the health of Chinese consumers has become an ever more critical barometer of the economy. Nonetheless, following the reopening of financial markets after the holidays, equity market enthusiasm — buoyed in part by AI optimism — initially appeared undimmed, despite a weaker run of economic data (chart 1).
