Global Economic and Political Updates: China, Japan, and France

Key global economic indicators and political developments unfolded in China, Japan, and France. China faced weaker-than-expected export growth, pushing companies to increase volume amid falling prices, while Japan's economy showed robust growth and upward GDP revisions, despite political leadership changes and looming monetary policy shifts.

Key Points Summary

• China's Export and Import Performance

  China's export growth was lower than anticipated, reaching its weakest point in six months at 4.4% against a forecast of 5.5%, while import growth also slowed. This situation is attributed to a significant reduction in exports to the United States.

• China's Trade Balance and Market Diversification

  China's trade surplus has exceeded $100 billion, reflecting a rapid shift in trade patterns. Following tariffs, direct demand from the U.S. decreased, prompting Chinese companies to seek alternative markets or indirect routes for goods to reach the U.S. Exports to the U.S. declined for the fifth consecutive month, contrasted by a 23% increase to ASEAN countries, a 10% rise to the EU, and a 26% jump to Africa.

• Chinese Companies' Profitability and Export Volume

  Despite growth in export revenue, a drop in prices and intense competition led many Chinese companies to operate at a loss, with traditional profits decreasing by approximately 2%. Export prices fell by an average of 23% across most months, compelling companies to increase export volumes to maintain revenue, a trend visibly reflected in record container volumes at Shanghai port.

• China's Domestic Demand and Government Policies

  China faces persistent weak domestic demand and declining foreign sales, putting Chinese businesses under increased pressure. The primary focus is now on boosting domestic consumption to offset weak export performance, with analysts expecting continued easing and supportive policies from the government.

• Japan's Revised GDP Data

  Japan's final Q2 GDP revision showed stronger performance than initial estimates, with a revised growth rate of 2.0% for the quarter ending June, surpassing the 1.0% expectation and analyst averages. This upward revision was primarily driven by higher personal consumption.

• Japan's Economic Growth Trend

  The Japanese economy has experienced continuous growth over the past five quarters, successfully maintaining its growth trajectory despite challenges like high inflation and tariff impacts. Household consumption is strengthening, and business investment, although slightly reduced, remains positive, aligning with a positive cycle of wage increases and price growth.

• Prime Minister Ishiba's Resignation and Political Impact

  Despite Japan's positive economic trend, Prime Minister Ishiba was unable to retain his position, announcing his resignation yesterday and triggering a leadership contest within the ruling party. This event introduces uncertainty regarding the future direction of government policies, concerning investors.

• BOJ's Monetary Policy Outlook

  The sustained growth of Japan's economy, coupled with the revised GDP figures and healthy wage-price cycle, provides further indication for the Bank of Japan (BOJ) to potentially raise interest rates in October. The BOJ maintains its stance on raising rates if sustained GDP growth and inflation continue.

• Japanese Political Landscape and Upcoming Elections

  With Ishiba's resignation, the Liberal Democratic Party (LDP) faces a leadership race where candidates are likely to prioritize promises of assistance to households combating inflation, which was a key factor in public dissatisfaction leading to Ishiba's downfall. As the LDP lacks a majority in either house of parliament, the new leader and Prime Minister will need to cooperate with opposition parties to implement policies, potentially including tax cuts to stimulate consumer spending, which could increase national debt.

• Impact on Japanese Yen and Stock Market

  Following Ishiba's resignation, Japanese stocks saw growth, with the Nikkei index up by about 1.2%, Topix by 1%, and the Asia index by 3%, partly due to the weaker Yen and expectations of government stimulus. Conversely, the Yen weakened, and is likely to remain under downward pressure in the short term, with political instability potentially delaying a BOJ rate hike if the currency depreciates too rapidly.

• France's Government Instability and Debt Crisis

  The French government faces a potential collapse today as Prime Minister Bayrou attempts to secure a vote of confidence in the National Assembly regarding efforts to reduce the country's massive debt. France's budget deficit is the largest in the Eurozone, with its national debt increasing by approximately 5,000 euros per second and interest costs projected to reach 75 billion euros by next year.

• France's Budget Proposals and Opposition

  Bayrou's controversial budget proposal for 2026 includes 44 billion euros in spending cuts and tax increases, aiming to reduce the deficit. However, three major opposition parties—the National Rally (far-right), La France Insoumise (radical left), and the Socialists—have vowed to vote against the government, making the prospect of securing support very low. This opposition stems from public disapproval of the austerity measures.

• Consequences of a Vote of No Confidence in France

  If Bayrou's government loses the no-confidence vote, President Macron could appoint a new Prime Minister or dissolve parliament and call for snap elections, though the latter is not currently planned. Macron has affirmed he will not resign. A new Prime Minister would still face the challenge of deficit reduction, with financial markets concerned about France's fiscal situation, especially compared to countries like Italy that have made progress in deficit control.

• Impact on the Euro

  The political uncertainty and unresolved domestic policy situation in France, coupled with its substantial debt, are exerting significant downward pressure on the Euro. This instability makes the Eurozone's resilience appear weaker compared to the UK or the US, potentially leading to a sharp depreciation of the Euro against currencies like the GBP or the US Dollar.

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