Key facts
- Japan's services activity was flat at 50.0 in May.
- Japan's services activity growth was the weakest since early 2025.
- Japanese regional banks are reducing operations in China.
- Japanese regional banks are increasing focus on Southeast Asia and India.
- China's industrial activity improved in Q2.
- Chinese consumers are increasing spending on luxury goods.
- China's stock market has recovered.
- Chinese automakers are expanding into Europe.
- China and South Korea will increase weekly commercial flights by 70.
- Shibuya Ward in Tokyo is issuing on-the-spot littering fines.
- Littering fines in Shibuya Ward are 2,000 yen.
- Japan sold US Treasury securities in May for FX intervention.
Japan's services sector activity remained flat in May, registering at 50.0, which marks the weakest pace of growth since early 2025. This stagnation indicates a broader trend of slowing economic momentum within Japan's services industry. Concurrently, Japanese regional banks are strategically pivoting their operations, scaling back engagement in China to explore new growth opportunities in Southeast Asia and India. This reallocation of resources reflects a broader re-evaluation of market presence in favor of emerging economies.
In China, industrial activity demonstrated improvement during the second quarter, although underlying economic weaknesses continue to be a concern. The Federal Reserve has noted that China's current export-led expansion is distinct from previous cycles, characterized by its larger scale, the production of more advanced goods, and an asymmetric trade pattern where export growth does not correspond with import growth. This renewed economic vigor is accompanied by an increase in Chinese consumer spending on high-end beauty and fashion products, a positive development for global luxury brands after a period of subdued demand. This resurgence in luxury spending coincides with a recovery in China's stock market. Chinese automakers are also expanding their footprint in Europe, leveraging competitive pricing and advanced technology to challenge established European and American brands amidst the global transition to electric vehicles. Furthermore, China has launched its first online departure tax-refund store in Beijing, with the city also activating its first hotel-based tax refund counters, initiatives announced by the Beijing Municipal Tax Service of the State Taxation Administration. To further boost tourism, China and South Korea are increasing weekly commercial flights between them by 70, from 608 to 664 passenger flights and from 54 to 68 air freight flights, marking the first expansion since before the COVID-19 pandemic.
Separately, in Japan, the foreign exchange intervention undertaken by the government in May to support the Yen involved the sale of US Treasury securities. This action is believed to have contributed to a spike in US Treasury yields during that month, underscoring the interconnectedness of global financial markets. In Tokyo, Shibuya Ward has implemented on-the-spot fines of 2,000 yen (approximately $13) for littering. This measure is intended to address challenges posed by overtourism and maintain the cleanliness of the urban environment in a highly popular tourist destination.