Key facts
- Japan's services activity was flat at 50.0 in May.
- Japan's services activity growth was the weakest since early 2025.
- Japan sold US Treasury securities in May for FX intervention.
- Japan's FX intervention likely boosted US Treasury yields in May.
- China's industrial activity improved in the second quarter.
- Chinese consumers are increasing spending on luxury goods.
- China's stock market has shown a rebound.
- Chinese automakers are expanding into Europe.
- China launched its first online departure tax-refund store in Beijing.
- China and South Korea will increase weekly commercial flights by 70.
- Shibuya Ward in Tokyo has started issuing on-the-spot fines for littering.
- Fines for littering in Shibuya Ward are 2,000 yen.
Japan's economy is experiencing a slowdown in its services sector, with activity remaining flat at 50.0 in May, representing the weakest pace of growth since early 2025. This stagnation indicates a broader trend of decelerating economic momentum within the services industry. Concurrently, Japan's foreign exchange intervention in May, aimed at supporting the Yen, involved the sale of US Treasury securities. This action is believed to have contributed to a notable spike in US Treasury yields during that month, underscoring the interconnectedness of global financial markets.
In contrast, China's economy is showing signs of improvement and expansion. Industrial activity in the second quarter demonstrated an upward trend, although underlying economic weaknesses persist. The Federal Reserve has observed that China's current export-led expansion is distinct from historical patterns, characterized by its larger scale, the production of more advanced goods, and an asymmetric trade dynamic where export growth does not correspond with import growth. Chinese consumers are also increasing their spending on high-end beauty and fashion products, a positive development for global luxury brands after a period of subdued demand. This renewed consumer appetite aligns with a recovery in China's stock market.
Further demonstrating China's economic engagement, Chinese automakers are expanding their presence in Europe. They are leveraging competitive pricing and advanced technology to challenge established European and American brands amidst the global transition to electric vehicles. In a move to facilitate international commerce and tourism, China has launched its first online departure tax-refund store in Beijing. The city also activated its first hotel-based tax refund counters simultaneously, initiatives announced by the Beijing Municipal Tax Service of the State Taxation Administration.
Additionally, China and South Korea are bolstering their commercial flight connections. They will increase weekly flights between the two countries by 70, bringing the total to 664 passenger flights and 68 air freight flights. This expansion, the first since before the COVID-19 pandemic, reflects a significant surge in two-way tourism.
Japanese regional banks are also recalibrating their international strategies, shifting their focus away from China. They are actively pursuing new growth opportunities in Southeast Asia and India, signaling a broader re-evaluation of market presence in favor of emerging economies.