| I'm Malcolm Scott, international economics enterprise editor in Sydney. Today we're looking at the policy dilemmas confronting Asia's biggest central banks. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here. - Donald Trump wants a weak dollar — but Wall Street doubts he'll get one. Meanwhile, the US's policy outlook is clouded by a "sensationally unpredictable" election.
- Business expectations are slumping in Germany and France.
- Coming up: US real GDP probably expanded at a modestly faster pace in the second quarter than at the start of the year.
Juggling multiple and conflicting objectives goes with the job of central banking — indeed, it is the job. Now that inflation has been brought back down toward target zones across most developed economies, the big question is when — and how much — to cut interest rates, to preserve as many of the job gains since the pandemic as possible. But for Asia's top two central banks, there are more variables to consider, clouding the policy outlook and raising the risk of policy error. First, let's take a look at the People's Bank of China, which made a modest reduction to a key short-term rate on Monday, followed by a surprise cut to its one-year policy rate on Thursday. Mired in deflationary risk, and with consumers in a funk, there's a strong case for the domestic economy needing lower borrowing costs. The cut on Thursday shows that policymakers are "finally acting collectively to boost the recovery," said Chang Shu and David Qu of Bloomberg Economics. At the same time, China's export engines are motoring along, fueling record trade surpluses and adding to protectionist impulses in Europe and the US. Lower rates would threaten to weaken the yuan and swell those surpluses even further — stoking all the more Western ire. The PBOC — which lacks the independence of its western peers — must also consider the goals of President Xi Jinping, who has indicated a preference for a strong currency and has been willing to run a cooler economy so long as structural improvements remain on track. So for Governor Pan Gongsheng, it would be ideal for the US Federal Reserve to be the one to affect the exchange rate, through rate cuts on the dollar side of the equation. A Fed easing cycle could help give the PBOC wiggle room to steer China's borrowing costs lower without fanning trade tensions. Read more: China's Rate Path Divides Analysts With Mini Cuts Still Likely  Kazuo Ueda, governor of the Bank of Japan Photographer: Kiyoshi Ota/Bloomberg In Japan, Governor Kazuo Ueda also has his hands full. He's intent on dragging the benchmark rate firmly off the zero lower bound, but must do so without snuffing out tentative signs of sustainable inflation. And the currency has a big role to play there. The yen hit a fresh 38-year low earlier this month, and the government is suspected of having conducted a second round of intervention recently to shift the tide. So from that perspective, a Bank of Japan rate hike next Wednesday would be a relief for Prime Minister Fumio Kishida, who faces a party leadership election in September and is seeing his popularity dented by a cost-of-living crunch. It's not quite a slam dunk decision, however. After a decades-long battle against deflation that's seen a number of key policy errors, the danger of hiking too far, too soon looms large. Next week's decision is also complicated by the consideration of whether to keep scaling back purchases of government bonds, with the BOJ set to release plans for quantitative tightening All of that has a majority of analysts betting against a rate hike next week, even as more than 90% of survey respondents see at least a risk of a move. - The Bank of Canada is so confident it has crushed inflation that it has tweaked its decision-making process.
- The US has delayed its decision on whether to classify Vietnam as a market economy, a step that could boost the nation's exports.
- South Korea's economy contracted. Meanwhile, the president appointed a new senior secretary to boost the country's dismal birthrate.
- Higher borrowing costs in the UK pushed 320,000 people into poverty.
- African nations are rushing to build their gold reserves to hedge against geopolitical tensions that have battered their currencies.
- Malaysia inflation risks dim as consumer prices undershot forecasts.
Findings were released this month on what's claimed to be the most comprehensive study on the provision of a basic income conducted in the US. The OpenResearch project examined three years of $1,000 monthly distributions to beneficiaries in Illinois and Texas, in an initiative backed by OpenAI Chief Executive Officer and founder Sam Altman. "While no two people's lives are the same, certain themes did emerge as we analyzed findings across study participants," the group said in a summary of its findings. "The cash led to increased spending on basic needs and financial support to others. On average, recipients worked less but remained engaged in the workforce." "Cash is flexible," said Elizabeth Rhodes, OpenResearch's research director. "It's an imprecise instrument if your goal is to move one outcome for everyone, but it moves some or many outcomes for everyone." | 
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