Two very different reports yesterday from the two economies that matter most to us in Australia.
China confirmed that its inflation rate has surged to more than 5%, while Japan confirmed that economic growth has slowed sharply.
Japan also confirmed that its trade surplus continues to remain high, thanks to those exports, while China said on Friday that its trade position in July produced the second-largest surplus in history, after June.
Japan is our biggest export market, China is number 2. So their economic health is vital to our resources boom.
China's National Bureau of Statistics reported that consumer prices in July were 5.6% above July 2006, compared to June when they were 4.4% above the June 2006 figure.
That was higher than forecasts from agencies like Bloomberg and Reuters and it has raised the possibility of a fourth interest rate rise and yet another tightening in reserve ratios to try and curb bank lending.
Attempts so far this year to slow lending and the economy and bring inflation under control have been undermined by disease which has affected pork production and forced up prices, and by a surging trade surplus which is producing a flood of money into the economy.
Poor weather (drought in some areas and heavy rain in others) has also damaged grain and vegetable production, putting further upward pressure on consumer prices.
The only time inflation hit this level was back in early 1997.
Some economists claim that the figures show inflation is out of control and that China is 'exporting' these rising price pressures into the rest of the world.
But that's inaccurate because non-food inflation in the country has slowed to 0.9% from around 1% for the past five months.
What is causing the prices of products from China to rise in western markets is the large drop in the US dollar. (Most of the groaning about Chinese exports and trade policy is in the US among protectionist Democrats and Republicans on both sides of politics, aided by business and union lobby groups.)
There is some quite simple figuring to show the impactthe sharp rise in the cost of food has had on inflation.
Food prices account for a third of China's consumer price index; food prices rose 15.4% in July as compared to July 2006: the cost of meat (pork and poultry) jumped 45.2% and eggs rose more than 30%.
So no wonder the overall CPI rose sharply.
And it is hard to see interest rate rises and new restrictions on bank lending influencing the cost of pork, poultry and Bok Choy!
China is trying to put further restraints on food price inflation by ordering inquiries (is that the same the world over?) and ordering local government not to take actions which would boost food costs even further (no tax or fee changes, for example).
The price news is having no impact on the Chinese stock market which continues to rise. The market is now valued around $US2.8 trillion, which is larger than the country's 2006 Gross Domestic Product.
GDP growth was an annual 11.9% in the second quarter.
With inflation, investment, the stock market and the trade surplus all running at record levels, it's no wonder the central bank warned of the dangers of overheating last week.
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But it is a very different story in Japan where figures out yesterday showed second quarter growth slowing sharply (almost to a halt), more sharply than anyone had forecast.
The slow-down makes it unlikely that there will be a rate rise coming out of next week's meeting of the Bank of Japan, especially with the central bank again over-funding financial markets yesterday as part of the coordinated worldwide liquidity management program which started in Europe on Thursday.
Japan grew at an annual rate of just half a per cent in the second quarter to June 30, compared to a revised 3.2% annual rate in the first three months of the year.
But at the same time, Japan's current account surplus grew 48% in June because the weaker yen lifted the value of foreign investment income and exports.
The surplus rose to $US12.8 billion from a year ago. (That's a figure China was earning a year ago!)
Even though exports to the US were lower in June (the rising yen didn't help), they still rose at the fastest pace in five months, boosted by higher sales to China and Europe.
Rising investment income from overseas investments driven by the so-called carry trade will continue boosting the current account surplus.
The Bank of Japan injected 600 billion yen ($US5.1 billion) into the financial system today after adding 1 trillion yen on Friday.
Consumer spending rose 0.4% and capital investment rose 1.2%. Meanwhile prices were positive in the quarter, which means the country continues to emerge from deflation.
