Fed cuts rates as expected, while BOJ holds rates and signals the end of ultra-loose monetary policy. China’s economy shows signs of faltering.
US
U.S. Fed flags rising labor market risks, paving way for two more rate cuts later this year. The FOMC voted 11:1 to cut its policy rate by 25 bps to 4.00–4.25%, citing the need to contain risks to the economy, particularly from an increasingly fragile labor market. However, they revised up its GDP forecasts for 2025 from 1.4% to 1.6% and for 2026 from 1.6% to 1.8%.
FOMC members agreed that the U.S. economy is slowing, particularly in the labor market, which faces greater downside risks amid weakening key indicators such as nonfarm payrolls, unemployment, and job openings. Despite this, the Fed raised its GDP forecasts for 2025 and 2026. At the same time, inflation is expected to gradually rise into next year due to the impact of tariff hikes. This creates greater uncertainty for monetary policy in 2026, as reflected in the Fed’s dot plot, which points to two more rate cuts (25 bps each) at meetings later this year, and only one additional cut next year.
Japan
BOJ announces first-ever ETF sales, marking the end of ultra-loose monetary policy. The Bank of Japan (BOJ) voted 7:2 to keep its policy rate at 0.50%, noting that the economy still faces risks from U.S. trade policies. It also decided to gradually sell off its holdings of ETFs (JPY630 bn annually), remarking that a full disposal could take more than a century.
Still-high inflation continues to weigh on domestic consumption, as reflected in the sharpest slowdown in retail sales since February 2022. Meanwhile, political uncertainty looms with the ruling Liberal Democratic Party (LDP) set to elect a new leader on October 4. In addition, Japan’s exports also fell for the fourth consecutive month in August. This is in line with manufacturing PMI that remains in contraction territory and is likely to weaken further following U.S. tariff hikes in early August. These factors are expected to keep the BOJ from rushing into rate hikes, with the policy rate likely to remain at 0.5% through the end of this year.
China
The slowdown in China’s economy becomes more apparent, in contrast to the stock market. Retail sales growth weakened further, from 3.7% YoY in July to 3.4% in August. Industrial production slowed from 5.7% to 5.2%. Fixed-asset investment in the first eight months barely grew at 0.5%, down sharply from 1.6% in the first seven months. Real estate investment contracted further, from -12% to -12.9%. Meanwhile, as of September 19, the Shanghai Composite Index was up 10.5% from early July.
China’s slowdown and pressures from trade wars are heightening risks and may require additional stimulus measures. Recently, the government has expanded measures to boost consumption in the services sector, including encouraging banks to provide more loans to service providers and consumers, expanding visa-free entry, extending opening hours for tourist sites, and building more recreational facilities. We expect China to cut interest rates further this year. However, the stock market rally, in contrast to the slowing economy, could pose risks to financial stability in the period ahead. The government is considering measures to rein in speculation.
Policy continuity under new government expected to reduce recession risk, but growth remains weak
GDP growth may contract quarter-on-quarter in 3Q25 but is expected to turn slightly positive in 4Q25. The new government, led by Anutin Charnvirakul, head of the Bhumjaithai Party, is preparing to deliver its policy statement to Parliament between late September and early October. This will mark the official “first day” of governing, under a limited timeframe of only four months before the House is expected to be dissolved for new elections. As a result, the administration is being closely watched for their ability to ensure policy continuity and drive economic activity.
Krungsri Research assesses that clearer political conditions and policy continuity under the new government should help Thailand avoid a technical recession. GDP may contract in 3Q25 on a quarter-on-quarter basis but is expected to register a slight expansion in 4Q25. This aligns with our base-case forecast of 2.1% GDP growth for the full year 2025. Nonetheless, growth momentum remains constrained. GDP in the second half is projected to expand only 1.3% YoY, down from 3.0% in the first half, as the boost from front-loaded exports fades and the impact of U.S. tariff hikes (to 19% in August) weighs more heavily on Thai exports. These factors present ongoing challenges to economic performance, even though policy continuity may partially mitigate the risk of recession.
Thai tourism faces intensifying regional competition as recovery remains challenged. In August, foreign tourist arrivals to Thailand totaled 2.58 mn (-12.8% YoY), generating THB 119 bn in tourism revenue
(-13.4%). For the first eight months of the year, foreign arrivals stood at 21.9 mn (-7.2% YoY), with total tourism revenue of THB 1.01 trn (-8.7%).
Thailand’s tourism sector continues to show a weak recovery, pressured largely by a continued decline in Chinese arrivals. In August, Chinese tourists dropped sharply by -37.7% YoY to only 0.4 mn. For the first eight months of the year, total Chinese arrivals plunged by -35.3% YoY to just 3.1 mn, representing only 40% of pre-pandemic levels in 2019. This decline reflects concerns over safety and shifting travel preferences among Chinese tourists, who are increasingly choosing alternative destinations—not only Japan but also ASEAN countries. In particular, Vietnam attracted 3.5 mn Chinese visitors in the first eight months of 2025, significantly surpassing Thailand. In addition, Malaysia has also gained popularity. The situation highlights Thailand’s eroding competitiveness in the Chinese market, once the country’s most important tourism source. It underscores that the sector’s recovery in the remainder of 2025 faces significant challenges. Without proactive measures—especially to address safety concerns—tourism’s role as a key growth driver of Thailand’s economy could diminish further going forward.
