Overall trade trends – strong exports, weak imports, and a big trade surplus – remain in place. But the Trump tariffs are causing big shifts in the structure of exports. Direct shipments to the US have fallen 40% this year, and excluding the pandemic, haven't been this low since 2013.

CPI was surprisingly firm in May, with core continuing to show a reversal from the deflation of 2024. Overall, however, nominal indicators remain very weak. Leads for core have started to deteriorated again, and PPI deflation accelerated in May. The GDP deflator will be negative once again in Q2.

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

With the bigger shunto rounds since 2023, wages have tended to jump early in the fiscal year. That was true this year, with full-time regular wages in April back to the faster post-2023 trend. However, part-time wages were flat, which will matter if confidence and the cycle don't rebound in 2H25.

The important detail in today's CPI release for May was the drop in MoM core. Given the weakness of demand – now beginning to show up more clearly in the labour market – that moderation should persist. With global commodity prices weighing on headline, inflation should be less of an issue in 2H25.

The tone of Ueda's speech today was rather constructive. Of course, he discussed the risks from tariffs, but didn't think they were likely to derail the economy. If some kind of Japan-US deal can be reached – and progress is reportedly being made – BOJ hikes will quickly be back on the table.

A shorter video that last time, summarising the most important issues for each economy, giving a regional ranking, and discussing market implications.

My model points to a rising risk of CBC tightening. But that reflects the export blow-out of 1H25, and neither markets nor officials expect that to persist. Moreover, there are the inklings of a structural rise in the TWD, which would mean tightening via the currency. Rates could actually be cut.

Operating profits reached another record high in Q1. Like the cycle overall, profits have been led by non-manufacturing, especially in terms of margins. That is partly due to cost-cutting, with the labour share dipping in Q1. Capex is rising, but not particularly fast, despite high cash holdings.

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

The manufacturing PMI did improve in May, lifted by a bounce in export orders. But there's no sign of a turnaround in the underlying economy, with the construction PMI weak, output prices softening, and business confidence remaining poor.

Tokyo data show May inflation remaining high. In other releases, unemployment is low and retail sales sluggish. Tokyo CPI dynamics are diverging from national trends, because of the stronger property market. But still, the message for the BOJ is the same: inflation is strong, but growth isn't.