East Asia Econ

Three themes from last week: improving terms of trade, led by rising export prices; expanding current account surpluses; and growing optimism about the sustainability of AI-related hardware demand that is critical for cycles in Taiwan and Korea. Also, happy year of the (fire) horse.

January fx settlement data suggest large fx intervention for a second consecutive month. One reason is the CA surplus, which other data today show widened in Q4. Another is interest rates which are more stable, even though monetary trends aren't changing much, and property prices continue to fall.

Import prices aren't rising quickly, but they do remain elevated, supporting PPI in a way that wasn't true during Japan's long deflation. More interesting now is the strength of export prices, a dynamic that boosts exporter profits, and via the terms of trade, provides a tailwind for domestic income

CPI inflation softened in January, but it always does when the new year holiday falls in February. PPI has less seasonal distortion, and rose MoM in January for the second consecutive time. The GDP deflator is likely to improve again in Q1. This is about external factors, but deflation is lessening.

My latest video, discussing the cheapness of currencies across the region, why that didn't change in 2025, and why it might in 2026.

The BOK recently published some nice research highlighting the rise in the household savings ratio. That is an important phenomenon, helping explain the weakness of consumption, the rise in the current account surplus, and being intertwined with the surge in Korea's overseas equity buying.

Takaichi's huge win comes when the cycle is looking stronger, with real wages close to rising, manufacturing sentiment improving and bank lending strong. This should give the BOJ confidence, and, with the current account surplus in 2025 reaching the highest level in forty years, also help the JPY.

The fundamental themes for the region are rising external surpluses, improving manufacturing cycles, and lessening deflation in China. That mix should be helping currencies. The offsetting factors to be monitoring are politics in Japan, flows, and global dynamics around tech and the USD.

Formally launching my data API, which now allows access to almost 700,000 series covering China, Japan, Korea and Taiwan, with monthly, quarterly and annual data.

Korea's current account reached a record high in Q4. But equity outflows, remarkably, increased even more. The balance between the two should diverge through 2026. The CA surplus can be expected to grow on the back of the semi supercycle, while there are four reasons to think net outflow should peak

A chart pack summarising developments in China and Korea.

Regional themes: continuing (and under-appreciated) nominal improvement in China; election uncertainty in Japan; strengthening export momentum in Korea on the back of chips; which in turn looks significant given the huge outperformance of Taiwan through 2025, all because of AI and semiconductors.