East Asia Econ

With October meeting minutes, export and labour market data, there's enough to review the outlook for Korea. I think the underlying economic picture remains consistent with more cuts. But the minutes show Board members continuing to prioritise concerns about KRW weakness and house price strength.

The sharp recovery in sentiment in the EW survey continued in October. The improvement is broad-based, affecting both corporates and households. That shows a lessening of the tariff and inflation shocks of 1H25, and should be reflected in the BOJ becoming more optimistic about the outlook.

The summary of the October BOJ meeting show a stronger consensus that the time is approaching for another rate hike. That is partly because concern about tariffs is fading. It is less about domestic demand: data today show consumption trending up, but still only very slowly.

Data last week showed Taiwan remaining as one of the world's major beneficiaries of AI adoption. A big question for 2026 is whether Korea joins the party. Other themes are fiscal uncertainty in Japan, and further signs of stabilisation in China's underlying cycle.

CPI and PPI data for October show another lessening of deflation, and leads point to that trend being sustained through year-end. That is important, and fits with my idea of a bottoming for the underlying cycle. But I am not convinced yet, with services CPI inflation still too low.

I am running out of superlatives to describe Taiwan's export story in 2025. So I'll let the numbers speak for themselves: today's October data show semi exports have grown 70% this year, pushing the overall trade surplus last month to 30% of GDP, and the bilateral surplus with the US to 20% of GDP

Many explanations have been put forward for the drop in YoY FAI. I have another: YoY catching up with the weakness already clear in the MoM. That's tongue-in-cheek, but looking at the under-used MoM series for IP, retail sales and FAI add useful perspectives on what is happening in the economy.

China's exports, which had been so strong, were weaker in October. That could be the lagged impact of tariffs. The suddenness of the change suggests other factors are involved, but we'll find out more with next week's detailed data. For now, it is worth noting that auto exports continue to rise.

Data today show Korea's current account surplus remaining at over 5% of GDP. The fundamental driver is a fall in borrowing by the corporate sector. This structural surplus hasn't started to support the KRW. One reasons is continued outflows from the NPS.

Wage growth was softer in September. The continued slowdown in part-time wages per hour will be a bigger concern if it persists beyond the October rise in the minimum wage. Per hour full-time wage growth is stronger than the headline, though the data are noisy.

A slide pack summarising my views on the region, and each economy.

The rise in inflation in October has partly due to demand related to last month's extended holiday, and so shouldn't persist. However, inflation remains much stickier than I would have expected, given the ongoing weakness in the economy.