Lots to update on Japan today, with the flash PMI, machine orders, foreign trade and the flow of funds. And on Korea, there are the minutes from yesterday of the November MPB meeting, and today's release of the Q3 financial statement analysis data.
Data releases the last couple of days give more evidence that tariffs haven't derailed exports or capex. Even so, the flow of funds for Q3 show corporates remain net savers. With the fiscal deficit now also now narrowing to the lowest level since the 1990s, the result is a growing CA surplus.
The BOK minutes shed more light on the improvement in cycle optimism that was clear at the November meeting. In terms of exports, that appears justified, because of strong semi exports and firmer profits. I am less sure about consumption, even though corporate earnings will lift bonuses.
Today has been very quiet for releases, so just a few charts on Japan after the release of the full Tankan survey for Q4.
The BOJ has been concerned that tariffs would reduce profits, cutting into wages and capex. The Tankan shows no evidence of that: profit and investment expectations remain firm, as do inflation expectations, with the backdrop being a labour market that is tight for all industries.
In addition to all today's data from China, some comments on Friday's monetary release and yesterday's high-frequency price data. In Japan, in addition to the Tankan, the BOJ today released the results of a special wage survey. Taiwan FDI data show investment in the US this year falling to USD4bn.
Like last month, November data show a contrast between real weakness in some areas of the economy (such as property, goods consumption) and more stability in others (pricing, output). Overall, however, the balance is once again shifting towards more weakness.
In Q4 business sentiment improved, the labour market tightened, price pressures picked up, and capex intentions stayed elevated. The BOJ is set to hike on Friday. Today's survey, like other recent data, raise the risk that the bank can also send a clearer message about the outlook for rates in 2026.
China: the nominal stabilisation is fragile. Japan: with the cycle looking good, the risk of a BOJ upside surprise is the highest since July 2024. Korea: the upside scenario from the semi cycle still isn't the base case. Taiwan: macro becomes more interesting if the chip cycle sustains into 2026.
Some of the language in China's CEWC communiqué was encouraging. In Korea, while auto prices remain weak, overall export prices are rising and pushing up the terms of trade. Japan's monetary base is shrinking more quickly than any time since 2007. And my latest video, discussing Japan and the JPY.
My latest video, discussing the BOJ and the outlook for the JPY.
A look at some positive monetary developments in China, as well as charts from the MOF's quarterly business sentiment survey in Japan, and trade data for the first ten days of December for Korea.
Real economy developments still look negative for inflation. That the deflator nonetheless looks to be turning can be partly attributed to local food prices and global commodity prices. However, I think monetary factors are also playing a role, with three dynamics in particular worth highlighting.
Goods PPI shows upstream inflation pressure in Japan remaining firm, while today's CPI and PPI releases in China point to a further lessening of deflation. Korea's labour market is complicated by supply-side changes. In Taiwan the message is simpler, with wage growth continuing to trend up.
The post-August rise in PPI continued in November, with one driver being the JPY-driven rebound in import prices. All told, upstream price pressures remain firm, and suggest that CPI isn't likely to ease much over the next 6M.
Today's inflation data weren't surprising, with the big shift being food prices lifting CPI. Non-food prices aren't rising, but in level terms aren't falling either, which is an improvement from 1H25. Nominal growth should look better through Q126.
A longer report addressing three misconceptions with Japan's fiscal position. Also, yet another month of very strong export data for Taiwan. The driver is the sale of semiconductors to the US. In November, the bilateral trade surplus with the US reached 25% of Taiwan's GDP.
There is little growth in exports outside of tech in general, and semiconductors specifically. But the surge in chip exports is big enough to offset all the weakness in other products. The overall trade surplus eased back in November, but the bilateral surplus with the US reached 25% of Taiwan GDP.
The supplementary budget looks big, but this year's fiscal deficit is still budgeted to narrow. Gross debt is high, but the government's net liabilities have fallen. Interest rates have risen, but before Takaichi took office, net annual interest payments by the government had fallen to near zero.
China's exports rebounded in November, and so did the trade surplus. In Japan, there is lots of data to discuss today: the second release of Q3 GDP, EW survey, wage growth and BOP. There are some mixed messages, but one theme is stabilising real wages and stronger household confidence.
A few releases today – October wages and CA, November Economy Watchers survey, and Q3 revised GDP. The overall picture is mixed, though the acceleration in inflation and drop in real wages into early 2025 has now stabilised, and that is allowing an improvement in household sentiment.
The weakness in exports of October reversed in November, with a rebound in growth to ROW, and shipments to the US stabilising. Auto shipments reached a new all-time high, and are growing as quickly this year as in the initial take-off in 2023-24. Import demand declined, so the trade surplus rose.
Regional themes: lessening deflation in China, but no sign of real recovery; the BOJ is likely to hike this month, but the JPY needs a hawkish hike; outflows into overseas equities in Korea change usual exchange rate relationships; inflation risks in Korea and Taiwan if AI chip demand is sustained
Today's data show another surge in overseas equity buying in Korea, consumption in Japan that is quite strong considering the headwinds of population decline and real income squeeze, and inflation in Taiwan which has now fallen to 1.2%, but I don't expect will drop much further.
The big shift in Korea's BOP since 2020 has been the rise in overseas buying of equities. That outflow surged anew in October to a record high, and by offsetting the large current account surplus, has helped keep $KRW near record highs.