Inflation is the theme, with the rise in prices in the China March PMIs, and two documents released by the BOJ yesterday. In other data today, Korean output was stronger in February. I'd worry about holiday distortions, though a turn in construction can also be seen in the BOK's sentiment survey.
More interesting than today's data releases were yesterday's BOJ documents, on trends in underlying inflation, and the summary of opinions of the March MPB meeting. The BOJ is concerned about the negative TOT shock from the Middle East, but sounds more worried about upside risks to inflation.
The sharp rise in input prices in today's PMIs move China back towards rising YoY PPI for the first time since 2022. Usually, higher prices would boost PMIs too. With the rise in prices externally-driven, that is less likely now. But, I think some inflation does improve the macro cycle for China.
Charts on the impact on CPI and fiscal positions of policies to control energy prices, the BOJ's updates of some of the core elements of its framework, and growth in Taiwan, which was very strong in 2025, but might have accelerated even further in early 2026.
Some charts on regional energy supply and government attempts to cushion the impact of rising energy prices since 2022. Rough rule of thumb: spending 1% of GDP on energy subsidies leads to a reduction in headline CPI inflation of around 1ppt.
This week's three themes: 1) rising inflation despite government attempts to hold prices down; 2) growth that might be starting to wobble but hasn't clearly turned down yet; and 3) huge uncertainty about the direction of events in the Middle East.
The impact of the oil price spike is starting to be seen, with inflation expectations rising and sentiment falling in the business survey in Korea, and the consumer survey in Taiwan. Also today, 10-day exports and underlying inflation in Japan, and profits in China. In total, 24 charts.
The easy takeaway from the rise in prices and fall in sentiment in the BOK's business sentiment survey for March/April is stagflation. I think there are reasons as yet to discount the idea that activity has slowed, but if that is right, then the rise in inflation makes BOK rate hikes more likely.
Like goods PPI, services PPI inflation in Japan has slowed. However, energy prices will now push up goods prices, while wages point to upstream services inflation re-accelerating too. Taiwan's labour market remains tight, with the unemployment rate dipping to 3.3% in February.
While governments are using subsidies to lessen the impact, today's Korea consumer confidence survey suggests the Iran war might already be boosting inflation expectations. In other news, Taiwan remains the relative loser in tourist arrivals, though that is offset by the strength of goods exports.
High-frequency price data in China suggest that PPI might turn positive this month for the first time since 2022. In other releases today, underlying CPI inflation and sentiment in Japan remains firm, services prices boosted PPI in Korea in February, and IP in Taiwan last month was strong once again
Headline inflation data continue to be affected by policy measures to control energy and public services prices. The underlying picture is more stable, with core private services inflation of around 2%, PT wage growth of 5%, and PMIs above 50. The big risk, of course, is the impact of the Iran war.
Gasoline prices across the region are rising, but much less slowly than the increase in crude prices. Data through the first 20 days of March show only a modest rise in energy imports so far in Korea. At the same time, chip exports have continued to grow, pushing up the trade surplus.
In the first stage of the Iran War, China has been the relative winner, and Japan the loser. The next stage would be yet higher energy prices that challenge the sustainability of efforts to control inflation for consumers, and mean economies start to face a negative demand shock too.
It isn't worth paying too much attention to China's detailed trade statistics for Jan-Feb, given new year distortions. That said, the trend rise in capital goods imports is an under-appreciated shift. Tourist arrivals in Japan remained strong in February, as did Taiwan export orders.
As expected, no change in policy from either the BOJ or Taiwan's CBC in today's monetary policy meetings. Concerns about inflation are greater in Japan, which makes sense given firm CPI and an improving cycle. The theme for the CBC remains strong growth and modest price increases.
Flow of funds data show ongoing improvement in Japan's fiscal position through end-25. Exports ticked down in February, but because of Chinese New Year rather a new step-down. Employment in Korea rose in February, but the more noticeable change is the further rise in the female part rate.
This cycle in Japan continues to stand-out for the strength in services activity. In Korea, export prices rose in February. Import prices will now increase more quickly, but the net impact of the energy price shock will depend on whether the surge in semiconductor demand and prices now holds or not.
While all the main China Jan-Feb indicators came out today, I think the more important releases were the weekend data showing a further rise in upstream prices, and fx settlement showing continued capital inflows. In Taiwan, wage growth slowed in January, but that is probably holiday related.
1) Goods and services output growing ~5% is enough for Beijing; 2) money and credit growth don't suggest a lot of change in that underlying trajectory; 3) nominal momentum is improving, with an end of PPI deflation now a real possibility; 4) the likelihood of further monetary easing is falling.
It isn't yet all about the war, given the real strength in semi demand. That backdrop is one reason to think underlying inflation will be lifted by the latest crisis. The durability of the AI cycle will also be the canary in the mine for a negative supply shock becoming a negative demand shock.
The annual survey of firm behaviour in Japan's shows the structural rise in inflation expectations is continuing. Today's official February PMI in Taiwan points to higher input prices even before the oil price hit. Like the rest of the region, the PMI also shows strengthening cycle momentum.
Expected inflation rose in the Cabinet Office's annual firm survey. The backdrop is stable growth, and strong capex and hiring intentions – and rising wages. This is different from when the Ukraine war started in 2022, and suggests there is a real inflationary risk for Japan from the Iran conflict.
Today's quarterly business sentiment survey from the Cabinet Office and MOF in Japan shows the same bounce in manufacturing confidence that has been visible in the different monthly surveys. Korean job openings for January were weak, but that could reflect this year's rebasing of the data.
The big dynamic in Asia in early 2026 has been the strength of the semi cycle. That can be seen in today's Japan February export prices, and Korea March 10-day March exports. That provides some offset to the rise in energy prices, though not enough to matter if the Strait of Hormuz remains closed.