The highlight today was the BOJ governor's speech, which I thought was about as hawkish as it could be. In China, while the official services PMI last month was weak, the RatingDog/S&P version was strong. Also in China, PBC liquidity withdrawals suggest May was another strong month for fx inflows.
Some highlights from governor's speech today: his remarks about strong bank lending, higher prices being a bigger burden to firms than rising rates, the link between low policy rates and the rise in market yields, and the upside risks to prices now that the "deflationary mindset has been dispelled".
A review of today's CPI release in Korea, a video discussing the market and macro consequences of the chip cycle, and some charts on the last trade release for April in China covering prices and volumes. Also, three charts highlighting why Governor Ueda's speech tomorrow is so important.
My latest video, a discussion of everything you need to understand the macro implications of the huge chip cycle – what's driving it, why prices and volumes matter, the role of China, the growth and inflation consequences, and what it all means for markets.
The rise in inflation is mainly about energy. But that headline inflation is now above 3% YoY – and private services over 4% – also reflects two other drivers: a high starting point, and the rise in chip prices that via cost-push is showing up in the CPI in higher prices for electronic devices.
The PMIs point to strong demand in Taiwan and Korea, supply disruptions in both economies and Japan, and elevated price pressures everywhere. In China, the same themes are apparent, but not to the same extent. Also today, Japan Q1 profits, Korea May trade data, and a strong non-mfg PMI in Taiwan.
Four themes: broader inflation risks, for the region and world; feedthrough from exports to domestic demand; semi cycle rather than energy as the dominant dynamic; likelihood of monetary tigtening.
In today's official data, headline PMIs for both manufacturing and services remain around 50. The details of the manufacturing PMI don't suggest much Middle East disruption. The run-up in prices that pre-dated Iran is, however, sustaining. On the other hand, employment remains weak.
Highlights of three longer notes today: a thematic look at the regional drivers of inflation (it isn't just energy); mixed end-month data in Korea; and very strong Q1 GDP in Taiwan, with a bullish government forecast for 2026. Also, some charts summarising all the many data releases today in Japan.
Today's Q1 GDP data show the economy growing more quickly than any time in over 40 years. The government thinks that continues: in the forecast, downside risk from Iran isn't mentioned, but trickle down from semi to the real economy is. CPI was also revised up, even if it remains (just) below 2%.
Two of the key issues for the economy are whether the chip boom trickles down, and what damage the Iran war will cause. April data show a bit of both. ICT capex rose for the third month, and there were more signs of a floor in the labour market. Overall output fell, but remained above the Q1 average
Big oil price hikes matter, but have been seen before. It is the rise in chip prices, and the gap between surging trade surpluses and weak currencies, that is unprecedented. If fx markets don't price these developments, central banks and fixed income will have to do so instead.
The BOK meeting was the main event today. For releases across the region, it has been a quiet day. Taiwan's monitoring indicator in April stayed in the range that represents "economic boom". Export data for the first ten days of May in Japan were stable, but Toyota sales in April were weaker.
The BOK didn't change rates today, but signalled that despite continued uncertainty, higher rates are coming. The pace will depend on dynamics in the energy and chip markets. I would also be watching for how core CPI performs against the BOK's modest forecast of 2.4%
Highlights of a longer note reviewing cycle developments in Korea before the BOK meeting, and from a short analysis of today's profits release in China. Also, charts on today's other releases: business confidence in Korea, consumer confidence in Taiwan, and services PPI in Japan.
The bounce in headline profits in April was largely base effect, but there are signs of underlying improvement: revenues have started to rise, the increase in PPI is boosting profits in heavy industry, and hasn't yet derailed the post-2024 increase in total downstream manufacturing earnings.
The BOK's main considerations for policy are growth, inflation, KRW and housing. Three were already pointing to hikes, and tomorrow the bank is likely to raise expected growth above potential too. That makes a rate hike likely. The risk is it still just a bit too early.
A longer note on the implications of the chip boom for China. Also today, the BOJ's charts on underlying inflation, which show the bank's preferred measure of core rising to 2.8% YoY. IP growth in Taiwan slowed in April, but remains at over 20% YoY, and the recovery in retail sales is continuing.
The surge in semiconductor exports that is such an import theme across the region is also an important dynamic in China. But in China, the semiconductor trade has broader implications: for the trade surplus, import demand, the export outlook, and inflation, both in the region and ROW.
Today has been quiet for data releases. The main indicator of cyclical importance is 10-day upstream price data for China, which show an easing of inflation pressure since May. Elsewhere, Taiwan tourist arrivals data continue to lag behind the big recoveries seen in Korea and Japan.
Two of the cycle themes in the region are the strength of the AI trade, and macro stability in China. These in turn form the context for the third: the impact of the Iran war. If that conflict, finally, is near some kind of resolution, market confidence around rate hikes could actually increase.
A few things on Japan today: CPI and export data in April, and Koeda's interesting speech yesterday. Consumer confidence in Korea rebounded in May, but property price expectations also firmed. Taiwan's labour market remains tight, with unemployment firmly pinned at the 20-year low of 3.3%.
Tuition as well as energy subsidies make inflation look particularly low relative to the likely upside from the Iran war. The conflict will also slow growth. However, both export data for April and Koeda's speech yesterday indicate that growth downside will be limited if global tech demand sustains.
Machine orders in March and trade in April show Japan's cycle doing well before the war; the PMI for May points to deterioration since, and yet higher inflation. April PPI shows inflation going higher in Korea too, but strong exports so far through May show downside risks to overall growth are less.
Today's main data releases were in Taiwan: another enormous CA surplus in Q1, which strong export orders for April suggest isn't about to decline much in Q2. Japan's May Reuters Tankan was solid, but the outlook weak. Finally, some charts from my China trade dashboard, available on the website.