In recent months, I've been doing quite a lot of work on Japanification. I summarised the arguments in this opinion piece for The Wire China.
The Tankan showed another rise in price pressures, particularly in non-manufacturing, the sector where labour market conditions are also the tightest and sentiment the strongest. The details of Trump's plans could change things, but domestic dynamics keep the BOJ on track to hike again.
The PMIs suggest the economy, once again, is muddling through. The better momentum after the policy announcements that started from September has faded, but isn't reversing. However, that probably isn't enough, given the new shock from tariffs that is about to hit.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Pulled by the policies of previous US administrations and pushed by rising China competition in EM, Korea has focused more on the US market. As a result, US tariffs will hurt more than they would have a few years ago, and with domestic demand weak, there's not much else to support the local economy.
As would be expected, the summary of the March MPC meeting shows more concern about US policy. But this isn't a repeat of summer 2024 when the BOJ got cold feet on new rate hikes. Inflation data remain solid, and the meeting talked about upside risks for prices, driven by domestic factors.
Profits rebounded YoY in Jan-Feb, but in level terms remain subdued. That overall picture, however, masks big sectoral differences. Aggregate profits in heavy industry have fallen, and are no higher than in 2013. Earnings in machinery and electronics are more stable.
The PBC sentiment surveys suggest again an economy that is muddling through. One reason is that consumer spending hasn't fallen, with the big shifts instead being a further move away from consumption on goods to spending on services, and more saving in bank deposits rather than investments.
Sequential momentum in services PPI has eased in recent moths. However, the data have been volatile since covid, and in 2023 and 2024 there was a big re-acceleration at the beginning of the new fiscal year. Given continued wage growth, a rebound seems likely in April 2025 too.
Business confidence remains extremely weak, and consumer confidence isn't a whole lot better. That being the case, the BOK is going to want to cut further, but inflation readings in the sentiment surveys aren't giving the all-clear for an aggressive loosening.
Consumer confidence fell back again in March, and remains well below the long-term average. However, general inflation expectations were stable, and while house price expectations ticked up, the change isn't enough to suggest a big acceleration in the real estate market.
There's really not much change happening in Taiwan's labour market. But right now, that's what makes it interesting. Taiwan's unemployment rate is holding at lows not seen in 20 years. That in turn forms the backdrop for wage and core CPI rises which are the highest in 20 years.
Today's flash shows no change from recent themes: manufacturing is weak, services rather volatile, and inflation pressure everywhere is holding up, with manufacturing prices "comfortably above their long-run trend levels", and input costs in services "increasing at the fastest pace in 25 months".
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
A follow-up to the video a couple of weeks ago. That looked at demand-side factors. This delves into the supply-side and factors behind the "deflationary mindset". In these areas, China today looks even more different from Japan in the 1990s.
The slowdown in auto exports that began in 2024 has continued through early 2025. EV sales and shipments to DM have been flat-lining for a while already, and rising exports of hybrids hasn't been big enough to make up the difference.
The standout feature of the Tankan Reuters remains the unusual strength of services relative to manufacturing. Today's march survey shows that this gap isn't expected to close in the next few months, and is one reason for the higher rate of inflation that Japan is experiencing.
Tuesday's minutes of the February meeting show concern about weak growth. The impact of higher $KRW on inflation was played down, and the committee didn't discuss the rising services prices that have worried me. Perhaps not surprisingly given rates were cut, household debt was back on the agenda.
In advance of the CBC meeting this week, a short slide pack on the key themes in Taiwan. In particular, the rise in inflation (I took the photo at my favourite bread shop here today) and Trump's agenda keep the TWD in play for a structural realignment stronger.
My view has been that China's cycle is probably stabilising, but not recovering. Today's data are consistent with that. Production of goods and services is running a bit over 5%, but property starts continue to fall, and retail sales don't point to any inflection in consumption
The recovery in new property prices from Q4 faded in February, with prices dropping MoM. That makes some sense given mortgage lending, which has stopped slowing, but hasn't started to lift.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
While excavator sales will be affected by inventories and replacement demand, the recovery in the last few months is another sign, along with the construction PMI and credit growth, that the overall cycle has bottomed.
The upturn in credit growth that began in June last year is continuing. That should be helping to put a floor under nominal growth. But that comes with caveats: private-sector credit lost momentum in February, and while mortgage lending isn't slowing, it doesn't show any sign of a rebound either.
Today's shunto 2025 results are constructive, but not a game changer. Upside risks from other dynamics are bigger: part-time wages, the output gap, inflation expectations, processed food prices, rent, and pent-up inflation pressure in both PPI and public services prices.