Deputy governor Uchida's speech this week marked the third occasion since January where the bank has argued that the output gap is understated. That suggests more upwards pressure on prices, and thus rates. He also staked out a more positive view of QQE than the BOJ's formal view.
There is funniness in the data because of the holiday effect and likely tariff front-loading. But still, the surges in some of the flows are striking: server and semi sales, exports and the trade surplus with the US, capital goods imports. No sign at all of the sluggishness seen in the Korean data.
The BOJ's proxy for consumption dropped in January to the lowest since 2022. The population is declining, but the January data don't look much better, even in per capita terms. One reason is inflation, which continues to erode household incomes.
Korea's cycle data remain soft, with exports softening again in February. Inflation also eased last month, and with no news yet on the hoped-for supplementary budget, there's nothing new to stand in the way of the BOK's cutting cycle.
A video discussing why China isn't following Japan's path. This is the first part, looking at the seven demand-side factors that caused Japan's problems, and how China compares. The second video will discuss supply-side issues and the "deflationary mindset".
This is a good way of showing the contrasting cyclical momentum in China and Japan. Except for the sudden stops during covid, the services PMI in China is the lowest on record. In Japan, it is near the strongest.
Domestic demand in Korea has been weak for a number of months, with the economy supported by exports. But exports are now weakening too, as the semi cycle turns. No wonder the BOK is so worried about growth.
Reasons for upside risks in Japan, with implications for BOJ; conviction that China isn't following Japan's 1990s past, meaning rates should be low enough; unlike the BOK, the CBC in Taiwan won't cut rates, and might yet hike again.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The PMIs continue to suggest that, overall, there was no lasting improvement in the cycle after the September policy push. There are though some signs that things aren't getting worse any more, with both the construction PMI and employment indicators suggesting a floor.
The rebound in price expectations in Taiwan's consumer confidence survey is starting to look interesting. It isn't just Chinese New Year, with the rise beginning in October last year. Certainly not grounds for the CBC to be cutting rates. Perhaps a reason to hike?
Given US policy, the timing of the rise in current account surpluses in Asia in 2024 is bad. But surpluses aren't just about trade. Indeed, an increasing driver is income generated from overseas investments, which give some resilience to surpluses, an underlying support to currencies.
For the third time since October, the BOK cut rates today. It expects to cut rates further, and although one dynamic affecting the scope and timing will be house prices, the bank also hopes for fiscal policy, which is the one driver it can identify that could serve as an "upside factor for growth".
In YoY terms, the trend in services PPI inflation is still up, but sequentially it is starting to look like it has peaked at a bit above 2%. There might get another boost from a strong shunto, but 2% pipeline inflation looks light for getting sustainable CPI of the same rate.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
As it did in January, a BOK cut next week seems likely. Of course, the bank didn't cut in January, so this forecast risks whiplash. But to turn market pricing, the bank would need to indicate an end to loosening, which is unlikely unless it highlights household debt or services inflation.
The fundamental inflation story of labour market tightness and wage hikes was seen in today's firm services PMI. But both the PMI and CPI today suggest that dynamic has again been overtaken by prices driven by supply shortages, a phenomenon that is clearly bad for real incomes and so consumption.
Adjusted for holidays, and exports barely grew in the first 20 days of February. The big driver is the downturn in semi shipments. Equity performance suggests the relative underperformance of Korean exports relative to China and Taiwan will continue.
Data today show Taiwan's export orders dipped in January, but that was likely because of the Lunar New Year. Our broader leading indicator shows export growth remaining around 10% YoY in the next few months. More interesting in today's data is the continued fall in the overseas production ratio.
This is a shorter thematic note than usual. In the longer piece last week, I didn't come up with a chart that nicely summarised Korea's export challenge. I think I have it now. While Korea is holding on in DM, it is losing market share just about everywhere else, being pushed out largely by China.
Consumer confidence rose again in February but remains well below the LT average; moreover, the improvement is only being among younger people. At the same time, CPI and property price expectations softened. There will be more news tomorrow with business sentiment.
Deflation eased in January, but only slightly. That's no surprise, given mortgage lending also remained weak last month. The sluggishness is persisting despite low rates, and the failure of rate cuts to revive the quintessentially rate sensitive sector remains a standout feature of this cycle.
Services sector sentiment in the Reuters Tankan remained elevated in today's February survey. Manufacturing is much weaker, and that remains something to be watching given the extra downside risk from tariffs. But in terms of Japan's cycle, Q1 is likely to be another decent quarter.
Today's Q424 data show a continuation of the pick-up in household lending from the trough of early 2023. But at 2.4% saar compared with 8% before 2020, the rebound is mild, and slower than GDP growth. For an economy where most indicators have been deteriorating, that's one bit of good news.
Like Japan, Taiwan had years of slowing wage and price inflation. And so, similarly with Japan, the turn in wage growth since the financial crisis is as much structural as cyclical. There's no sign of price inflation becoming problematic, but this wage picture suggests it isn't going back to zero.