Decent wage growth in Japan in February, but a terrible March EW survey; stupendous current account data in Korea, but continued equity outflows; and inflation falling in March in Taiwan, but underlying core settling at around 2%
In February, despite the strength of consumer confidence, Japanese consumption weakened. That was before the Iran war, and the consequences of the conflict also aren't evident in trade data for the first 20 days of March. They can be seen, however, in the fall in Taiwan's fx reserves last month.
More inflation indicators to report today. China's high-frequency upstream price data continue to point to a YoY rise in PPI in March for the first time since 2022. In Japan, latest data show the output gap (on the BOJ's updated methodology) tightened further in Q425.
The themes around China as a relative safe haven, and firming inflation in Japan, are clear. The inflation picture in Japan supports rate hikes. Korea, by contrast, is messier: there are positive dynamics like the surging trade surplus and WGBI inclusion, but the KRW still can't stabilise.
Like the manufacturing version a couple of days ago, China S&P/RatingDog services PMI in March gave back the big gains of February. Japan's services PMI remained firm, but showed rising inflation and falling confidence. Korea February JOLTS data point to the labour market remaining soft.
More on inflation pressures in Asia, with the details of the Japan Tankan, and Korea March CPI. Also, export price deflation in China being less than often supposed, one of the highlights of February trade in volume and price terms.
The inflation risks evident in the Tankan can be blamed on energy prices, but output prices actually rose more than input, suggesting that firms think they can pass costs through. That's important, when the BOJ has been warning that changes in firm behaviour mean upside risks to inflation.
Government measures are restraining energy prices and so headline CPI. But the war still increases upside risks for inflation. Rising oil prices are pushing up energy and intermediate prices, export growth is strong, and core inflation has been resilient.
Once again, the key theme in today's data releases has been inflationary pressure, seen in Japan's Tankan and the regional PMIs. By contrast, activity proxies haven't moved much. Korea's trade data help explain why: export growth in March was strong, boosted again by chip sales.
Today's summary release of the BOJ Tankan shows output prices rising, inflation expectations up, and the labour market tight. At the same time, business sentiment – at least for now – remains solid. Upside risks to inflation are growing again.
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.