The big policy event today was the BOM meeting. The big data release was Taiwan's Q4 BOP data, showing a huge current account surplus. Also worth noting today are trade data for Japan for the first 10 days of February. And we also have a new video, discussing the cyclical outlook for China.
The surge in the current account surplus of January-September continued into the end of 2025. In Q4, the surplus reached almost 30% of GDP. The government's GDP forecast implies that will be roughly the size of the full-year surplus in 2026. Taiwan needs huge capital outflows to keep the TWD stable.
The tone from today's BOK meeting was cautious. The new rate dot plot suggests that at the margin risks for policy are still weighted towards loosening, the upgrade to the GDP growth forecast was only 0.2ppts, and having made that change, the bank thinks risks to the outlook are now balanced.
Highlights of a longer note summarising Korea's cycle before the BOK meeting tomorrow. Also today, Korea's IIP position in 2025, as well as services PPI inflation in Japan and labour market data for Taiwan in January.
Business sentiment in today's BOK survey returned to the level that has historically divided loosening and tightening cycles. Tomorrow, the bank will likely raise its 2026 growth forecast to above its 2% estimate of potential. The rates market has already priced this, but the currency can move more.
A few charts from a longer slidepack looking at the remarkable changes in Taiwan's economy since 2020, details of consumer confidence and PPI in Korea, and export volume data for Japan for January.
The continued strength of consumer confidence in today's February survey might be hinting at a broader cyclical upturn. At the same time, house price expectations eased. CPI expectations were stable at 2.6%, and likewise, today's PPI for January doesn't point to a big near-term change in inflation.
Taiwan's macro story is fascinating. Rarely has growth in such a rich economy accelerated so much, with reindustrialisation and huge external surpluses, at the same time as rates and the currency barely move. I'd think that something has to give. Will 2026 finally be the year that it does?
Because of the new year holiday, the trade data across the region for the first couple of months are a bit suspect. That's particularly true when the data don't even cover the full month. Still, in the first 20 days of February, Korean chip exports, and shipments to China, look strong.
I spent time last week delving into export prices and terms of trade, dynamics that should be offering support for currencies. The data flow was all about Japan, and painted the picture of an economy in good shape. That could yet be undermined by policy choices, either at home, or in the US.
Japan's economy is looking different in 2026, with manufacturing sentiment improving, goods inflation easing, but service price and wage inflation holding up. Korea, meanwhile, faces some of the same issues as in 2025: while household debt is easing, property price inflation isn't.
The BOK's quarterly data show household credit eased under 75% of GDP at in 2025 for the first time since 2017. However, the BOK is concerned that the ongoing rise in house prices will undermine this progress. The bank's own loan officer survey suggests a bounceback in lending is indeed a real risk
Manufacturing sentiment is up, and falling headline inflation should further boost the mood of households too. For the BOJ, the critical issue will be whether these improvements in soft data feed into real aggregate demand, in turn supporting its confidence about the trend in underlying inflation.
Highlights of a longer note looking at the impact of China "shocks" through the prism of the terms of trade. The conclusion is that for Asia, the second China shock is shaping up to be less damaging than the first. Also, summary charts of today's machine orders in Japan, which were strong.
As capital goods exporters, the rest of East Asia is vulnerable to the second China Shock. But the first was deflationary not just because export prices fell, but because import prices also rose, squeezing local incomes. By contrast, the terms of trade this time are stable, and starting to improve.
With most of the region still on holiday, today's daily focuses on today's export release from Japan. The big rise in January, led by shipments to China, will largely be the result of holiday front-loading. But the general direction is for exports and manufacturing to be a bit stronger in 2026.
December services activity in Japan dipped. But that is likely temporary: service sector sentiment remains strong, and falling China tourism has been offset by more visitors from Korea. Details of Taiwan's Q4 GDP release shows the terms of trade boosting real national income per capita by 15% in Q4.
Today's headline Q4 GDP data for Japan were weak, but the details were better, and the 2026 outlook remains better. The weekend's high-frequency price data for China – the last release before the holiday – indicates the lessening of PPI deflation continued through the first 10 days of February.
Growth in Q4 was only +0.1% QoQ, but that was partly because of a running down of inventories. Underlying demand was better, and given the strength of business and consumer confidence, the outlook for growth in 2026 is more positive.
Three themes from last week: improving terms of trade, led by rising export prices; expanding current account surpluses; and growing optimism about the sustainability of AI-related hardware demand that is critical for cycles in Taiwan and Korea. Also, happy year of the (fire) horse.
Lots of data releases across the region today. Two themes stand out: 1) Rising CA external surpluses and inflows, with the latest indicators coming from China and 2) improving terms of trade, seen in Korea's export/import price data for December, and Taiwan's Q4 GDP release.
January fx settlement data suggest large fx intervention for a second consecutive month. One reason is the CA surplus, which other data today show widened in Q4. Another is interest rates which are more stable, even though monetary trends aren't changing much, and property prices continue to fall.
Today's main release was PPI in Japan, with the most interesting takeaway being higher export prices. In Korea, weekly prices show food and energy inflation softening so far in February. Data in China show interest rates for mortgages stabilising, but continuing to decline for firms.
Import prices aren't rising quickly, but they do remain elevated, supporting PPI in a way that wasn't true during Japan's long deflation. More interesting now is the strength of export prices, a dynamic that boosts exporter profits, and via the terms of trade, provides a tailwind for domestic income
China's CPI inflation dipped in January, but that was holiday-related. PPI,by contrast, rose MoM for the second consecutive month. Labour market data in Korea isn't getting worse, but is sluggish. By contrast, Taiwan wage growth in 2025 reached the highest since 2000. Also today, my latest video.