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.
CPI inflation softened in January, but it always does when the new year holiday falls in February. PPI has less seasonal distortion, and rose MoM in January for the second consecutive time. The GDP deflator is likely to improve again in Q1. This is about external factors, but deflation is lessening.
My latest video, discussing the cheapness of currencies across the region, why that didn't change in 2025, and why it might in 2026.
A longer note on Korean household savings and consumption. To put that in context, this daily includes charts giving the regional picture over the last 30 years. The only cyclical indicator released today was TSMC's sales for January, which were strong, but might not mean much given LNY distortions.
The BOK recently published some nice research highlighting the rise in the household savings ratio. That is an important phenomenon, helping explain the weakness of consumption, the rise in the current account surplus, and being intertwined with the surge in Korea's overseas equity buying.
Lots of data in Japan today, which again show the cycle warming up, and that Takaichi's economic inheritance is very different from that of Abe almost 15 years ago. Taiwan's trade data are distorted by LNY, so stronger sales to China, and of non-semi products, are interesting, not conclusive.
Takaichi's huge win comes when the cycle is looking stronger, with real wages close to rising, manufacturing sentiment improving and bank lending strong. This should give the BOJ confidence, and, with the current account surplus in 2025 reaching the highest level in forty years, also help the JPY.
The fundamental themes for the region are rising external surpluses, improving manufacturing cycles, and lessening deflation in China. That mix should be helping currencies. The offsetting factors to be monitoring are politics in Japan, flows, and global dynamics around tech and the USD.
Korea's December BOP data show a big CA surplus – but even bigger capital outflows. Japan's exports data for the first 20 days of January perked up, but consumption in December slowed. Also today, a link to the EAE data API, which now allows access to almost 700,000 data series.
Formally launching my data API, which now allows access to almost 700,000 series covering China, Japan, Korea and Taiwan, with monthly, quarterly and annual data.
Korea's current account reached a record high in Q4. But equity outflows, remarkably, increased even more. The balance between the two should diverge through 2026. The CA surplus can be expected to grow on the back of the semi supercycle, while there are four reasons to think net outflow should peak
Weekly flow data show a moderation of overseas bond acquisitions by Japanese buyers – but that don't show whether they are now selling overseas and buying JGBs. FX reserve accumulation in Taiwan remains modest. Inflation fell in January, but that is related to Chinese New Year.
China's S&P services PMI was solid again in January, and Japan's was strong. High-frequency data for China suggest PPI was unchanged MoM in January for the seventh consecutive month. That stability reflects global factors, but also domestic policy, with the PBC last month again increasing liquidity.
A chart pack summarising developments in China and Korea.
Japan's monetary base continues to shrink, though it is still at 90% of GDP. CPI inflation in Korea remains around the 2% target, and given the outlook for exports, is now unlikely to fall further.
Korea's January exports were boosted by workdays and chips. However, the rise in the manufacturing PMIs in Japan, Korea and Taiwan last month suggest some broadening of the cycle. China's PMIs were more mixed. They did show better nominal momentum, but that lift reflected global metals prices.
Regional themes: continuing (and under-appreciated) nominal improvement in China; election uncertainty in Japan; strengthening export momentum in Korea on the back of chips; which in turn looks significant given the huge outperformance of Taiwan through 2025, all because of AI and semiconductors.