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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Paul Cavey
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China – deflation: an underperforming export
We can't find much evidence of Chinese export price deflation. That's because: price deflation is common across economies when exports weaken; aggregate data don't do well in capturing lower prices in individual products; and China's exporters, being private firms, aren't likely to be so irrational.
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Korea – incrementally doveish again
The BOK's official stance didn't change in February. However, the tone today still became incrementally more doveish, with the governor revealing one member being open to a rate cut in the next few months.
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Region – the end of secular depreciation
A chart pack presenting a framework for regional currencies. We use secular JPY and TWD depreciation to lay out the framework; apply that to the CNY today; and finally, argue that there are reasons to think the structural weakening of the TWD and JPY is likely ending.
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Korea – sideways
Our view has been that the BOK would remain on hold, and that the extent to which improving manufacturing took over from services as the driver of activity in Q1 would determine the next step. That recovery in exports has been soft, which in turn increases the downside risks to rates.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Korea – supply-side shifts not big enough yet
Employment rose in January, and unemployment remains low. Recent BOK research focuses on supply-side changes that mean the labour market isn't as tight as these headline data suggest, with the participation rate high and big increases in part-time jobs. However, wage growth has also been quite firm.
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Japan – negative consequences of JPY weakness
GDP contracted again in Q4. One driver is JPY weakness, which is boosting services exports, but cutting into consumer purchasing power and consumption. With nominal wage growth looking firm, this backdrop makes it more likely the BOJ moves on policy, with one aim being to stabilise the JPY.
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Korea – the job-rich recovery
The BOK has issued another research report looking a labour market dynamics after the pandemic. The report focuses on: the rise in female and hospitality employment, which have reduced wage pressure; and labour market tightness, that is reducing labour reallocation and so dampening productivity.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Japan – the BOJ's increasingly consistent line
Deputy Governor Uchida's speech this week reiterated the BOJ's confidence that the economy is nearing a virtuous cycle between wages and prices. He added interesting detail on four specific areas: consumption, wages, policy, and the outlook for potential growth.
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China – PBC advice on how to think about "credit"
The PBC's monetary policy report included a box arguing that monetary conditions shouldn't be assessed solely via the quantity of credit, and that the big falls in interest rates matter too. That would be an easily-accepted argument in another economy, but in China remains a hard sell.
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China – so-so credit, but an M1 bounce
Credit data are at a level that is awkward for officials, and investors: too strong to be consistent with deleveraging, but not strong enough to think the cycle is about to get a good lift. The one positive surprise in January was a lift in M1, though that might be related to the stockmarket rescue.
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Japan – warming up
Both the Economy Watchers and PMI surveys were strong in January, led by non-manufacturing and services. Commentary in the PMI suggests this stronger momentum isn't about to be lost. The upside risk is this reflects the long-awaited recovery of domestic consumption.
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China – deflation not intensifying
CPI and PPI continued to fall YoY in January, while core CPI rose. CPI will be firmer in February due to the holiday, and there are also some indications that PPI won't weaken further. However, there aren't any signs of a real pick-up in either, so investor worries about deflation will persist.
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Region – as Korea, so the world?
Korea's trade surplus with China has collapsed, taking with it Korea's overall surplus. This offers a clear illustration of China's competitiveness, and argues for CNY strength, not weakness. But it also indicates that the relative fundamentals for the KRW are also deteriorating.
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Japan – wage growth stronger
Underlying wage growth accelerated in Q4. That is consistent with the confidence being expressed by the BOJ in recent weeks. But headline wages – including overtime and bonuses – continue to fall in real terms, which in turn weighs on consumption and so overall aggregate demand.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Korea – CPI down, but some seasonality
January CPI inflation fell, but that was probably related to LNY, and will partly reverse in February. Beyond that, inflation will ease further. That will matter for policy if it isn't offset by stronger activity. Yesterday's PMI showed a pick-up, but other indicators haven't been so strong.
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Region – PSL and PMIs
With the Markit PMI holding up and PSL funding rising, China doesn't look as bad as market sentiment. Exports in Korea and PMIs in Korea, Taiwan and Japan show the industrial cycle improving, but not quickly. For Japan and Korea, that can still be important given elevated non-manufacturing PMIs.
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Region –monthly chart pack
A slide pack summarising our recent research and views on the region
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Japan – more confident again
The summary of the BOJ's discussions at last week's Board meeting gives an impression of even more confidence than expressed in other recent statements. The hard data still aren't that strong, but surveys continue to improve, with consumer confidence in today's survey approaching pre-covid levels.
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China – PMIs sideways
At a headline level, both the manufacturing and non-manufacturing PMIs crept up in January. The details in the manufacturing survey were weaker than the headline. Activity remains soft, but overall, looks to be going sideways.
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China – the surprising strength of imports
Equity market sentiment suggests weak domestic demand should be getting weaker still. And yet, import demand has been firm, and is picking up. The two big drivers are resilient commodity demand and rising imports in the semi space. But imports of other capital goods show signs of rising too.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.