Like last month, November data show a contrast between real weakness in some areas of the economy (such as property, goods consumption) and more stability in others (pricing, output). Overall, however, the balance is once again shifting towards more weakness.
In Q4 business sentiment improved, the labour market tightened, price pressures picked up, and capex intentions stayed elevated. The BOJ is set to hike on Friday. Today's survey, like other recent data, raise the risk that the bank can also send a clearer message about the outlook for rates in 2026.
China: the nominal stabilisation is fragile. Japan: with the cycle looking good, the risk of a BOJ upside surprise is the highest since July 2024. Korea: the upside scenario from the semi cycle still isn't the base case. Taiwan: macro becomes more interesting if the chip cycle sustains into 2026.
Some of the language in China's CEWC communiqué was encouraging. In Korea, while auto prices remain weak, overall export prices are rising and pushing up the terms of trade. Japan's monetary base is shrinking more quickly than any time since 2007. And my latest video, discussing Japan and the JPY.
My latest video, discussing the BOJ and the outlook for the JPY.
A look at some positive monetary developments in China, as well as charts from the MOF's quarterly business sentiment survey in Japan, and trade data for the first ten days of December for Korea.
Real economy developments still look negative for inflation. That the deflator nonetheless looks to be turning can be partly attributed to local food prices and global commodity prices. However, I think monetary factors are also playing a role, with three dynamics in particular worth highlighting.
Goods PPI shows upstream inflation pressure in Japan remaining firm, while today's CPI and PPI releases in China point to a further lessening of deflation. Korea's labour market is complicated by supply-side changes. In Taiwan the message is simpler, with wage growth continuing to trend up.
The post-August rise in PPI continued in November, with one driver being the JPY-driven rebound in import prices. All told, upstream price pressures remain firm, and suggest that CPI isn't likely to ease much over the next 6M.
Today's inflation data weren't surprising, with the big shift being food prices lifting CPI. Non-food prices aren't rising, but in level terms aren't falling either, which is an improvement from 1H25. Nominal growth should look better through Q126.
A longer report addressing three misconceptions with Japan's fiscal position. Also, yet another month of very strong export data for Taiwan. The driver is the sale of semiconductors to the US. In November, the bilateral trade surplus with the US reached 25% of Taiwan's GDP.
There is little growth in exports outside of tech in general, and semiconductors specifically. But the surge in chip exports is big enough to offset all the weakness in other products. The overall trade surplus eased back in November, but the bilateral surplus with the US reached 25% of Taiwan GDP.
The supplementary budget looks big, but this year's fiscal deficit is still budgeted to narrow. Gross debt is high, but the government's net liabilities have fallen. Interest rates have risen, but before Takaichi took office, net annual interest payments by the government had fallen to near zero.
China's exports rebounded in November, and so did the trade surplus. In Japan, there is lots of data to discuss today: the second release of Q3 GDP, EW survey, wage growth and BOP. There are some mixed messages, but one theme is stabilising real wages and stronger household confidence.
A few releases today – October wages and CA, November Economy Watchers survey, and Q3 revised GDP. The overall picture is mixed, though the acceleration in inflation and drop in real wages into early 2025 has now stabilised, and that is allowing an improvement in household sentiment.
The weakness in exports of October reversed in November, with a rebound in growth to ROW, and shipments to the US stabilising. Auto shipments reached a new all-time high, and are growing as quickly this year as in the initial take-off in 2023-24. Import demand declined, so the trade surplus rose.
Regional themes: lessening deflation in China, but no sign of real recovery; the BOJ is likely to hike this month, but the JPY needs a hawkish hike; outflows into overseas equities in Korea change usual exchange rate relationships; inflation risks in Korea and Taiwan if AI chip demand is sustained
Today's data show another surge in overseas equity buying in Korea, consumption in Japan that is quite strong considering the headwinds of population decline and real income squeeze, and inflation in Taiwan which has now fallen to 1.2%, but I don't expect will drop much further.
The big shift in Korea's BOP since 2020 has been the rise in overseas buying of equities. That outflow surged anew in October to a record high, and by offsetting the large current account surplus, has helped keep $KRW near record highs.
In advance of next week's release of CPI and PPI data in China, some thoughts on the outlook, which I think shows a lessening deflation. Also, an update on visitor arrivals in the region (strong in Japan, weak in Taiwan), and weekly flow data in Japan.
High-frequency data show upstream prices remained stable in November, while food prices have been rising. The combination points to a further lessening of headline deflation. I doubt that signals a real turn in nominal growth, though there are now some upside risks.
China's November S&P services PMI didn't confirm the weakness seen in the official version. S&P today also released its services PMI for Japan. That sent the same message as other sentiment surveys: far from weakening, economic momentum in Japan is improving. Also today, my latest video and podcast.
My latest video, focusing on Taiwan and Korea, and a podcast in which I discuss the outlook for the broader region.
Japan's consumers like what they are seeing of Sanae Takaichi, with another bounce in confidence in November. That removes another reason for BOJ caution. In Korea, inflation remains at around 2%, but services inflation – a better measure of domestically generated price pressures – is higher.
The BOK says the rise in headline CPI inflation to 2.4% the last couple of months is temporary, and that core is stable. That isn't an unreasonable assessment. However, I'd continue to highlight the strength of services inflation, which remains firm reltive to ongoing labour market weakness.