The platform for tracking and understanding East Asia macro
My latest video, looking at the three Ds that are challenging Korea's structural growth prospects: Demographics, Debt, and a Development model that is struggling to cope with the competition emerging from China.
With JPY depreciation unpopular and the cycle intact, it is unlikely that the Takaichi administration can really make the BOJ hike even more slowly than it has been. The policy that would work better for defusing the cost of living crisis would be fiscal loosening to raise household incomes.
One of the data points that challenges the BOJ's confidence on wage-price developments is slowing part-time wage growth. That ticked up in August, as did base pay for full-time workers. By historical standards, both are high, but growth in overall earnings growth continues to trail price inflation.
Market volatility is poised to rise again. In Japan, the obvious reason is the election of Takaichi, whose Abenomics-leanings are in conflict with the ongoing firmness of inflation. In Korea and Taiwan, the trigger is US relations. China, by comparison, looks more stable.
The main takeaway from Governor Ueda's speech today was that he remains concerned about the impact of tariffs. That isn't unreasonable, and more than today's rise in UE, is a reason to think rate hikes aren't a done deal. However, I still think the Tankan has pushed the BOJ further in that direction
Inflation indicators in yesterday's summary release of the Tankan were already firm. Today's comprehensive release paints a picture that is stronger still. The implication is that one of the BOJ's older measures of underlying inflation, the trimmed mean, is likely to remain above 2% for the next 6M.
Tomorrow's comprehensive release will add more details, but today's summary Tankan looks solid, for overall sentiment, the labour market, and inflation. For BOJ doves looking for reasons not to hike further, the Tankan doesn't supply them.
This discrepancy in the PMIs – S&P versions better, official PMIs still weak – is puzzling. Probably, the overall message is that China is back to a period of muddling through, with the cycle not robust, but getting some support from the better equity market and rise in the credit impulse.
Japan inflation indicators are mixed, so this week's Tankan survey and Ueda speech will be important. Korea's cycle is still weak, but this week's CPI data matter less when house prices have re-accelerated. Elsewhere, China's PMI will show whether nominal growth is softening again.
Inflation measures have become more mixed in recent weeks. But the drop in core measures of CPI inflation in the capital in September don't add to downside risks, being more the function of government subsidies. In other news, exports were firm in the first ten days of September.
The renewed drop in business sentiment in today's survey is probably overdone, but confidence does remain weak, particularly in domestic industries. Price intentions also softened, so the macro case for easier policy remain strong, though for now, the BOK also has to worry about housing prices.
Minutes of the July MPC meeting show a long but rather inconclusive discussion of the concept of "underlying" inflation. Recent data don't bring clarity: services PPI inflation has slowed, but not in labour-intensive industries, while the rice price has rebounded further.
Despite softening in September, consumer confidence remains high. I doubt that it will be sustained, however, if business confidence remains so weak. Consumer property price expectations also remain firm, which matters for policy when household debt has again become such a big issue for the BOK.
Wage growth, household savings and income levels are huge issues across the region. This slidepack shows how these are linked with exchange rates to lay out the outlook for currencies in China, Japan, Korea and Taiwan.
Last week's BOJ meeting reinforced my expectation for an October hike, as did the firmness of August CPI. The next inflation update will be the SPPI release on Thursday. However, the focus the next few days will be Korea, with the September consumer and business confidence surveys.
My latest video, discussing the important question posed in a report of a few weeks ago. Japan's population peaked in 2010, and aggregate consumption stopped growing shortly after. With the number of people continuing to shrink, can consumption – and thus the broader economy – ever grow again?
While the BOJ remained on hold today, the two dissenting votes to hike are important signals in the direction of travel. The context is inflation that remains firm, with today's August national CPI data showing some signs of underlying inflation starting to creep higher again.
Macro volatility – in inflation, growth, property prices and the TWD – eased in Q3, and it was no surprise that the CBC was on hold today. That won't change if AI demand growth slows. But the AI cycle has proven tough to forecast, and I'd expect the CBC will also be faced with more TWD strength.
China's trade data are published over the course of four releases each month. We are now onto the second, with three main takeaways: auto exports are accelerating again, import demand is up, and the trade surplus continues to broaden.
Manufacturing sentiment in the EW (Aug) and Reuters Tankan (Sep) surveys is back above the long-term average. Export volumes have softened the last couple of months, but are still above end-2024 levels. This is probably a lesser impact from tariffs than the BOJ had expected.
The major themes: the ending of the first stage of China's post-2020 forced structural adjustment; in Japan, peaking of inflation but BOJ still to hike; BOK cuts but inflation higher than I would have expected; expecting renewed TWD strength. I am now away for a few days, back on September 16th.
A long-ish slide pack summarising themes and views for China, Japan, Korea and Taiwan.
August data today show the impact of the weaker TWD since July: fx reserves fell, import prices ticked up MoM, and CPI inflation rose. The lesson is that without currency strength, the step-change in economic growth since 2020 is more likely to show up in domestic prices.
Headline full-timer wages data were strong in July. But the details of the overall wage release were softer, and warn of some lessening of labour market tightness. In other data today, consumption was soft in July, and exports in the first 20 days of August also weakened.
July BOP data show that KRW appreciation continues to be restrained by substantial buying of overseas assets by the NPS. But the tone of capital flows has started to change as foreigners buy onshore equities, and should shift more later this year with Korea's entry into the FTSE Russell's WGBI.