East Asia Econ

BOJ board member Takata Hajime yesterday likened the downwards revisions to the BOJ's forecasts on the back of tariffs to a typhoon-linked "planned suspension" of public transport that now needs to be lifted. He also argued inflationary pressure is increasingly being driven by domestic factors.

Detailed Q3 data include a few puzzles: net export contribution stable when the trade surplus declined; construction dropping sharply when property has looked less bad; and quarterly investment growing when monthly FAI has dropped. The one detail that really adds up: manufacturing remaining strong.

I really enjoyed doing this podcast with Bilal Hafeez from Micro Hive. It was a great chance to get into a lot of the structural themes across the region that I have been working on.

Property is weak, manufacturing FAI has slowed, consumer spending on goods is soft, and price deflation isn't lifting. However, services consumption is better, and output of both goods and services is growing by more than 5%. The government likely still thinks the economy is muddling through.

My China theme – signs of stabilisation in the underlying cycle – seems anti-consensus, and, frankly, likely won't be supported by today's data. Elsewhere, the key issues this week will be what hints Takaichi's new government gives about the BOJ, and what confidence the BOK has for the 2026 outlook.

Employment bounced in September, providing more evidence of cycle bottoming. That shouldn't matter much for BOK thinking: in July it raised employment forecasts, and has expected recovery into 2026. I am sceptical that recovery runs far, but there are upside risks if business sentiment improves.

Yesterday's monetary and credit data for September weren't bullish, but I do think they were incrementally encouraging: excluding CGBs, credit issuance and the credit impulse ticked up; the firming of M1 growth has continued; and there is more evidence of a floor in the M1:M2 ratio.

Naoki Tamura's speeches are always clear and interesting. Some of his remarks today overlap with points I've highlighted the last few months: the strength of the Tankan survey and sakura report; repressed inflation in public services prices; the negative impact of inflation on pensioners.

For the first time since 2021, my models show a fall in the probability of easing. The backdrop is effective monetary policy: inflation is low, but there aren't signs of rising real rates. For now, my base case is rates stop falling. For rates to rise, inflation needs to show up outside of equities.

The stabilisation of PPI is fragile, with continued sharp falls in some of the sectors targeted by anti-involution, as well as continued weakness in building materials prices. In CPI, falling food prices will eventually reverse, but soft services prices shows underlying CPI inflation remains weak.

Shipments to the US remain as low as in May. But with exports to other regions continuing to rise, the uptrend in overall shipments that began in mid-2023 remains intact. At the same time, imports in the last few months have risen a bit, so the trade surplus, finally, has eased back.

The short-term theme is uncertainty, with the ruptures in both the US-China trade truce and the LDP-Komeito ruling coalition in Japan. Both are negative for risk appetite. In terms of the data flow, the highlights in the next few days are China inflation, and TSMC's quarterly earnings.