East Asia Econ

Today's trade data for March don't get us so far: only headline data have been released, and underlying trends are still obscured by Chinese New Year distortions. Overall, however, exports look firm, with auto sales rising again. Imports are very strong, but that is more about chips than energy.

My latest video, discussing the impact of the Iran war on the outlook for the region

The lessening of deflation has largely been driven by external factors. But domestic monetary developments have helped: the increase in PBC liquidity injections, and as shown again by today's March monetary release, the stabilisation of M1 growth and the M1:M2 ratio.

Trade data for the first 10 days are volatile. But the April data are still worth highlighting. They show strong exports and a rising trade surplus, which offers a contrast with the BOK's concerns about the cycle, and the market's worries about the KRW.

Four developments stand out: the return of inflation in China; cycle nervousness in Japan and Korea; that's despite a continued strong AI cycle that is boosting exports in Korea and Taiwan; and the visit of the KMT chair to China, the importance of which depends on Trump's meeting with Xi.

Exports in March were strong again. There aren't yet signs of the Iran war derailing the chip cycle, and while energy imports will increase more quickly, the impact on the trade surplus will be limited. The outlook for Taiwan as of now is resilient growth and higher inflation.

For me, the tone of today's BOK meeting was a surprising mix of uncertainty and conviction. On the one hand, the bank stressed that the outlook is unclear, depending on events in the Middle East. On the other, it seems very sure that inflation will be quite a lot higher than 2%, and growth lower.

That the return of PPI inflation in March was driven by an energy price shock isn't positive. In fact, though, the recovery in PPI pre-dates the Iran war, beginning in June last year. Positive inflation reinforces the macro narrative that China's cycle is more stable, supporting rates and the CNY.

I've been arguing that Taiwan is one of the most interesting macro stories in the world right now. I had the chance to lay out some of the elements in this week's Bloomberg Asia Centric podcast.

GDP growth has been below the BOK's estimate of potential almost continually since 2022. And yet core inflation hasn't dropped below target, and private services inflation – a proxy for domestically generated inflation – has picked up to above 3%. Just what is going on?

The themes around China as a relative safe haven, and firming inflation in Japan, are clear. The inflation picture in Japan supports rate hikes. Korea, by contrast, is messier: there are positive dynamics like the surging trade surplus and WGBI inclusion, but the KRW still can't stabilise.

The inflation risks evident in the Tankan can be blamed on energy prices, but output prices actually rose more than input, suggesting that firms think they can pass costs through. That's important, when the BOJ has been warning that changes in firm behaviour mean upside risks to inflation.