The main data event today was Q3 GDP in Korea. In addition, China released profits data for September. There were two inflation updates in Japan, with the BOJ's measures of underlying CPI as well as services PPI. In Taiwan, we had consumer confidence for October.
Today's Q3 GDP data continue the same story: real growth is solid, but more importantly, the huge windfall income gain from the surge in semiconductor prices remains a major tailwind for growth in 2027. The question remains how much of that income windfall will be spent.
CPB's trade volume data show China's exports remaining strong, but imports flat-lining. Domestically, the second round of upstream price pressure in China since the start of the Iran War has lost momentum. That, however, is because of coal rather than oil prices.
Highlights of last week's indicators: the fall in the consumption share of GDP in China; why JPY depreciation hasn't boosted Japan's export volumes; the prospects for another double-digit rise in nominal GDP in Korea in 2027; and how wage growth in Taiwan is leading the region.
The sustainability of the AI cycle is critical for the region. If it ends, rates will likely be lower, but currencies not necessarily weaker. Otherwise, my themes are: China – tougher 2027; Japan – flatter curve; Korea – macro spillover; Taiwan – market spillover.
As expected CPI inflation in Japan picked up in September, and leading indicators point to further upside ahead. Taiwan softened last month, but that is at odds with strong exports. Retail sales, by contrast, were strong, consistent with labour market dynamics explored in a longer note on wages.
Like so much else in Taiwan, labour market dynamics will be determined by the fortunes of the AI cycle. If that turns down, it will be hugely important. A sharp downturn hasn't, however, been the CBC's expectation, but existing wage trends seem inconsistent with the bank's view that inflation slows.
The BOK didn't change rates today, but laid out a much more positive view on the outlook than is being expressed by regional equities. One casualty of the equity sell-off is the TWD, which will further push up inflationary pressure in Taiwan. Also today, the BOJ's senior loan officer survey.
There was no change from the BOK today, and the decision to stay on hold was unanimous. That wasn't a surprise. However, the meeting was informative, with the clear takeaway being BOK confidence that this cycle will run through 2027.
A note reviewing developments in Korea ahead – just about – of the BOK meeting tomorrow. In addition, some charts showing the continuing gap between weak auto sales in China v strong car exports. That is affecting Japan, though overall exports there in USD terms rose again in September.
The BOK is unlikely to move tomorrow when it hiked twice recently, the KRW has finally firmed, and there is nervousness about the AI cycle. However, if those worries are just a wobble, then there's still much room for the semi surge to feed into domestic demand, and tomorrow will just be a pause.
The usual second-day release of more detailed GDP data for China showed investment particularly weak in Q3. In contrast, fx settlement data in September was firm, showing continued capital inflows. In Taiwan, export orders last month don't indicate that the cycle is yet turning down.
The highlight today was the Q3 GDP release in China. Along with an update of all the usual cycle charts, I've also updated my guide to China's consumption data. In Japan, growth in services activity eased back in August, with a rare contraction in consumer-related services activity like eating out.
From the perspective of a government that wants to meet a 2026 growth target without having to shift policy, the September data are encouraging. But the 2027 outlook for the domestic economy is looking more challenging. That will become more visible if global demand and price trends change.
Highlights of last week's indicators: China's import shortfall, loose financial conditions in Japan, rising export prices in Korea, and more evidence of labour market tightness in Taiwan.
With regional macro dependent on continuation of the US AI build-out, the equity sell-off last week matters. That said, there are still complications: TSMC still sounds very bullish, and while for bad economies, it isn't clear that an end of the AI cycle would be so negative for currencies.
Some highlights of the chart pack I've been working on looking at the China Shock (and China Squeeze). The China Shock isn't over, with data today showing R&D spending reaching a new high of 2.8% of GDP in 2025. In Korea, the TOT rose further in September, and unemployment remained low.
A chart pack focused on China's trade: the China Squeeze isn't so severe; the China Shock is, but is likely to intensify further; as important as both is a shortfall in imports, which is broad-based, and worsening. That reflects weak demand, which Beijing still shows no urgency in addressing.
China's credit data remain weak, and deposit trends point to deflation risk in 2027. BOJ Koeda's speech was hawkish. Korea money supply growth slowed, and with equities falling, FCI has tightened. That market nervousness on AI isn't shared by TSMC management, and the labour market remains tight.
Exports across the region have been extraordinarily strong through September. Along with trade, inflation data for China show external factors remain the strongest dynamic in China's overall cycle. YoY money supply growth in Japan slowed last month.
That external factors continue to be the driving force of China's cycle dynamics was once again evident in the strength of both exports and PPI inflation in September. The combination puts a floor under overall nominal growth, and makes it unlikely that domestic policy becomes more aggressive.
Regional import price inflation has eased, but will likely rebound before year-end. Export price inflation is accelerating, being lifted by chips and other AI-tech. Consumer price expectations and bank lending in Japan remain strong. Taiwan tax revenue is growing by 20% YoY.
Issue covered today: EU-China auto trade, machine tool orders in Japan, trade for the first ten days of October for Korea, and September reserve money data in Taiwan. Also (again) a link to the podcast I did last week with Macro Hive.
China's auto trade balance with Asia and the EU, the manufacturing upturn in Japan, another large current account surplus in Korea, and further acceleration in Taiwan's exports. Also, I was very happy to have the chance to go back on the Macro Hive podcast, with the link included here.
I don't think the China-EU sectoral deal means a China-EU CNY deal is coming. The cycle continues to improve in Japan. Export momentum in Korea and Taiwan remain strong, with more signs of spillover into inflation in Taiwan. Links to all last week's research, as well as my latest podcast appearance.
