Three things today. A review of the policy and data releases in Japan the last few days. Some charts on Taiwan's property market before next week's CBC meeting. And I've reworked my China dashboard for tracking trade flows, to make it faster, and incorporate auto data for Japan, Korea and the EU.
The narrowing budget deficit and widening BOP surplus likely won't move market opinion on either rates or fx. What is needed remains a more hawkish BOJ. Accelerating credit and wage growth push in that direction, though the wage data aren't great quality, and sentiment surveys are still weak.
Events in Japan in the next couple of weeks will likely be critical for the region. If a combination of a strong US jobs report and equivocal BOJ meeting push $JPY through 160, KRW and TWD will likely be dragged higher too. The implication would be higher inflation, and more pressure for rate hikes.
Lots today – initial observations from a big database I've been building on regional auto flows, a note on the KRW and today's BOP data, a short piece on today's higher inflation data in Taiwan, and charts on strong consumption in April and other secondary data from Japan.
Services inflation averaged 0.7% in the 20 years before 2020. In the last five years it has been 2.3%, and is now rising again. Some of that reflects energy prices, with air fares rising 10% YoY in May. But there is also the backdrop of a strong economy, rising stockmarket and rising wage growth.
KRW weakness was blamed on USD strength, then CNY weakness, then JPY weakness. Flows have gone from NPS, to domestic retail, to foreigner institutional. These rationalisations feel a bit like moving the goalposts. But weak KRW does have implications, one likely being a more hawkish BOK.
China's auto export surge has been less painful for Asia than for the EU. Japan's domestic market is more protected, and Korean exporters have little dependence on the China market. In third markets, exports have also held up, with tentative signs that China's exports are creating new demand.
An update on price trends. First, some charts on inflation pressure resulting from the Middle East conflict. Second, a review of real estate prices, which aren't as hot as equities, but are rising quickly in Tokyo and Seoul, and starting to rebound in Taipei.
The highlight today was the BOJ governor's speech, which I thought was about as hawkish as it could be. In China, while the official services PMI last month was weak, the RatingDog/S&P version was strong. Also in China, PBC liquidity withdrawals suggest May was another strong month for fx inflows.
Some highlights from governor's speech today: his remarks about strong bank lending, higher prices being a bigger burden to firms than rising rates, the link between low policy rates and the rise in market yields, and the upside risks to prices now that the "deflationary mindset has been dispelled".
A review of today's CPI release in Korea, a video discussing the market and macro consequences of the chip cycle, and some charts on the last trade release for April in China covering prices and volumes. Also, three charts highlighting why Governor Ueda's speech tomorrow is so important.
My latest video, a discussion of everything you need to understand the macro implications of the huge chip cycle – what's driving it, why prices and volumes matter, the role of China, the growth and inflation consequences, and what it all means for markets.
The rise in inflation is mainly about energy. But that headline inflation is now above 3% YoY – and private services over 4% – also reflects two other drivers: a high starting point, and the rise in chip prices that via cost-push is showing up in the CPI in higher prices for electronic devices.
The PMIs point to strong demand in Taiwan and Korea, supply disruptions in both economies and Japan, and elevated price pressures everywhere. In China, the same themes are apparent, but not to the same extent. Also today, Japan Q1 profits, Korea May trade data, and a strong non-mfg PMI in Taiwan.
Four themes: broader inflation risks, for the region and world; feedthrough from exports to domestic demand; semi cycle rather than energy as the dominant dynamic; likelihood of monetary tigtening.
In today's official data, headline PMIs for both manufacturing and services remain around 50. The details of the manufacturing PMI don't suggest much Middle East disruption. The run-up in prices that pre-dated Iran is, however, sustaining. On the other hand, employment remains weak.
Highlights of three longer notes today: a thematic look at the regional drivers of inflation (it isn't just energy); mixed end-month data in Korea; and very strong Q1 GDP in Taiwan, with a bullish government forecast for 2026. Also, some charts summarising all the many data releases today in Japan.
Today's Q1 GDP data show the economy growing more quickly than any time in over 40 years. The government thinks that continues: in the forecast, downside risk from Iran isn't mentioned, but trickle down from semi to the real economy is. CPI was also revised up, even if it remains (just) below 2%.
Two of the key issues for the economy are whether the chip boom trickles down, and what damage the Iran war will cause. April data show a bit of both. ICT capex rose for the third month, and there were more signs of a floor in the labour market. Overall output fell, but remained above the Q1 average
Big oil price hikes matter, but have been seen before. It is the rise in chip prices, and the gap between surging trade surpluses and weak currencies, that is unprecedented. If fx markets don't price these developments, central banks and fixed income will have to do so instead.
The BOK meeting was the main event today. For releases across the region, it has been a quiet day. Taiwan's monitoring indicator in April stayed in the range that represents "economic boom". Export data for the first ten days of May in Japan were stable, but Toyota sales in April were weaker.
The BOK didn't change rates today, but signalled that despite continued uncertainty, higher rates are coming. The pace will depend on dynamics in the energy and chip markets. I would also be watching for how core CPI performs against the BOK's modest forecast of 2.4%
Highlights of a longer note reviewing cycle developments in Korea before the BOK meeting, and from a short analysis of today's profits release in China. Also, charts on today's other releases: business confidence in Korea, consumer confidence in Taiwan, and services PPI in Japan.
The bounce in headline profits in April was largely base effect, but there are signs of underlying improvement: revenues have started to rise, the increase in PPI is boosting profits in heavy industry, and hasn't yet derailed the post-2024 increase in total downstream manufacturing earnings.
The BOK's main considerations for policy are growth, inflation, KRW and housing. Three were already pointing to hikes, and tomorrow the bank is likely to raise expected growth above potential too. That makes a rate hike likely. The risk is it still just a bit too early.