Some of the signs of domestic stabilisation I'd been tracking in 2025 faded into year-end. However, they didn't disappear entirely. China is also starting to benefit from the global tailwinds of weaker USD and rising commodity prices, creating upside risks for China's nominal cycle.
Lots to discuss today: domestic and foreign money flows in China; PPI and export prices in Japan; the BOK's January monetary policy meeting; and the read-through for Taiwan's economy from TSMC's bullish 2026 outlook.
China's release today of December data for money, credit and fx settlement tell three stories: domestic savings outflows have lost momentum, credit ex-government is looking a bit stronger, and capital inflows are really picking up. If right, the last dynamic is the most important for markets.
The BOK isn't getting carried away by the remarkable rise in semiconductor prices, but it did today say the chip cycle is moving growth risks to the upside. It also terminated talk of rate cuts, though that isn't just about growth, with the bank making clear that KRW weakness is a key consideration.
Japan's current run of PPI inflation is almost the longest since at least the 1980s, but looks well-supported. Prices have recoupled with the global cycle, and are being boosted by JPY weakness. Furthermore, while it was feared that tariffs would be deflationary, export prices are rising.
China's exports ended 2025 with a bang, with auto shipments surging. Import demand is much weaker, but did at least trend up last year. Also today, some charts on bank lending in Japan, which is strong, and a cycle review of Korea before tomorrow's BOK meeting.
Domestic sluggishness and financial stability concerns aren't changing, so likely keep the BOK on hold tomorrow. But there is a new development: the 10x rise in the DRAM price. To me, that is shifting cycle risks to the upside. Tomorrow's meeting will be important if that is the bank's view too.
Some charts showing how Korea is structurally converging with Japan and Taiwan. One area of convergence is the current account surplus, which across the region is large and growing, now up to 6% of GDP in Japan. Other data today in Japan reiterate the improvement in cyclical momentum in late 2025.
A longer note summarising cycle and structure and arguing that risk-reward is moving in favour of Asian currencies. Against that framework, today's export data for the first 10 days of January in Korea were soft. But Taiwan wage data for November tick the right boxes.
Using an update of my regional chartpack to think about exchange rates. Specifically, I think the cycle and structure dynamics are moving risk-reward in favour of Asian currencies. I'd argue that is true if the global picture is unchanged, but it could also be true if conditions in the US falter.
Themes: capital flows v CNY appreciation in China; fiscal fear v real policy rate in Japan; foreign v domestic equity strength in Korea; policy status quo v export surge in Taiwan.
Longer notes today on China inflation, Korea balance of payments, and Taiwan 2025 trade and external surpluses. In Japan, data were released today on the monetary base, consumption, and 20-day exports.
Even with data today showing a dip in exports in December, Taiwan's trade surplus last year reached the sort of sky-high levels last seen before the big TWD appreciation of the 1980s. Barring a real dislocation in AI hardware demand, underlying pressure for renewed appreciation will grow in 2026.
The second-derivative improvement in inflation is continuing, and should be seen in a better deflator when the Q4 GDP data are released later this month. However, there's not yet enough to think the trend can persist beyond Q126. One factor that could derail the improvement would be a stronger CNY.
November BOP data show another big current account surplus – and more big outflows into offshore equities. We can't be sure that outflows have yet peaked. But with the KRW cheap, semi exports gaining momentum and the government taking KRW stabilisation measures, risk around the currency are shifting
My latest video, discussing the lessening of deflationary pressure, whether that can continue, and what the implications are for markets.
More charts than usual on Japan today, with the Q3 sakura report and output gap from the BOJ, November wages, and December consumer confidence. Also, Q3 flow of funds data for Korea, which offers another perspective on the outflows that have been weighing on the KRW.
The BOJ's quarterly regional sakura report shows conditions holding up, and the dip in consumer confidence in December isn't concerning given the post-March bounce. Wage growth in November was mixed, but can be expected to rebound in December on stronger bonuses.
Data on FX reserves and PBC liquidity operations in December suggest the PBC balance sheet has become more supportive for growth. The Japan services PMI was weaker, but the commentary doesn't suggest a real change in direction. Services prices suggest core inflation in Taiwan has bottomed.
An update on Japan's fiscal position after the release of the budget for 2026, and detailed data on government interest payments and revenue through Q125. Also, a look at financial stability issues in Korea, and fx reserves and the currency in Taiwan.
Headlines that the FY2026 budget is the biggest ever suit the idea of Takaichi as an Abe-style loosener. However, government expenditure is stable relative to GDP, revenue is rising more, a primary surplus is planned, and though Q125, the government received more in interest than it paid out.
Looking through the data releases over the two weeks I've been away, and two themes stand out: rebounding activity, and firmer inflation. Both trends are most obvious in Korea. The picture is more mixed in China, but even there it looks like less deflation through to Chinese New Year.
In today's daily: China monetary developments, Japan CPI, Korea PPI, highlights of the BOJ meeting, and a link to my latest podcast. From today, I am taking a couple of weeks off. Thanks for your interest this year, I hope you've found the content useful. Happy Christmas, and best wishes for 2026.
The mild rise in PPI goods inflation reflects the continued strength of import prices. Services PPI inflation is picking up too, reversing the sharp fall of 1H25. Neither development yet suggests CPI inflation is about to accelerate, but the bounce in services PPI removes downside risk for CPI.
I was very happy to do this podcast with friends at Alpine Macro.