It isn't worth paying too much attention to China's detailed trade statistics for Jan-Feb, given new year distortions. That said, the trend rise in capital goods imports is an under-appreciated shift. Tourist arrivals in Japan remained strong in February, as did Taiwan export orders.
As expected, no change in policy from either the BOJ or Taiwan's CBC in today's monetary policy meetings. Concerns about inflation are greater in Japan, which makes sense given firm CPI and an improving cycle. The theme for the CBC remains strong growth and modest price increases.
Flow of funds data show ongoing improvement in Japan's fiscal position through end-25. Exports ticked down in February, but because of Chinese New Year rather a new step-down. Employment in Korea rose in February, but the more noticeable change is the further rise in the female part rate.
This cycle in Japan continues to stand-out for the strength in services activity. In Korea, export prices rose in February. Import prices will now increase more quickly, but the net impact of the energy price shock will depend on whether the surge in semiconductor demand and prices now holds or not.
While all the main China Jan-Feb indicators came out today, I think the more important releases were the weekend data showing a further rise in upstream prices, and fx settlement showing continued capital inflows. In Taiwan, wage growth slowed in January, but that is probably holiday related.
1) Goods and services output growing ~5% is enough for Beijing; 2) money and credit growth don't suggest a lot of change in that underlying trajectory; 3) nominal momentum is improving, with an end of PPI deflation now a real possibility; 4) the likelihood of further monetary easing is falling.
It isn't yet all about the war, given the real strength in semi demand. That backdrop is one reason to think underlying inflation will be lifted by the latest crisis. The durability of the AI cycle will also be the canary in the mine for a negative supply shock becoming a negative demand shock.
The annual survey of firm behaviour in Japan's shows the structural rise in inflation expectations is continuing. Today's official February PMI in Taiwan points to higher input prices even before the oil price hit. Like the rest of the region, the PMI also shows strengthening cycle momentum.
Expected inflation rose in the Cabinet Office's annual firm survey. The backdrop is stable growth, and strong capex and hiring intentions – and rising wages. This is different from when the Ukraine war started in 2022, and suggests there is a real inflationary risk for Japan from the Iran conflict.
Today's quarterly business sentiment survey from the Cabinet Office and MOF in Japan shows the same bounce in manufacturing confidence that has been visible in the different monthly surveys. Korean job openings for January were weak, but that could reflect this year's rebasing of the data.
The big dynamic in Asia in early 2026 has been the strength of the semi cycle. That can be seen in today's Japan February export prices, and Korea March 10-day March exports. That provides some offset to the rise in energy prices, though not enough to matter if the Strait of Hormuz remains closed.
Jan-Feb trade data for China were strong, but still distorted by LNY. Q4 GDP in Japan was revised up, boosted by rising private domestic demand. Korean GDP contracted in Q4, but an improving ToT boosted real incomes. TSMC sales dipped in February, but equities don't yet point to a big downturn.
Exports in YoY and SA terms were strong in Jan-Feb. That looks too good to be true, and I'd expect new year distortions won't totally disappear until March. Still, one trend that looks real is the rise in chip exports, as China benefits from the same semi super cycle lifting the rest of the region.
The backdrop to the latest oil price surge is different to that of 2022. Then, wages were barely rising. This time, wage growth is at least 2%, and not slowing. With cycle momentum picking up too, there is more of a risk that a Middle East war (if it is short) further raises nominal momentum.
A few data releases today: inflation in China; economic sentiment, bank loans and BOP in Japan; foreign trade and monitoring index in Taiwan. The lessening of deflation in China is an underlying change. The other data are distorted by the Chinese New Year, and will now be shifted by the Iran war.
Deflation momentum continued to lessen in February, a trend that will now be given a further boost by global oil prices. But with this shift in the direction of deflation being driven by external factors, it isn't based on the sort of improvement in domestic growth that is needed for sustainability.
With activity and inflation in East Asia picking up before the war started, the extra push to prices from the conflict will be important for the near-term policy outlook if tensions subside quickly. Right now, the bigger risk seems to be a real supply shock that causes a demand shock too.
Underlying inflation in Taiwan is catching up with the Korean run-rate of 2%. The CA surplus in Korea is starting to follow the sharp rise in the surplus in Taiwan. Consumption in Japan is showing stronger momentum.
The CA surplus was strong in January, but while NPS outflows eased, retail buying of offshore equities remained high. Core inflation ticked up to 2.3% YoY, but that was related to holiday spending. The impact of the Middle East war will only start to be seen from March data.
Before the Iran war, Taiwan's industrial sector was strongest, and leading indicators pointed to further acceleration. But in terms of broad recovery, prospects in Japan looked best, with industrial sentiment rising, but consumer confidence rebounding too.
While the big news is the bloodbath in markets, particularly Korea, there were lots of data releases today. They show that before the Iran war, economic momentum was good in Japan and Taiwan, and poor in Korea. In China, it could be either, depending on which PMI you believe.
The S&P/RatingDog PMIs suggest an economy that is finally recovering. The official PMIs, by contrast, indicate continued sluggishness. I am inclined to think there is no change, at least until the LNY impact fades. The one common theme is firmer input prices, even before an energy price shock.
Lots of charts on Japan, on profits, capex, and unemployment. Also, highlights from today's PMI for Korea. That is solid, but not as strong as in Japan and Taiwan. Like Taiwan, however, the Korean PMI points to rising price pressures – and that even before a new oil price shock.
The Q4 data showed corporate profits and capex remaining strong, but little change in firms' huge cash holdings. The labour share has bottomed, but isn't rising. Separate data show unemployment creeping up, which will become a bigger concern if the war with Iran causes a cycle problem.
The latest Middle East war might change everything again. But before the latest conflict, Asia's manufacturing cycle was accelerating. That's clear with the chip-led export surge in Korea in February, and the stronger manufacturing PMIs for Taiwan and Japan.