Paul Cavey

Last week, next week

China – two unusual features of the export transition

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Taiwan – tech boosting NIIP, but not the TWD

Data today show Taiwan's NIIP surplus dropped a little in 2023, but remained extremely large. Those assets have been accumulated via strong exports, 60% of which are now "high-technology". And yet, the TWD through April weakened, with one measure of the REER no higher than 2001.

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Korea – defying demographics

My latest video, discussing how Korea is managing to avoid the labour market decline that would usually be expected as the population ages. This is likely to dampen wages – and potentially inflation – in Korea relative to Taiwan, where the part rate isn't rising in the same way.

Japan – more subdued

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Taiwan – wage growth remains strong

Relative to history, Taiwan's wage growth remains strong. As would be expected, that's being led by manufacturing, though services wages have been firm too. For now, the downside for rates remains a structural appreciation of the TWD, not a problem with the cycle.

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Japan – PPI starting to decline

PPI inflation eased in May, falling to 3.2% YoY, down from the recent peak earlier this year of more than 4%. The ongoing decline in JPY-denominated commodity prices shows this process has further to go, but feed-through into PPI will likely be dampened as importers try to restore profit margins.

Korea – employment and exports still sluggish

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Taiwan – TSMC still leading the way

May was a bit softer for TSMC, but sales are still 26% higher than at the beginning of the year. That matters a lot for the overall economy, given that semiconductors are about 50% of exports, and outside of semi, exports aren't growing much, if at all.

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Taiwan – exports still going straight up

The sharp reversal in exports expected by the government isn't showing up yet. Shipments rose strongly again in May, and are now 17% higher than in December. With imports weaker last month, the trade surplus increased to near 20% of GDP, a new multi-decade high. The biggest driver remains the US.

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Japan – sentiment back to average

Sentiment in the Economy Watchers survey still points to slower GDP growth in 2H25. However, it now isn't particularly weak, improving in May back to the long-term average of the survey. That's probably not enough for the BOJ, but likely would be if Japan can now land a trade deal with the US.

China – sharp drop in exports to the US continues

China – PPI pulls inflation down further

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Japan – PCE revised up for Q1

In the second release of Q1 GDP, consumption was revised higher. In aggregate terms, there's still no convincing trend up, but the per capita level of spending is now as high as the previous record peak in 2014. The revision boosted GDP to flat QoQ, even though capex was revised down.

Last week, next week

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Japan – consumption slowly trending up

Consumer sentiment has been sliding, but in April, the BOJ's measure of consumption was firm. It is still well below the pre-covid level, but the numbers look consistent with the BOJ's view that consumption is on a "moderate increasing trend".

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China - sluggish activity, weakening prices

The S&P PMIs indicate slower growth in May, with the mfg PMI dropping sharply, and today's services PMI sluggish. Both also suggest more deflation. In today's survey, input prices ticked up, but selling prices were pushed down by "greater competition for new work and promotional activities".

Japan – wages jump in April

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China – faster PPI deflation

High-frequency data continue to point to a faster rate of deflation in China in recent weeks. One reason is lower energy prices, which should bring some economic relief to downstream firms, but building materials and steel prices are also falling. Cyclical momentum the economy remains very weak.

Korea – core CPI lower in May

Japan – Ueda upbeat

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Asia – cycle summary

A shorter video that last time, summarising the most important issues for each economy, giving a regional ranking, and discussing market implications.

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China – sharp fall in Caixin PMI

Rather than getting the tariff-reprieve boost seen in the official PMI, and other PMIs across the region, the S&P PMI fell to 48.3 in May, the lowest since September 2022. Export orders dropped to the lowest since July 2023. That fed into weaker staffing and continued falls in prices.

Taiwan – use rates, or the currency?

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Region – PMIs stabilise in May

The Liberation Day tariffs caused the PMIs to fall sharply in April. Postponement of the tariffs triggered a recovery in May. But the bounce in the headlines was mild, and Korea, where according to S&P "new orders fell at the...strongest rate in almost a decade", continues to lag.