Korea - lower inflation expectations
Inflation expectations are falling, but remain high in absolute terms. The pace of BOK tightening should slow, but inflation expectations need to be lower, with evidence of actual services price inflation falling, before the BOK goes on hold.
China – taking stock
The currency is on the move again. Interest rate differentials suggest fair value for $CNY of 7.3; the weakness of the domestic economy and the over-shooting that normally happens with $CNY moves suggests more upside still. This move increases risks for China's economy, and for global markets.
China – industrial prices stabilise
YoY upstream price inflation is fading. Sequentially, however, there's some stabilisation. That's consistent with policy, but isn't yet likely to be reflecting a fundamental turn. Activity usually improves after the summer, and leading indicators like liquidity preference continue to fall.
Taiwan - August IP and retail sales
Industrial output was stable in August, remaining below the peak of March, and leads suggest a further slowdown in the next few months. It is unlikely consumption will be robust enough to compensate for this industrial slowdown, even though retail sales ticked up in August.
Taiwan - not much tightening
With the labour market not particularly hot, and the CBC forecasting inflation of less than 2% next year, it isn't surprising that tightening remains slow. That creates depreciation pressure on the TWD, but for the time being, that's not a trend the CBC will feel a need to fight very hard against.
Japan – CPI rising, BOJ on hold
BOJ trimmed mean inflation continues to rise, but the BOJ is keeping policy unchanged. With rates remaining anchored, the JPY continues to sell off. The MOF has been talking about "stealth intervention", but it is unclear if that includes pressure on the GPIF to unwind some of its foreign holdings.
Korea - better in September
At a headline level, export growth fell again in the first 20 days of September. The details were stronger, but that is likely noise, with more downside for exports ahead.
Japan - inflation still rising
Inflation rose again in August, and there should be further upside before the end of the year. Headline CPI should be easing in 2023, but whether core does too depends on inflation expectations, the labour market, and the transition from goods to services prices.
Taiwan - China orders dropping sharply
Taiwan's export orders to China continued to drop sharply in August. That is an indication of just how weak Chinese growth is, but is also a warning that a big change may be coming in overall world demand.
The East Asia Economist
Since the pandemic began, productivity has probably increased more quickly in Taiwan than any other major economy. As a result, Taiwan isn't facing the higher inflation and rates being experienced elsewhere. Taiwan's competitiveness instead reinforces structural trends for a stronger TWD.
China - not a firm floor
The headline data were a bit stronger in August, but the details remain weak. It doesn't feel that the government is yet doing enough to really turn the economy around.
Korea – goods v services prices
The labour market remains tight, making it difficult for the BOK to relax, even as import price inflation starts to recede.
Japan - August foreign trade
Exports continue to go sideways, which at a headline level is because weaker tech shipments are being offset by stronger car sales. Imports in JPY terms are still rising, so the trade deficit continues to widen.
Japan – PPI, business sentiment
Upstream goods price inflation softened in August, pointing to a peaking of CPI in the next few months. One risk to that would be a pick-up in services price inflation, but today's quarterly business survey from the MOF suggests the cycle isn't yet strong enough to produce such an outcome.
China – taking stock
Overseas, the idea of Peak China is gaining traction, which is quite at odds with the full-on confidence in the further rise of China expressed by leaders in Beijing. The contradiction does suggest a need for policy change, but at least for now, that shift seems like the risk rather than base case.
Last week, next week
This is what happened on East Asia Econ this week. Region August export data for China, Korea and Taiwan dropped sharply. That makes it more likely that the industrial cycle is turning, with further weakness to be expected in the next few months. China The three data releases this week
China - August credit data
Monetary data in August remained weak, with little reason to suggest any upturn in the macro cycle.
China – August CPI/PPI
Food prices pose something of an upside risk, but underlying price trends, particularly in PPI, continue to look more deflationary than inflationary.
Japan – August Economy Watchers survey
The Economy Watchers survey rebounded in August, and is at a level consistent with mild GDP growth. But the survey isn't strong or stable enough to suggest an acceleration in the sluggish pace of the post-pandemic recovery.
Taiwan - August foreign trade
Taiwan's exports fell sharply MoM in August, matching the deterioration seen in the Korean export data that were released last week. Leading indicators continue to point to more downside ahead.
China - August foreign trade
Exports are now starting to slide. That's important given they've been the one bright spot for the economy in the last few months. Weakening external demand will mean China's cycle is even more challenged into 2023.
Taiwan – August CPI
Inflation has likely peaked, and should decline in the coming months. The two risks round that are first, rising food prices, and second, cost inflation in services. There are reasons to think that services price might rise further from here, but for now, that seems like a tail risk.
Japan – July wages
The wage data don't change the macro picture. Wages are creeping up, but are rising less quickly than inflation. The labour market isn't yet tight enough for nominal wages to accelerate much more.