A longer video discussing demographics, the area where Asia is most clearly leading the world. The changes in the population will clearly matter for economies, but Japan's experience shows the macro implications aren't necessarily what might be expected.
There's plenty of evidence that in nominal terms, the economy is growing strongly. After adjusting for prices, however, growth in real terms isn't nearly so impressive. The Economy Watchers survey today suggests RGDP is expanding, but no more quickly than it was before 2020.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
January core CPI picked up. That doesn't look like a Chinese New Year effect, and comes after Q4 when prices were already looking firmer. This dosn't mean inflation, but if core, which has underperformed other price indicators, is now catching up, it would mean China isn't in underlying deflation.
The spike in inflation seen in January isn't unexpected given consumer spending on the back of this year's early Chinese New Year. The strength of exports can't be explained away in the same way, and suggests Taiwan's relative outperformance is continuing.
Still no sign of any oomph in Japanese aggregate consumption, with today's release of the BOJ proxy for December basically flat-lining. The trend in consumption in per capita terms is better, but it is the aggregate data that matter for GDP.
Naoki Tamura is a relative hawk at the BOJ. While that doesn't make him mainstream, his speech today is still worth reading, because it is direct and well-reasoned, and because an upside surprise in inflation and rates is a very reasonable scenario for 2025.
Full-time worker wage growth remains stable at a bit under 3%. Further acceleration is likely, though not much: this year's shunto will probably moderate from 2024. Part-time worker wage growth is though continuing to rise, consistent with the BOJ's view of a tight labour market.
Data today show the rise in underlying inflation that has been underway for almost a year continuing. But yesterday's minutes of the last BOK meeting show that notwithstanding the rise in $KRW, weak growth rather than rising inflation remains the much bigger concern.
Both the official and Caixin mfg PMIs fell in January. That doesn't tell us much. When Chinese New Year falls in January, it isn't unusual for the PMI to rebound with the rise in working days in February. The sharp drop in jobs in the Caixin is a concern, but wasn't seen in the official version.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Ideally, the BOJ wants the participation rate to peak, higher wages to make consumers more positive, and both demand-pull and supply-push to drive inflation. Instead, consumption is sluggish as rising goods price inflation outpaces wages, with the part rate continuing to rise.
With the BOJ's review of post-1990s Japan, we have an inventory for Japanification. Using this to assess China today, what stands out is not the similarities, but the differences. All told, on my scoring China isn't graduating to Japanification, achieving a mark of only 30%.
The link between consumer confidence and prices has weakened in the last 18M. But it hasn't broken, as January data show: consumer confidence fell quite sharply this month, as price expectations rose. The implication is that while nominal wages are rising, they still aren't going up quickly enough.
SPPI inflation remains in an uptrend, and is now running around 3.5% saar. A few months ago the BOJ rejigged the data to include a breakdown by labour content, and that shows SPPI rising most quickly in high-labour industries. This will give the bank further confidence in its price-wage story.
Export volume strength sustained through end-24. From the low of early 2023, shipments have risen by 30%. That's a growth rate rarely topped in the last 15 years, despite today's headwinds of tariffs and a global market share that is already large. Import growth, conversely, has rarely been weaker.
The main change the BOJ made to its description of the outlook on Friday was the mention of a "growing sense of labour shortage". The special analytical boxes in the full outlook report, released today, give a lot more colour on why the BOJ made that adjustment.
Data today don't help in understanding the cycle. PMI headlines softened, but that isn't unusual when Chinese New Year falls in January. The details didn't drop in the same way, but also don't look strong. Separate data for industrial profits did improve, but that isn't a reliable data series.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Despite a surge in capex, GDP growth slowed in Q424 to 1.8% YoY, the lowest since September 2023. 2025 as a whole should be better, with modest growth in exports and private consumption. The upside risk is wage growth feeding into stronger consumption. Downside comes from the Trump tariff threat.
The highlight of today's BOJ meeting, apart from the hike, was the increased confidence around the labour market. That, and the firmness of the dataflow, strongly suggest the bank continues to hike. It doesn't feel aggressive to think of 1% by year-end. Ueda's press conference will give more colour.
My estimate of YoY trimmed mean inflation ticked up for the second consecutive month in December. That matters when the Tankan's measure of output prices has been warning the fall-back in inflation since was overdone. The backdrop is international core inflation settling at 2% saar since August.
Firms haven't responded in textbook fashion to the weaker JPY. While the currency is down 35% since 2019, export volumes have risen just 7%. The reason is export prices haven't been cut, with the weaker JPY instead flowing straight to the bottom line. In JPY terms, exports rose 50% in 2019-24.
Today's GDP release shows Korea's economy only grew in Q124. After that, activity stagnated. Q125 is likely to be worse, given the collapse of domestic confidence after the martial law fiasco, a deterioration confirmed by the BOK's confidence surveys that were also released the last couple of days.
Today's household sector details of Q3 GDP show real incomes rose for a third consecutive quarter. That seems to bring to an end what had been a terrible period for incomes, and with the labour market remaining tight, suggests last year's recovery in consumption should continue.