Today's first estimate of Q4 GDP was strong. The big contribution came from service exports, but the surprise was the resilience of consumption, with the backdrop being another decent rise in real compensation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Gone are the days when the monetary data can make a big difference to the market mood. Today's release doesn't turn back the clock: the headline is a bit stronger, but mortgage lending wasn't, and there are distortions from Chinese New Year and definition changes.
The rebound in headline employment in January wasn't broad, with jobs in the private sector remaining weak. With no reversal in the sharp rise in the participation rate of recent years, and the number of part-time jobs still rising, the labour market is likely less tight than headline data suggest.
Today's PBC data show another steep fall in mortgage interest rates in Q4. Rates are still 3%, so can go lower still. However, before 2020, real estate would be booming by now. That there's little reaction this time shows the problems in the real estate market won't be solved by rate cuts alone.
In LCU terms, there's little to choose between exports in the different economies. But in volumes, China and Taiwan are very strong, and Korea and Japan clearly lagging. This should have implications for CNY, TWD and KRW. For Japan, the significance is for macro if USDJPY turns.
Import price inflation did rise in January, but PPI inflation was much higher, and the relationship between the two has clearly weakened. One driver is the cutting back of gasoline price subsidies, a policy that had held back PPI even as import prices surged in 2021-22.
10-day data are never the most robust indicator, and particularly in February given the January holidays. Still, it is notable that there's no turnaround in the export slowdown that began in Q4. Indeed, adjusting for working days, exports have fallen this month for the first time since late 2023.
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.