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A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Tokyo CPI in April was boosted by changes in official subsidies. But inflation remains broad-based. Food prices were up, and rental inflation jumped – important, given the near 25% weighting. Services inflation didn't shift much, but the trend will be clearer with April national CPI and SPPI.
YoY services PPI in March continued to run at above 3%, led by price rises in more labour-intensive sectors. Sequential momentum has eased a bit in recent months, but should get another boost in April, as the latest annual wage round feeds into price rises at the beginning of the new fiscal year.
Business sentiment fell again in today's survey, and has now only been worse during the global financial crisis and covid. Exporter sentiment has ticked-down, but the weakness is much more apparent in domestic, non-manufacturing sectors. Further policy easing is ahead.
As with the Reuters Tankan, the S&P manufacturing PMI didn't fall in April. The services PMI also rebounded, and the commentary shows no sign in the trend: "inflationary pressures strengthened, with input prices rising at the sharpest pace since February 2023 and output charges increasing solidly"
Taiwan macro doesn't attract much attention, but its experience matters. Taiwan was most exposed to the 2000s China shock. That it then suffered near-deflation reflected tight fiscal policy, a lesson that needs to be learnt in dealing with the latest shock, this time emanating from the US.
The clearing of some of Korea's political uncertainty hasn't helped consumer confidence. It hardly rose in April, even though the survey was taken after Yoon's impeachment verdict. Inflation expectations remained near 3%. Property price expectations also ticked up, but not as quickly as in March.
Export volumes have ticked up this year, but not by enough to think that JPY weakness is finally boosting sales. That has a silver lining: just as JPY weakness didn't boost real growth, a strengthening currency won't lead to much deterioration. There will, however, be an impact on nominal earnings.
Taiwan isn't seeing the big supply-side labour market shifts visible in Japan and Korea. The participation rate hasn't risen, and the proportion of part-time jobs remains in low single digits. As a result, ageing is constraining labour supply in a way that hasn't been apparent elsewhere.
Japan shows signs of pent-up inflationary pressure, with PPI rising despite a decline in import prices. In Korea, by contrast, the usual relationship hasn't broken. If USD strength really has ended, KRW import prices will decline further, making it easier for the BOK to focus on the weak cycle.
Exports for the first 20 days of April were weak, falling -5.2% YoY. That isn't because of tariffs: the downcycle in Korean exports began in mid-2024. With tariffs, however, the weakness in exports can be expected to intensify. The equity market is already pricing in double-digit declines.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
My leading indicator suggests a clear rolling over of the export cycle even before the real hit from tariffs begins. It might be a bit too early yet for that hit to be showing up in hard export data, but next Monday's trade statistics for Korea for the first 20 days of April will be a test.
Today's CPI release was less interesting than data released earlier in the week showing a jump in part-time wage growth in March, and comments from MPB member Nakagawa highlighting upside risks to inflation.
JBRC this week reported March part-time wage growth jumping to 5.6% YoY. Some of that looks like catch-up with the official data, but the commentary was interesting, with the rise being attributed in part to this year's shunto. The labour market continues to look very tight.
"It's like we're suddenly in a dark tunnel because of the change in the tariff policy of the US, so in this dark situation, it's better to adjust the speed a little bit and wait until it gets a little brighter".
Bits and pieces today. Machine orders were stable in February. The April Reuters Tankan didn't show much deterioration, even though the survey was conducted after "Liberation Day". At least for services, one continued driver is tourism, with visitor numbers in Q1 surpassing 10m for the first time.
Since June last year, there has been a real inflection in retail sales and some construction indicators. In Q1, however, real estate remained as weak as ever. Manufacturing FAI is strong, but that has to be at risk from the trade war. Overall, the economy still isn't on a firm footing.
Today's property price data showed continued falls in March, though not as deep as the cuts late last year. Putting that with CPI, PPI and equities, and it is clear that all-economy prices remain in deflation, with little change following the government stimulus from September last year.
KRW import price inflation has slowed to 3.4% YoY. In USD terms, import prices are falling. The gap is the exchange rate, and that boost to inflation makes the KRW an issue for the BOK. The KRW has now recovered the drop triggered by the martial law declaration, easing some of the BOK's concern.
The second of two videos on consumption, an issue that is even more important given the economic damage that will be inflicted on China by the tariffs. It is impossible to imagine Beijing supporting western-style consumerism. But there is still a way for economic policy to boost consumer spending.
The economic environment for Korea is about as bad as it can get. Despite the short-term rebound in house prices, that suggests more rate cuts, starting at this week's meeting, that will ultimately take the policy rate below neutral. The one caveat I have is the stickiness of services inflation.
Wage growth in Taiwan has been famously low for years. But in manufacturing, there are signs of change, with growth averaging around 4% since 2024. Services isn't so strong, but the trend growth in economy-wide wages is now up to 2.5%, higher than any time in the 25 years.
Exports through March were solid, but not so strong as to suggest big front-loading. The real standout is the import ratio dropping to a new post-1990s low. The trade surplus upsets Trump. Equally though, weak imports limit China's appeal as a market for others looking for an alternative to the US.