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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Paul Cavey
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Korea – CPI down, but some seasonality
January CPI inflation fell, but that was probably related to LNY, and will partly reverse in February. Beyond that, inflation will ease further. That will matter for policy if it isn't offset by stronger activity. Yesterday's PMI showed a pick-up, but other indicators haven't been so strong.
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Region – PSL and PMIs
With the Markit PMI holding up and PSL funding rising, China doesn't look as bad as market sentiment. Exports in Korea and PMIs in Korea, Taiwan and Japan show the industrial cycle improving, but not quickly. For Japan and Korea, that can still be important given elevated non-manufacturing PMIs.
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Region –monthly chart pack
A slide pack summarising our recent research and views on the region
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Japan – more confident again
The summary of the BOJ's discussions at last week's Board meeting gives an impression of even more confidence than expressed in other recent statements. The hard data still aren't that strong, but surveys continue to improve, with consumer confidence in today's survey approaching pre-covid levels.
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China – PMIs sideways
At a headline level, both the manufacturing and non-manufacturing PMIs crept up in January. The details in the manufacturing survey were weaker than the headline. Activity remains soft, but overall, looks to be going sideways.
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China – the surprising strength of imports
Equity market sentiment suggests weak domestic demand should be getting weaker still. And yet, import demand has been firm, and is picking up. The two big drivers are resilient commodity demand and rising imports in the semi space. But imports of other capital goods show signs of rising too.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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China – not that bad
There remain multiple reasons to worry about China's economy. But it is also possible to argue that the outlook now isn't as bad as current expectations. There are five areas to highlight, with the main substantive change being the notable expansion of the PBC's balance sheet.
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Japan – CPI lower, BOJ confident
Tokyo CPI fell quite sharply in January. That's a reminder that the peak for inflation is in the past, and provides justification for the BOJ's cautiousness. But services PPI in December was still firm, and BOJ minutes today show the same cautious bullishness seen in other recent statements.
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Korea – still no oomph
Business sentiment remains soft, with the pick-up in exporter confidence of late 2023 losing some momentum. This leaves overall sentiment at levels where the BOK has historically cut rates. That's been the case for several months already, but will matter more this year as headline inflation recedes.
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Japan – the BOJ's labour market view
The BOJ's full outlook report once again presented a constructive view of the outlook for wages. Importantly, the bank's view seems to be based on surveys and qualitative indicators more than hard data on the labour market.
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Japan – BOJ again more positive
The BOJ didn't change policy today, but sounded incrementally more positive about the outlook. There remain strong reasons to think that the bank will end negative rates sometime soon.
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Region – still only amber
TSMC's outlook for 2024 is bullish for the regional export cycle. But other export indicators are yet to validate that picture. There's enough to remain positive about the TWD. But it feels like there is some way to go before the export cycle can start to impact rate expectations in Taiwan and Korea
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Last week, this week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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China – what confidence crisis?
Consumer confidence has collapsed, but corporate sentiment hasn't. Indeed, given the macro weakness, business confidence feels somewhat resilient. That isn't sufficient on its own to lift the macro gloom. But it will be important if and when the consumer and property sectors bottom out.
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Japan – no change for the BOJ
We don't think data since December will change thinking at the BOJ. The bigger considerations are downside risks from the earthquake, and upside for inflation from renewed JPY weakening. If the bank's meetings during 2H23 were all 'live', then the same is true right now.
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Lessons from Asia for China
A slide pack from a presentation on the lessons China can learn from the development experiences of other economies in the region
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China – PBC, not GDP
Official Q4 data reiterate existing trends: weak consumption and property, but some growth in other sectors. The property data were disappointing, when other data have started to suggest a floor. But we still think there are some upside risks, with the PBC's balance sheet expanding more quickly.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
China - monetary impulse remains weak
Government borrowing – and weak GDP growth – continues to generate a modest lift in the credit impulse. Non-official borrowing did tick-up in December, but only marginally. Mortgage lending and M1 remain weak. At best, the data suggest a muddling through on the back of government projects.
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China – sideways
China's data continues to be neither good, nor particularly bad. Headline PPI and CPI are both in deflation, but there aren't signs of core CPI falling. Exports are going sideways, and imports have strengthened. The rose in imports has eroded the trade surplus.
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Korea – incrementally doveish again
The BOK became incrementally more doveish at its January meeting, effectively closing the door entirely on the risk of further hikes. It also warned against premature cuts, but in our assessment, not particularly convincingly.
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Region – export update
Taiwan full-month exports for December and Korea 10-day exports for January were strong at the headline levels, but the details were weaker. Leading indicators continue to point to further upside, but there are signs of supply chain disruptions emerging again.
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China – the case for a stronger CNY
One consequence of China's industrial strength will be protectionism. But we think there should be an exchange rate impact too. The real CNY has fallen by 6% since 2020, while the manufacturing trade surplus has risen to over 10% of GDP, and real interest rates might have risen.