East Asia Econ

In today's BOJ quarterly consumer survey, inflation expectations remained strong, just as they had in the corporate Tankan last week. Given tariffs, this is not nearly as significant for the BOJ as it would have been, but it is better to be facing Trump's shock with inflation rather than deflation.

Exports in April didn't grow. The sluggishness of sales this year contrasts strongly with the surge in shipments from Taiwan. This isn't a great position from which to be drawn into a trade war, which for Korea is still very much alive: Trump's tariff reprieve doesn't extend to his auto tariffs.

The slight moderation in March wasn't big enough to change the vertical trend rise in Taiwan's trade surplus with the US. Maybe the tariffs will cause a bigger change. At the least they will cause a slowdown in exports, which remained strong last month, led by another record month for TSMC.

Core inflation eased in March, and is now down to a bit over 1%. The fall in oil prices should mean downside risk for headline from here too. That's important because of the likely recession that's now ahead. Equities are suggesting exports fall 10% in the coming months.

Pulled by the policies of previous US administrations and pushed by rising China competition in EM, Korea has focused more on the US market. As a result, US tariffs will hurt more than they would have a few years ago, and with domestic demand weak, there's not much else to support the local economy.

Profits rebounded YoY in Jan-Feb, but in level terms remain subdued. That overall picture, however, masks big sectoral differences. Aggregate profits in heavy industry have fallen, and are no higher than in 2013. Earnings in machinery and electronics are more stable.

Sequential momentum in services PPI has eased in recent moths. However, the data have been volatile since covid, and in 2023 and 2024 there was a big re-acceleration at the beginning of the new fiscal year. Given continued wage growth, a rebound seems likely in April 2025 too.

Consumer confidence fell back again in March, and remains well below the long-term average. However, general inflation expectations were stable, and while house price expectations ticked up, the change isn't enough to suggest a big acceleration in the real estate market.

There's really not much change happening in Taiwan's labour market. But right now, that's what makes it interesting. Taiwan's unemployment rate is holding at lows not seen in 20 years. That in turn forms the backdrop for wage and core CPI rises which are the highest in 20 years.

Today's flash shows no change from recent themes: manufacturing is weak, services rather volatile, and inflation pressure everywhere is holding up, with manufacturing prices "comfortably above their long-run trend levels", and input costs in services "increasing at the fastest pace in 25 months".

The slowdown in auto exports that began in 2024 has continued through early 2025. EV sales and shipments to DM have been flat-lining for a while already, and rising exports of hybrids hasn't been big enough to make up the difference.

The standout feature of the Tankan Reuters remains the unusual strength of services relative to manufacturing. Today's march survey shows that this gap isn't expected to close in the next few months, and is one reason for the higher rate of inflation that Japan is experiencing.

The recovery in new property prices from Q4 faded in February, with prices dropping MoM. That makes some sense given mortgage lending, which has stopped slowing, but hasn't started to lift.

The slow but steady pick-up in wage inflation is continuing. The trend is now up to 2.5%, the highest in 20 years. The lift is being led by manufacturing, where wage inflation is nearer 4%. These trends will keep a floor under both CPI inflation, and interest rates.

The reversal of December's fall in jobs continued in February, but the rise is still being driven by employment in the public sector, and of more elderly workers. In line with very poor business sentiment, private sector employment is continuing to weaken.

February's 4% YoY PPI sustains the break with import prices. In level terms, the break is more understandable: import prices usually rise more than PPI, then correct with global recession or JPY strength. As yet, they aren't happening, increasing pressure for PPI to rise.

Overall exports were a bit better in the first ten days of March, though still look to be below the peak of a few months ago. That semiconductor sales continue to slow isn't a positive sign for the outlook.

The surge in exports this year isn't all front-loading and Chinese New Year. Through 2024, Taiwan's export data had been looking light relative to TSMC's sales. That gap has now been closed, meaning strong performance for TSMC can once again be thought of as implying macro strength for Taiwan.

There is funniness in the data because of the holiday effect and likely tariff front-loading. But still, the surges in some of the flows are striking: server and semi sales, exports and the trade surplus with the US, capital goods imports. No sign at all of the sluggishness seen in the Korean data.

The BOJ's proxy for consumption dropped in January to the lowest since 2022. The population is declining, but the January data don't look much better, even in per capita terms. One reason is inflation, which continues to erode household incomes.

This is a good way of showing the contrasting cyclical momentum in China and Japan. Except for the sudden stops during covid, the services PMI in China is the lowest on record. In Japan, it is near the strongest.

Domestic demand in Korea has been weak for a number of months, with the economy supported by exports. But exports are now weakening too, as the semi cycle turns. No wonder the BOK is so worried about growth.

The rebound in price expectations in Taiwan's consumer confidence survey is starting to look interesting. It isn't just Chinese New Year, with the rise beginning in October last year. Certainly not grounds for the CBC to be cutting rates. Perhaps a reason to hike?

In YoY terms, the trend in services PPI inflation is still up, but sequentially it is starting to look like it has peaked at a bit above 2%. There might get another boost from a strong shunto, but 2% pipeline inflation looks light for getting sustainable CPI of the same rate.