The platform for tracking and understanding East Asia macro
A recap of themes for the region: China's messy cycle; nominal re-acceleration in Japan; the semi cycle as upside risk in Korea; and Taiwan's growing external excesses.
The October data are soft, but mixed: on the one hand investment terrible and property weak, on the other, output and services more stable. That probably doesn't add up to a change in policy. My idea of stabilisation does look a bit more tenuous, and would be over if upstream prices give way again.
Import prices are rising, but not by enough to think upstream inflation is about to explode. More interesting are export prices. Auto export prices aren't rebounding. By contrast, semiconductor export prices seem to be gaining upwards momentum – which is important given the rise in spot DRAM prices.
Relative to my idea that the underlying economy could be stabilising, today's monetary data for October are a little soft. In particular, both M1 growth and the M1:M2 ratio ticked down, and mortgage lending also slowed. Credit growth also dropped, but only because of less government borrowing.
The gap between import prices and PPI in the October data illustrates the sort of pent-up inflationary pressure in Japan that is likely to be exposed if the JPY remains so weak. Today's data also show a decent rise in auto export prices, but to a level that is still 6% below the pre-tariff level.
With October meeting minutes, export and labour market data, there's enough to review the outlook for Korea. I think the underlying economic picture remains consistent with more cuts. But the minutes show Board members continuing to prioritise concerns about KRW weakness and house price strength.
The sharp recovery in sentiment in the EW survey continued in October. The improvement is broad-based, affecting both corporates and households. That shows a lessening of the tariff and inflation shocks of 1H25, and should be reflected in the BOJ becoming more optimistic about the outlook.
The summary of the October BOJ meeting show a stronger consensus that the time is approaching for another rate hike. That is partly because concern about tariffs is fading. It is less about domestic demand: data today show consumption trending up, but still only very slowly.
Data last week showed Taiwan remaining as one of the world's major beneficiaries of AI adoption. A big question for 2026 is whether Korea joins the party. Other themes are fiscal uncertainty in Japan, and further signs of stabilisation in China's underlying cycle.
CPI and PPI data for October show another lessening of deflation, and leads point to that trend being sustained through year-end. That is important, and fits with my idea of a bottoming for the underlying cycle. But I am not convinced yet, with services CPI inflation still too low.
I am running out of superlatives to describe Taiwan's export story in 2025. So I'll let the numbers speak for themselves: today's October data show semi exports have grown 70% this year, pushing the overall trade surplus last month to 30% of GDP, and the bilateral surplus with the US to 20% of GDP
Many explanations have been put forward for the drop in YoY FAI. I have another: YoY catching up with the weakness already clear in the MoM. That's tongue-in-cheek, but looking at the under-used MoM series for IP, retail sales and FAI add useful perspectives on what is happening in the economy.
China's exports, which had been so strong, were weaker in October. That could be the lagged impact of tariffs. The suddenness of the change suggests other factors are involved, but we'll find out more with next week's detailed data. For now, it is worth noting that auto exports continue to rise.
Data today show Korea's current account surplus remaining at over 5% of GDP. The fundamental driver is a fall in borrowing by the corporate sector. This structural surplus hasn't started to support the KRW. One reasons is continued outflows from the NPS.
Wage growth was softer in September. The continued slowdown in part-time wages per hour will be a bigger concern if it persists beyond the October rise in the minimum wage. Per hour full-time wage growth is stronger than the headline, though the data are noisy.
A slide pack summarising my views on the region, and each economy.
The rise in inflation in October has partly due to demand related to last month's extended holiday, and so shouldn't persist. However, inflation remains much stickier than I would have expected, given the ongoing weakness in the economy.
In what was a very eventful few days, two developments last week stood out for me: the cuts in US tariffs on China, and the call in the FYP plan for more consumption. Both continue the turn for the better in China sentiment. The upturn in Korea isn't yet supported by a stronger labour market.
Today there were the usual month-end data releases of retail sales, the labour market, and construction, as well as Tokyo October CPI. More interesting was the BOJ's full outlook report, analysing exports, capex resilience, food prices and consumption, as well as wages and prices.
With the official manufacturing PMI dropping to a two-year low in October, it is clear China's cycle continues to struggle. The offset is the improvement in the S&P/RatingDog versions (at least through September), and the better CKGSB survey this month.
The PBC's quarterly surveys cover firms and banks too, but I think the household version is most interesting. In Q3, household sentiment is weak, but mixed. Price expectations are very soft. Some of the savings data support the idea that China's economy is near a structural turning point.
After last month's puzzling fall, business sentiment bounced in October. With the diffusion across sectors still rising, it seems reasonable to expect a further rise in sentiment towards neutral. But there still are headwinds to recovery: construction and real estate, exports, and the labour market.
With yesterday's loan officer survey, and today's release of consumer confidence and GDP, there is lots to dig into. There are some important takeaways, but overall, the releases don't provide clarity on the two big issues facing the economy: house prices, and the outlook for growth.
The steady drop in services PPI inflation stabilised in September, with core ticking up to 2.9% YoY. The data aren't good enough to prove the decline is now over, but I do think a floor should be close. Lumpiness in the data suggests a short-term bounce, and the labour market remains tight.
China has now released trade price and volume data for September. They show export volumes holding up despite tariffs, and that isn't because of price cuts. The recent mild upturn in import demand has also sustained. That calls into question the sharp fall in last week's FAI data.