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Most important for markets is today's Q4 data is the pick-up in the deflator and nominal GDP, which external trends suggest can run further. In terms of the details, the data show two big discrepancies: collapsing FAI v industrial stability, and falling retail sales v rising consumption share of GDP
Last week's most important release was China's USD100bn fx settlement data. Capital inflows will boost money supply. A stronger CNY should also help support regional currencies. The impact is overshadowed by politics in Japan, but should be more powerful in Korea and Taiwan given the semi boom.
Some of the signs of domestic stabilisation I'd been tracking in 2025 faded into year-end. However, they didn't disappear entirely. China is also starting to benefit from the global tailwinds of weaker USD and rising commodity prices, creating upside risks for China's nominal cycle.
China's release today of December data for money, credit and fx settlement tell three stories: domestic savings outflows have lost momentum, credit ex-government is looking a bit stronger, and capital inflows are really picking up. If right, the last dynamic is the most important for markets.
The BOK isn't getting carried away by the remarkable rise in semiconductor prices, but it did today say the chip cycle is moving growth risks to the upside. It also terminated talk of rate cuts, though that isn't just about growth, with the bank making clear that KRW weakness is a key consideration.
Japan's current run of PPI inflation is almost the longest since at least the 1980s, but looks well-supported. Prices have recoupled with the global cycle, and are being boosted by JPY weakness. Furthermore, while it was feared that tariffs would be deflationary, export prices are rising.
Domestic sluggishness and financial stability concerns aren't changing, so likely keep the BOK on hold tomorrow. But there is a new development: the 10x rise in the DRAM price. To me, that is shifting cycle risks to the upside. Tomorrow's meeting will be important if that is the bank's view too.
Using an update of my regional chartpack to think about exchange rates. Specifically, I think the cycle and structure dynamics are moving risk-reward in favour of Asian currencies. I'd argue that is true if the global picture is unchanged, but it could also be true if conditions in the US falter.
Themes: capital flows v CNY appreciation in China; fiscal fear v real policy rate in Japan; foreign v domestic equity strength in Korea; policy status quo v export surge in Taiwan.
Even with data today showing a dip in exports in December, Taiwan's trade surplus last year reached the sort of sky-high levels last seen before the big TWD appreciation of the 1980s. Barring a real dislocation in AI hardware demand, underlying pressure for renewed appreciation will grow in 2026.
The second-derivative improvement in inflation is continuing, and should be seen in a better deflator when the Q4 GDP data are released later this month. However, there's not yet enough to think the trend can persist beyond Q126. One factor that could derail the improvement would be a stronger CNY.
November BOP data show another big current account surplus – and more big outflows into offshore equities. We can't be sure that outflows have yet peaked. But with the KRW cheap, semi exports gaining momentum and the government taking KRW stabilisation measures, risk around the currency are shifting
My latest video, discussing the lessening of deflationary pressure, whether that can continue, and what the implications are for markets.
The BOJ's quarterly regional sakura report shows conditions holding up, and the dip in consumer confidence in December isn't concerning given the post-March bounce. Wage growth in November was mixed, but can be expected to rebound in December on stronger bonuses.
Headlines that the FY2026 budget is the biggest ever suit the idea of Takaichi as an Abe-style loosener. However, government expenditure is stable relative to GDP, revenue is rising more, a primary surplus is planned, and though Q125, the government received more in interest than it paid out.
In today's daily: China monetary developments, Japan CPI, Korea PPI, highlights of the BOJ meeting, and a link to my latest podcast. From today, I am taking a couple of weeks off. Thanks for your interest this year, I hope you've found the content useful. Happy Christmas, and best wishes for 2026.
The mild rise in PPI goods inflation reflects the continued strength of import prices. Services PPI inflation is picking up too, reversing the sharp fall of 1H25. Neither development yet suggests CPI inflation is about to accelerate, but the bounce in services PPI removes downside risk for CPI.
I was very happy to do this podcast with friends at Alpine Macro.
Data releases the last couple of days give more evidence that tariffs haven't derailed exports or capex. Even so, the flow of funds for Q3 show corporates remain net savers. With the fiscal deficit now also now narrowing to the lowest level since the 1990s, the result is a growing CA surplus.
The BOK minutes shed more light on the improvement in cycle optimism that was clear at the November meeting. In terms of exports, that appears justified, because of strong semi exports and firmer profits. I am less sure about consumption, even though corporate earnings will lift bonuses.
The BOJ has been concerned that tariffs would reduce profits, cutting into wages and capex. The Tankan shows no evidence of that: profit and investment expectations remain firm, as do inflation expectations, with the backdrop being a labour market that is tight for all industries.
Like last month, November data show a contrast between real weakness in some areas of the economy (such as property, goods consumption) and more stability in others (pricing, output). Overall, however, the balance is once again shifting towards more weakness.
In Q4 business sentiment improved, the labour market tightened, price pressures picked up, and capex intentions stayed elevated. The BOJ is set to hike on Friday. Today's survey, like other recent data, raise the risk that the bank can also send a clearer message about the outlook for rates in 2026.
China: the nominal stabilisation is fragile. Japan: with the cycle looking good, the risk of a BOJ upside surprise is the highest since July 2024. Korea: the upside scenario from the semi cycle still isn't the base case. Taiwan: macro becomes more interesting if the chip cycle sustains into 2026.
My latest video, discussing the BOJ and the outlook for the JPY.