The platform for tracking and understanding East Asia macro
East Asia stands in 2025 for offering two dynamics that are distinct from the global cycle (reflation in Taiwan and Japan, deflation in China) and because the region is central to tariffs and talk of Plaza II.
After being -ve for most of 2024, core CPI saar rose in Q4. That seems unlikely to sustain, given the 2024 policy boost is fading. However, that core has picked up is at odds with the consensus interpretation of today's data, while being in line with the relative stability of PMI output prices.
Recent data and the minutes of the November BOK meeting offer a good opportunity to look at Korea in light of the latest bout of political turmoil. The conclusion: a weak cycle is getting weaker, and so exchange rate depreciation is unlikely to stop the BOK cutting further.
After a couple of weeks travelling there, and recent data and policy releases, it is clear that Japan's cycle and inflation stories are intact. That makes a Q1 BOJ hike likely, but on its own, that won't mean much for $JPY. More interesting is to ask what might get the bank to move more quickly.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The CBC kept policy unchanged yesterday, and won't be in a rush to move in 2025. Growth will be slower, but the bank isn't particularly worried about either exports, or domestic demand. Optimism about consumption is partly because of expected wage hikes, which in turn will support inflation.
There was a dissenting proposal to hike today, and while the majority voted to stay on hold, Ueda suggested more clarity on wages would clear the way for rates to go up. That makes the early January meeting of BOJ regional managers important, though for the JPY, that's quite a while to wait.
The film Back to the Future came out in 1985, and with inflation in Japan, deflation in China, and big external surpluses once again, there are all sorts of regional economic themes that have echoes of then. Here's a podcast in which I discuss the implications, with links to the underlying research.
There's rarely much interest in Taiwan macro. But 2025 could be different: with post-2020 domestic economic lift-off, and the return of Trump, the circumstances that have kept the TWD undervalued for 20 years might be changing. This is a detailed chart pack looking at the issues involved.
An easing of home price deflation and the decline in narrow money growth keep alive an upside scenario where individual investors buy into the idea that policy is putting a floor under growth. But the continued fall in property sales and weakening of credit dhow any turnaround is tentative at best.
The BOJ releases its quarterly Tankan survey in two parts. The summary was published Friday, and today's full release confirms the story: the forecast scores point to a labour market that is still tightening, and output price pressure that is continuing to build.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The Q4 Tankan shows business sentiment firm, the labour market still very tight, and pricing intentions rising. A few months ago, this sort of picture would have made it easy to think of an imminent rate hike. However, the faltering of the BOJ's message since make it hard now to have conviction.
Three things stand out from the CEWC: talk of "insufficient demand"; specific policies for consumption like welfare spending; and urgency towards real estate. The overall message is encouraging, though welfare spending is unlikely to rise much given it wasn't included in the November fiscal package.
Today's data releases were constructive: the December Reuters non-mfg Tankan recovered from recent weakness with the outlook looking strong; the Q4 business sentiment survey from the MOF was solid, with the labour market tight; and PPI inflation rose again to the highest in more than a year.
Today's headline employment data were stable, but the details are weaker, and the weakness in business confidence points to employment falling in 2025. Separate export data for the first 10 days of December show momentum remaining weak.
A "moderately loose" stance seems encouraging. But effecting that isn't straightforward, given nominal rates and the RRR are now so low. Rather than nominal, policy needs to work on price. That can be done by PBC BS expansion that addresses property inventories, or fiscal policy that raises demand.
After falling for most of the year, core CPI rose MoM in November. However, the impact on overall CPI was offset by a renewed softening of food prices, and PPI also remained in deflation. PPI will likely strengthen a bit more from here, but overall, deflation is still the bigger risk than inflation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days. Highlights
The dip in consumption that began in August is continuing. By contrast, wage growth isn't slowing, and while for full-time workers has only just caught up with inflation, for part-time workers it is comfortably ahead. This should be setting up better consumption, and so aggregate demand, in 2025.
As a long-time fan, I was very pleased to have a piece in the latest China Leadership Monitor. It argues that while cyclically, spending hasn't been so bad, that isn't enough given the property bust. Even so, and despite interesting proposals from onshore economists, policy support is still lacking.
Headline November CPI data don't challenge the BOK's confidence that inflation is under control. But private services inflation continues to creep up, with SAAR now above 3%. That core has remained around 2% is because of cheaper public services. With budget tightening, that seems tough to sustain.
Today's PMI round points to a modest rebound in activity and exports in November, but not by enough to think the manufacturing cycle is really regaining momentum. Price pressures also feel subdued, though in this Japan is an exception, with "intensified" output price inflation in November.
Profits ticked down in Q3, but that was after a strong Q3, and there's no change in the uptrend in earnings, margins or capex. In this context of continued strong profitability, the mild rise in the labour share is also constructive. However, trends in smaller firms are much weaker.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.