The platform for tracking and understanding East Asia macro
A video discussing Trump 2.0, Plaza and the outlook for East Asian economies.
Falling rates and a weakening CNY are causing concern, but I don't think they should be. If CNY weakening was pushing up onshore rates, that would be different. But $CNY rising while rates fall suggests a loosening. That doesn't ensure an economic turnaround, but it is better than a tightening.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
I think the equity market – as of now SHCOMP is up 0.4% – has it about right. There are signs of a bottoming in the underlying cycle, but not the rebound suggested by the pick-up in GDP from 4.6% YoY in Q3 to 5.4% in Q4.
Already Taiwan's dominant firm, strong 2024 results mean TSMC has now doubled in size just since 2021. The firm remaining bullish for 2025 is this a reason to be optimistic about Taiwan's exports, but also to think the domestic cycle can warm up further. The contrast with Korea is huge.
Contrary to my thinking, the bank didn't cut today. The reasoning – KRW weakness and political uncertainty – wasn't a shock. However, the tone of the meeting was very doveish, with the bank talking about "intensified" downside risks to growth. Korea really looks very different to Japan and Taiwan.
I've revised my model for the BOK's reaction function. That suggests the probability of loosening tomorrow is about the same as the Q4 meetings when rates were cut. Considerations for later in the year are yesterday's SLO survey warning of a rebound in housing, and firm services CPI.
There are signs of a turn in the monetary data. It is tentative, but the rise in M1 relative to M2 is particularly important. If that continues, there would a real reason to feel less negative about the economic cycle.
Deputy governor Himino today downplayed the risks from the US that were the BOJ's focus in 2H24. He mentioned plenty of caveats too, not least being that speeches shouldn't be read as telegraphing any MPC outcome. But it feels like the BOJ is getting closer to hiking again.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Taiwan has the strongest cyclical picture in the region. It isn't gaining further momentum, so rate hikes aren't likely, but nor are cuts. The other big factor is Trump. He won't like either Taiwan's massive trade surplus, or its modest military spending.
Today's labour market indicators – official wage data for November, and the Q1 regional report from the BOJ – don't suggest that momentum is picking up sharply. But they do indicate that the labour market is tight, and wage growth continuing to trend up.
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.