The platform for tracking and understanding East Asia macro
A video discussing why China isn't following Japan's path. This is the first part, looking at the seven demand-side factors that caused Japan's problems, and how China compares. The second video will discuss supply-side issues and the "deflationary mindset".
Reasons for upside risks in Japan, with implications for BOJ; conviction that China isn't following Japan's 1990s past, meaning rates should be low enough; unlike the BOK, the CBC in Taiwan won't cut rates, and might yet hike again.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The PMIs continue to suggest that, overall, there was no lasting improvement in the cycle after the September policy push. There are though some signs that things aren't getting worse any more, with both the construction PMI and employment indicators suggesting a floor.
Given US policy, the timing of the rise in current account surpluses in Asia in 2024 is bad. But surpluses aren't just about trade. Indeed, an increasing driver is income generated from overseas investments, which give some resilience to surpluses, an underlying support to currencies.
For the third time since October, the BOK cut rates today. It expects to cut rates further, and although one dynamic affecting the scope and timing will be house prices, the bank also hopes for fiscal policy, which is the one driver it can identify that could serve as an "upside factor for growth".
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
As it did in January, a BOK cut next week seems likely. Of course, the bank didn't cut in January, so this forecast risks whiplash. But to turn market pricing, the bank would need to indicate an end to loosening, which is unlikely unless it highlights household debt or services inflation.
The fundamental inflation story of labour market tightness and wage hikes was seen in today's firm services PMI. But both the PMI and CPI today suggest that dynamic has again been overtaken by prices driven by supply shortages, a phenomenon that is clearly bad for real incomes and so consumption.
Today's first estimate of Q4 GDP was strong. The big contribution came from service exports, but the surprise was the resilience of consumption, with the backdrop being another decent rise in real compensation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Gone are the days when the monetary data can make a big difference to the market mood. Today's release doesn't turn back the clock: the headline is a bit stronger, but mortgage lending wasn't, and there are distortions from Chinese New Year and definition changes.
The rebound in headline employment in January wasn't broad, with jobs in the private sector remaining weak. With no reversal in the sharp rise in the participation rate of recent years, and the number of part-time jobs still rising, the labour market is likely less tight than headline data suggest.
In LCU terms, there's little to choose between exports in the different economies. But in volumes, China and Taiwan are very strong, and Korea and Japan clearly lagging. This should have implications for CNY, TWD and KRW. For Japan, the significance is for macro if USDJPY turns.
A longer video discussing demographics, the area where Asia is most clearly leading the world. The changes in the population will clearly matter for economies, but Japan's experience shows the macro implications aren't necessarily what might be expected.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
January core CPI picked up. That doesn't look like a Chinese New Year effect, and comes after Q4 when prices were already looking firmer. This dosn't mean inflation, but if core, which has underperformed other price indicators, is now catching up, it would mean China isn't in underlying deflation.
The spike in inflation seen in January isn't unexpected given consumer spending on the back of this year's early Chinese New Year. The strength of exports can't be explained away in the same way, and suggests Taiwan's relative outperformance is continuing.
Naoki Tamura is a relative hawk at the BOJ. While that doesn't make him mainstream, his speech today is still worth reading, because it is direct and well-reasoned, and because an upside surprise in inflation and rates is a very reasonable scenario for 2025.
Full-time worker wage growth remains stable at a bit under 3%. Further acceleration is likely, though not much: this year's shunto will probably moderate from 2024. Part-time worker wage growth is though continuing to rise, consistent with the BOJ's view of a tight labour market.
Data today show the rise in underlying inflation that has been underway for almost a year continuing. But yesterday's minutes of the last BOK meeting show that notwithstanding the rise in $KRW, weak growth rather than rising inflation remains the much bigger concern.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Ideally, the BOJ wants the participation rate to peak, higher wages to make consumers more positive, and both demand-pull and supply-push to drive inflation. Instead, consumption is sluggish as rising goods price inflation outpaces wages, with the part rate continuing to rise.
With the BOJ's review of post-1990s Japan, we have an inventory for Japanification. Using this to assess China today, what stands out is not the similarities, but the differences. All told, on my scoring China isn't graduating to Japanification, achieving a mark of only 30%.
The main change the BOJ made to its description of the outlook on Friday was the mention of a "growing sense of labour shortage". The special analytical boxes in the full outlook report, released today, give a lot more colour on why the BOJ made that adjustment.