East Asia Econ (Page 18)

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East Asia Econ

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Region – Back to the Future: East Asia and Trump 2.0

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.

Taiwan – how to dispose of USD100bn?

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.

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China – neither better nor worse

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.

Japan – still warming up

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.

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Last week, next week

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

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Japan – another very solid Tankan

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.

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China – a little more encouraging

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.

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Japan – solid data again

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.

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Korea – exports weak, employment stable

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.

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China – what might "moderately loose" mean?

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.

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China – CPI details a bit better than headlines

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.

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Last week, next week

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days. Highlights

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Japan – wage data better than consumption

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.

China – the consumption challenge

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.

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Korea – private services inflation still edging up

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.

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Region – not much momentum

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.

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Japan – profitability holding up

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.

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Last week, next week

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

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China – headline PMI ok, details weak

In November, the manufacturing PMI ticked up again, but the construction PMI continued to fall. But it would be optimistic to think this shows industry becoming less dependent on real estate when prices rolled over, the services PMI remains very weak, and employment continues to fall.

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Japan – price-wage story still intact

Today's data releases show the labour market remaining tight and consumers continuing to feel more confident than might be expected given price rises. Inflation continues to run at around 2%, and with rentals rising, inflation should have a higher floor from here.

Region – Plaza II

Beijing will be very wary of all the talk of a Plaza II agreement. Plaza I is widely seen as a successful effort to stop Japan's economic rise. That imbalances have nonetheless persisted suggests US macro policy has a role to play, but why would US promises to get fiscal under control be credible?

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Korea – BOK acts on growth

As expected, weak growth is now the BOK's main concern, with the bank reacting by cutting rates for a second consecutive time. The bank was already feeling confident about CPI, and worries about property have now also receded. If planned measures constrain $KRW upside, further rate cuts are likely.

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Korea – further cycle deterioration

Today's business survey shows activity taking another step-down. The reason is the rolling over of external demand, which matters even more when domestic demand is already so weak. Price data this month aren't so soft, but cycle concerns are likely to become the number one concern for the BOK.

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China – export-led growth continues

A chart-heavy note updating China's trade trends. Export volume growth remains strong; prices are soft but not falling sharply; EV growth is sluggish but solar stronger; direct trade continues to reorient towards EM; the growing trade surplus helps GDP growth, but not relations with the US.

China – watching what to watch

A few weeks ago, we laid out a list of indicators to be watching to track whether all the policy announcements from China were generating a turn in the cycle. Looking through that list now, and it remains difficult to feel excited that they have.