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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 – the gradual rise in wages
Wage growth remains sluggish. However, while gradual, overall it is picking up, and there are now tentative signs of acceleration in part-time hourly earnings. That makes sense given labour supply is running into constraints, though labour demand obviously now needs to hold up.
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China – deflation in November
There continues to be no inflation in China. At a headline level, that will change when food prices rebound. But the decline in inflation isn't just seen in headline. The run-rate of core has slowed from 1.8% annualised before covid to 0.6% since.
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China – trade not up, but not weak
As a general trend, both exports and imports remain range-bound. That's interesting, because exports haven't fallen so far from the peak, and imports look much stronger than the collapse in property. Exports have probably bottomed, but there's likely downside risk for imports.
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Japan – ageing hits
One reason for the sluggish recovery out of covid is Japan entering a new stage of ageing, which is resulting in a faster rate of population decline. That is because of a fall in the number of adults, which cuts aggregate consumption, but should mean per capita wage growth starts to accelerate.
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Taiwan – inflation down, not yet out
Sequential inflation dropped back to zero in November, but average core over the last three months remains elevated. With the domestic economy holding up, and exports starting to rebound, there isn't a strong case for rate cuts. That will matter for the TWD if exports really do rebound from here.
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Japan – tightening to loosen
Fiscal and monetary policy have been negative for household incomes, which are now the weak link in the economy. That context helps explain deputy governor Himino's speech today, which seems to mark an effort by the BOJ to argue that higher rates might not be so bad for the economy after all.
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Korea – CPI slowing again
As expected, inflation eased in November. There are still some upside risks, given the rebound in import prices and the continued strength in personal services inflation. For those to become interesting, export growth needs to pick-up powerfully, but the leading indicators don't look so strong yet.
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Region – manufacturing cycle
Korea's PMI is now back at 50, but while Taiwan's remains below that level, the upside potential looks bigger. Taiwan domestic momentum also looks stronger. Inflation is higher in Korea, but the risk that the central bank has to raise rates again next year is probably a bit higher in Taiwan.
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Japan – deficient labour demand
Japan's labour market continues to go sideways. We think that is unlikely to change without an acceleration in economic growth and thus labour demand. But if that does happen, there are reasons to think the upturn in per capita wage growth could be significant.
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China – soft floor, hard ceiling
We think the main themes for China remain weak aggregate demand and pricing, and strong external surpluses. That indicates lower rates and a stronger CNY. To think that is too pessimistic, we look for signs of better property activity and a reversal of the flow of savings into time deposits.
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Korea – actually, a bit doveish
The BOK was more doveish today than we'd expected, removing one of the two previous references in the statement about whether to raise rates further.
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China – PMIs drop further
The PMIs weakened again in November, with both manufacturing and services now below 50. Price measures were also weak. Recent fiscal support should remove some of the immediate downside risk, but there's nothing yet to suggest a real rebound in the cycle, equities, or rates.
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Korea – not much change
The bank has made clear that the hurdle for another hike is high, and the BOK will most likely remain on hold tomorrow. But we think that the risk of a hike will remain on the table, with actual change being determined by the export upturn in the next few months.
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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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Taiwan – weaker consumption, stronger exports
Desynchronisation is still the theme, but the components are changing. Momentum in consumption and services, which drove growth in the last 12M, is now fading, but the export recession is easing. The direction for CPI and the CBC will depend on how far exports now recover.
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Japan – blame politicians, not firms
We finish off our series looking at household incomes in Japan, to add a bit more analysis, bring together the findings of the three reports, and think about the policy implications.
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Japan – inflation a little softer, services firm
There's no big change in inflation, but the details in October hint that it might be starting to lose some momentum. That would be helpful for consumption. Without that, services activity at least remains firm, supported by tourism.
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Region – slow export turn
Both Taiwan export orders for October and Korea exports for the first 20 days of Korea show YoY improvement. However, in level terms the recovery is less clear.
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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.
Subscribers Only
Region – export cycle inflecting
It looks more likely that the export cycle is improving. That is positive for currencies, particularly the TWD. For both Taiwan and Korea, it also raises the likelihood of rates being higher for longer.
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China – prices and policy
Property price deflation worsened in October. The failure of real estate to find a floor means the macroeconomy will likely remain weak into 2024. With overall inflation also soft, we still expect policy rate cuts.
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Japan – GDP back below pre-covid
Q3 GDP was in line with monetary policy: exports rose, but consumption fell. Perhaps with time, higher exports would boost domestic demand. The BOJ, but particularly the government, can't wait that long. Either the market pushes $JPY down, or policy will move to try to achieve that outcome.
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China – muddling through for now
October activity don't change the story from the last few months: activity is weak, but not terrible; the lack of any rebound in property mean it is difficult to build a scenario of a strong macro rebound in 2024; and the underlying condition of the economy continues to be clouded by data issues.
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Korea – on hold
Services activity, which supported the economy as exports and construction slowed in 2021-22, is now fading. But unemployment remains low, while exports and real estate have bottomed out. There still aren't strong reasons to think the BOK will cut, even as the bank is reluctant to hike again.