East Asia Today
Lots to discuss today: domestic and foreign money flows in China; PPI and export prices in Japan; the BOK's January monetary policy meeting; and the read-through for Taiwan's economy from TSMC's bullish 2026 outlook.
Cycle update – foreign flows stronger than domestic. China's release today of December data for money, credit and fx settlement tell three stories: domestic savings outflows have lost momentum, credit ex-government is looking a bit stronger, and capital inflows are really picking up. If right, the last dynamic is the most important for markets.
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Cycle update – PPI still firm. Japan's current run of PPI inflation is almost the longest since at least the 1980s, but looks well-supported. Prices have recoupled with the global cycle, and are being boosted by JPY weakness. Furthermore, while it was feared that tariffs would be deflationary, export prices are rising.
Cycle update – "upside risks have increased". The BOK isn't getting carried away by the remarkable rise in semiconductor prices, but it did today say the chip cycle is moving growth risks to the upside. It also terminated talk of rate cuts, though that isn't just about growth, with the bank making clear that KRW weakness is a key consideration.
In delivering its Q425 earnings report today, TSMC remained bullish about the outlook for this year. It said it expects revenue in 2026 to rise by 30% or thereabouts for the third consecutive year. It also raised expected capex to USD52-56bn, up from USD40bn in 2025, and said it expects total investment spending in the next three years to be "significantly higher" than the USD100bn outlay in the last three.
With the company expanding in the US and Japan, Taiwan's domestic economy won't feel all the benefits of TSMC's continued growth. However, TSMC remains Taiwan's largest company, and so these kinds of forecasts are big enough to think the heating up of Taiwan's economy since 2020 – strong exports, rising external surplus, rising wage growth – will continue in 2026. Pressure on the currency to appreciate is likely to grow.
