Price trends in China continue to look firmer. That's particularly true for PPI, which in level terms was flat in 2H25, a stability that high-frequency data through January indicate is persisting, In terms of CPI, the recent rise in food price inflation has also sustained in January.
Both headline and core CPI inflation in January were exactly in line with the BOK's target of 2%. Core has, in fact, been hugging 2% for almost a year now.
The monetary base shrank for the 11th consecutive month in January, as JGBs maturing offset the slower pace of JGB buying by the BOJ. The monetary base has now fallen 12% from the peak, though that still leaves it at 90% of GDP.
Some of the strength of Taiwan's official manufacturing PMI in January is probably seasonal, reflecting this year's February Lunar New Year holiday. Still, the S&P PMI also improved in January, and both had been improving in the later months of last year.
Headline export growth in January of 34% YoY was flattered by the increase in working days. Adjusting for that, and growth was a more modest 14%. Still, in MoM terms, export growth has picked up in recent months, fuelled, of course, by semiconductors.
The big driver of China's external trade is obviously goods, with today's monthly BMP6 data confirming a big rise in the merchandise trade surplus in December. As a result, the gap that opened up in 2022-24 between the customs and BOP measures of the surplus has now closed.
Q425 was another blow-out quarter of growth in Taiwan, with the economy expanding over 12% YoY. That made it the fastest quarter since the 1980s; in the last five years, Taiwan's GDP has grown more quickly than China's. As happened all year, growth in Q4 surprised on the upside.
If it wasn't for AI and the surge in semiconductor demand, Korea's economy would still be looking very weak. Today's JOLTS data show no recovery in the vacancy ratio, which in turn indicates that wage growth isn't yet turning around.
My view has been that Japan last year suffered two shocks: the tariff hit to business sentiment, and a less-appreciated price shock that dragged down consumer confidence.
There had been some chatter that the ratcheting up of tariffs in Trump's second term would worsen China's deflation. But there is little evidence of that. Data from China's customs administration show USD export prices rangebound for the last 18M (although CPB's data look a bit different).
In level terms, industrial profits have been range bound for more than three years. As a result, earnings are now down to about 5% of GDP, a ratio which has only been lower during real crises.
Even after a stellar 12 months of growth, it doesn't look like Taiwan is slowing down. Indeed, the leading indicator points to re-acceleration through December. That is all exports; domestic demand has been weak.
Retail sales in Taiwan had better momentum in 2H25, but that followed a weak 12M run that began in the middle of 2024, and in December last year there was a pullback.
Confidence in today's consumer survey for January remained high. That should mean stronger spending, but so far, the recovery in consumer spending hasn't been impressive. I don't think consumer confidence in itself is important for the BOK.
Taiwan's unemployment rate is no longer falling, but that is because of a sudden rise in the participation rate. Employment is at a record high, and unemployment resulting from forced lay-offs remains very low.
Foreign trade data continue to show that tariffs haven't had a big impact on exports. Shipments aren't really growing – though, helped by currency weakness, the JPY value has risen in recent months – but aren't falling either.
Car exports rose strongly in 1H25 – but really took off through the 2H of the year. Sales of all types of car grew, but the surge was led by exports of hybrids. That's good news for China, in the sense hybrids have higher unit prices.
After doing little between late 2023 and mid-ish 2025, it is starting to look like exports have now turned up. In the first 20 days of January, there was further decent sequential growth. As would be expected, that was led by semiconductors.
Market concerns about Japan's fiscal position have intensified since Sanae Takaichi's pledge to reduce (temporarily, according to the PM) the sales tax on food prices.
Today's more detailed release of Q1 GDP offers a reminder of the big structural changes in the economy. Construction is experiencing a double-dip recession, with the change in direction in output in nominal terms being particularly stark.
In USD terms, Taiwan's export orders crept up in December to a record high. Compared with December 2024, orders rose 44% YoY, a rate of growth that's been exceeded only twice in the last 25 years. Orders aren't always a leading indicator for actual exports.
PPI inflation in December was unchanged from November at 1.9% YoY. That suggests CPI is well-supported at round 2% YoY. Input price pressures aren't yet signalling much upside risk beyond that.
Output data show the same story as business sentiment: manufacturing isn't doing well, but services output is rising more strongly than in the years before 2019, and still accelerating.
Yet another election isn't good for certainty. However, at least before the likely national poll, both business and consumer confidence is strong, with the latest illustration being this week's Reuters Tankan.
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.
