Introducing

Tian Yong Woon

Tian Yong joined Haver Analytics as an Economist in 2023. Previously, Tian Yong worked as an Economist with Deutsche Bank, covering Emerging Asian economies while also writing on thematic issues within the broader Asia region. Prior to his work with Deutsche Bank, he worked as an Economic Analyst with the International Monetary Fund, where he contributed to Article IV consultations with Singapore and Malaysia, and to the regular surveillance of financial stability issues in the Asia Pacific region.

Tian Yong holds a Master of Science in Quantitative Finance from the Singapore Management University, a Master of Science in Analytics from the Georgia Institute of Technology, a Bachelor of Science in Mathematics from the Singapore University of Social Sciences, and a Bachelor of Science in Banking and Finance from the University of London.

Publications by Tian Yong Woon

Asia| Nov 10 2026
Economic Letter from Asia: AI and Data Centres
In this week’s Letter, we look at Southeast Asia’s race to host the data centres behind the AI boom, and at how much of the gain stays at home. Asia already anchors the AI hardware supply chain, from Taiwan’s chip fabrication to South Korea’s memory, while Southeast Asia has centred on packaging, testing and assembly (chart 1). The region is now moving to the final stage: hosting the computing capacity itself. Malaysia offers the clearest example. National growth held above 5% in 2024 and 2025, but Johor grew 8.0% last year as its services sector expanded 9.9% (chart 2). Foreign direct investment underpins the boom, with Malaysia’s FDI position in information and communication tripling between 2022 and 2025 (chart 3). Strains on power and water have followed, prompting new tariffs and tighter approvals. Thailand is on a similar path. Digital industries, including data centres, took almost half of approved FDI in 2025, while approvals elsewhere fell (chart 4). Concentration in the water-stressed Eastern Economic Corridor and gaps in oversight have led the Board of Investment to pause new data centre applications. Singapore offers a cautionary tale. Operating surplus in its data processing and hosting industry rose roughly sevenfold between 2018 and 2024 (chart 5). Yet resource constraints prompted a moratorium on new data centres from 2019 to 2022, which partly redirected investment to Johor. Finally, we ask where the gains go (chart 6). Imported equipment absorbs much of the build phase, while foreign ownership, depreciation and thin staffing shrink what residents keep once facilities are running. The wedge between GDP and national income is largest where facilities are foreign-owned and capital-heavy, as under the region’s FDI-led model.

The AI supply chain and Asia Asia already sits at the heart of the AI hardware supply chain (chart 1). Taiwan leads in logic fabrication, packaging, testing and server assembly, while South Korea leads in high-bandwidth memory. China holds leading positions in packaging, testing and data centres. Southeast Asia’s role has so far sat further along the chain. Malaysia plays a significant part in packaging and testing, Vietnam in testing and Thailand in server and rack assembly. The region’s ambitions are now moving to the final stage. Malaysia and Singapore already play a significant role in hosting data centres, while Thailand, Indonesia, Vietnam and the Philippines are emerging players. For economies that earned their place by assembling and testing chips, hosting the computing capacity those chips power is a natural next step. It is also a resource-hungry one, as the rest of this Letter shows.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Nov 02 2026
Economic Letter from Asia: Asia in Clusters
In this week’s Letter, we examine what distinguishes Asia’s economies, how those differences have evolved, and whether the AI boom is reinforcing them. Using 13 indicators covering income, economic structure, trade, demographics and public finances, we group 16 Asian and other major economies according to their similarities (chart 1). Principal component analysis then helps identify the main patterns behind these groupings (chart 2). The results distinguish the developed economies and Singapore from the rest of Asia, while also separating the more industrialised Asian economies from the younger, more agricultural economies of India, Indonesia and the Philippines (charts 3 and 4). These structural divisions have proved persistent: every economy finished 2025 in the same cluster as in 2019, despite some movement in between (chart 5). The AI boom is now providing a stronger lift to semiconductor exporters and economies attracting data centre investment (chart 6). Without substantial structural change elsewhere, the gaps between these groups could widen even as their membership remains stable.

Asia in clusters K-means clustering offers a simple way to sort economies by how alike they are. The algorithm assigns each economy to one of k groups, placing it with the group whose average profile it most closely resembles. The number of groups, k, is a hyperparameter: the analyst chooses it, rather than the algorithm learning it from the data. We apply the method to 16 Asian and other major economies, using 13 indicators covering wealth, sectoral structure, the external sector, demographics and public finances. With k set at three, distinct groups emerge (chart 1). The developed economies form one cluster, the rest of Asia, including China and Korea, forms a second, and Singapore stands alone as a third. Raising k to four leaves the developed group and Singapore unchanged. Instead, it draws finer distinctions within emerging Asia, with India, Indonesia and the Philippines breaking away to form a cluster of their own. We explore why Singapore stands apart, and which indicators drive these splits, in the sections that follow.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Oct 26 2026
Economic Letter from Asia: Decisions, Decisions
In this week’s Letter, we take stock of a busy run of central bank decisions across Asia, as most of the region tightens in the face of an oil-driven inflation shock. So far this year, most central banks in the region have raised rates (chart 1). The US-Iran conflict, a renewed Fed hiking cycle and domestic pressures have driven this, with Thailand the clear exception. In Indonesia, BI held its benchmark rate at 5.75% but raised its deposit facility rate and cut reserve requirements (chart 2). Indonesian assets remain under heavy pressure, with equities hit further by MSCI’s potential downgrade to standalone status. In South Korea, the BoK paused at 3.00% after hikes in July and August, with markets eyeing November for another move. Yet much of its inflation is imported and its growth export-led, so the headline data may overstate its room to tighten (chart 3). The Philippines faces a harder trade-off. The BSP hiked for a fourth straight meeting as energy prices, El Niño risks and a record-weak peso push inflation up. Growth, meanwhile, remains a laggard (chart 4). Looking ahead, the Fed, ECB and BoJ all decide this week. The BoJ is expected to hold at 1.25% and hike in December, with solid wages and business sentiment offsetting weak household spending (chart 5). Thailand also decides this week. Having cut to 1.00% in February, the Bank of Thailand faces a soft economy weighed down by household debt and weak tourism. Relative to its pre-pandemic level, its real GDP has recovered the least in emerging Asia, a sign of deep pandemic scarring (chart 6).

The year so far The past week brought a cluster of monetary policy decisions in Asia. Bank Indonesia (BI) and the Bank of Korea (BoK) held their policy rates, while the Philippines’ central bank (BSP) raised its policy rate by 25 bps. Zooming out, most central banks in the region have tightened policy so far this year (chart 1). Several forces lie behind this. The oil price shock from the US-Iran conflict has pushed inflation higher across the region. In the US, the Fed resumed hiking in September with a 25 bp move to 3.75% to 4%, its first increase in three years. Domestic factors have added to the pressure in several economies. There are exceptions, however. Malaysia has broadly stood pat, while Thailand has gone the other way. The Bank of Thailand cut its policy rate to 1.00% in February, in part to support soft domestic growth.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Oct 19 2026
Economic Letter from Asia: Chips and Rice
In this week’s Letter, we examine Asia’s contrasting fortunes in the IMF’s latest forecasts: strong growth among the economies benefiting from the AI boom, and rising inflation among those exposed to energy and food price shocks. The October WEO leaves the global growth forecast unchanged from April, but Taiwan and South Korea have received sharp upgrades, while Thailand and the Philippines face the largest upward inflation revisions among the Asian economies shown (chart 1). The gains in the two chip exporters rest heavily on semiconductor shipments, with exports at times contributing more to GDP growth than the headline rate itself (chart 2). That positioning captures substantial rent from the AI upcycle, yet it also concentrates risk. This month’s chipmaker-led selloff, sparked by a Chinese memory breakthrough, showed how quickly a single sector can drag down entire benchmarks (chart 3). The same exposure applies to growth, should competition intensify or demand falter. On inflation, Thailand and the Philippines have already absorbed an energy spike from the continued closure of the Strait of Hormuz (chart 4). A potential food shock now threatens to add a second layer, with rice futures rising and global production set to fall as a strong El Niño takes hold (chart 5). China, finally, saw growth pick up to 4.5% y/y in Q3, at the floor of its 4.5% to 5% target. Yet its two-speed pattern persists, with booming exports outpacing contracting investment and weak consumption, leaving growth reliant on external demand (chart 6).

The latest IMF WEO forecasts The IMF’s October World Economic Outlook keeps global growth at 3.1% for 2026 compared to April forecasts, but the stable aggregate masks a marked reallocation across economies. Taiwan and South Korea stand out in Asia (chart 1), with Taiwan’s 2026 growth forecast roughly doubles to above 10%, while South Korea’s rises from below 2% to above 3%. Both upgrades owe much to the AI buildout, given their role as major producers and exporters of related goods. Inflation tells a different story. Thailand and the Philippines, along with the US and the euro area, all carry higher CPI forecasts than in April, shown by rightward shifts in the chart. The drivers are several and affect each economy with differing intensity. One is elevated oil prices, as the Strait of Hormuz remains effectively closed to commercial shipping. Another is food, as El Niño begins to weigh on crops. For China, growth expectations are little changed at 4.5%, but the price outlook has softened further, with average inflation now seen near 1%.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Oct 12 2026
Economic Letter from Asia: Keeping it Real
In this week’s Letter, we look past traditional drivers of exchange rates (e.g. interest differentials) to the real, and largely domestic, forces now shaping Asia’s currency and fixed income markets. Currency performance has diverged sharply this year, with the South Korean won (KRW), Chinese yuan (CNY), and Australian dollar (AUD) gaining on a trade-weighted basis while the Philippine peso (PHP), Thai baht (THB), Indian rupee (INR), and Indonesian rupiah (IDR) have lagged (chart 1). Daily moves against the dollar sort into two clusters (chart 2). One is a tight group of CNY, AUD, New Zealand dollar (NZD), THB, Singapore follar (SGD) [AC1.1]and Malaysian ringgit (MYR), reflecting a common dollar effect and the region’s close trade ties with China. The other, looser group links PHP, IDR and KRW. Yield differentials explain only part of this dispersion (chart 3). Across 13 economies, changes in 10-year spreads over the US account for a modest share of currency returns. Stripping out outliers improves the fit considerably, perhaps suggesting spreads still matter once idiosyncratic stories are set aside. In fixed income markets, economy-specific drivers have dominated. Indonesia, Australia, New Zealand and, most recently, India have tightened, yet real policy rates remain slightly negative in half the region (chart 4), leaving policy accommodative in real terms. Real bond yields have also climbed in Japan, Korea and Australia (chart 5), pointing beyond inflation expectations to heavier fiscal spending, the AI-driven export boom and tighter policy. Looking ahead, a strengthening El Niño, disrupted traffic through the Strait of Hormuz, the AI buildout and the risk of renewed US-China friction (chart 6) will shape the region’s fiscal and monetary planning. That, in turn, will steer the path of yields and currencies in the period ahead.

Asia currencies Trade-weighted currency performance across Asia has been strikingly uneven this year (chart 1). KRW and CNY have each significantly appreciated against their trading partners[AC2.1], with AUD not far behind. At the other end, PHP, THB, INR and IDR have each lost much ground on the same basis. Between these extremes, SGD, MYR, JPY and TWD have moved by about 2% or less in either direction. Some of this relative performance reflects correlated trades, whether with commodity prices or with other currencies. Yet a range of other drivers has also been at work, including economy-specific domestic considerations such as inflation, policy settings and external balances. Against the US dollar alone, the spread is wider still, from a gain of about 7% for KRW to a loss of a similar size for INR (chart 3). The sections that follow take these drivers in turn, starting with how the region’s currencies move together.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Oct 05 2026
Economic Letter from Asia: Food for Thought
In this week's Letter, we examine how a strengthening El Niño is adding a food and weather shock to an Asia already absorbing an oil shock. El Niño is now in full swing, with the Southern Oscillation Index at its lowest in over two decades, and its fullest effects may only arrive next year (chart 1). Food prices are already turning up, and food price levels have risen most in India, the Philippines, Vietnam and Indonesia (chart 2). That adds a second source of inflation on top of the oil price surge that followed the disruption of shipping through the Strait of Hormuz. On the supply side, drought is hurting rice producers just as fuel and fertiliser costs climb, raising the risk of a significant negative supply shock. The most exposed are net rice consumers with thin stocks, such as the Philippines (chart 3). India shows how quickly conditions can deteriorate: its monsoon ended with its largest deficit since 2015, and reservoir storage has slipped below normal (chart 4). The effects reach beyond food. Drier conditions have fed peat and forest fires in Indonesia, pushing Singapore's air quality into the unhealthy range for the first time since 2023 (chart 5). For policymakers, El Niño adds food security, water security and inflation management to a list already crowded by the energy shock and geopolitics. The most agriculture-reliant economies, India, Indonesia and Vietnam, face a double hit to growth and prices (chart 6). Should food inflation force central banks to tighten further, the growth cost would rise again.

El Niño and food prices El Niño is now in full swing. The Southern Oscillation Index has plunged to around -2.7 on a three-month average basis, its lowest reading in over two decades and below even the 2015 trough (chart 1). Ocean temperatures tell the same story. The Niño 3.4 index, the main gauge of El Niño, tracks sea surface temperature anomalies in the central and eastern equatorial Pacific. A sustained reading of +0.5°C or more signals El Niño conditions, while readings above +1.5°C mark a strong event. The index reached +1.8°C in August, and the event is expected to persist into 2027. Its fullest effects may therefore only emerge next year, as weather damage to harvests feeds through to food supply with a lag. Food prices are already moving. Growth in the FAO Food Price Index has turned up to around 6% y/y, partly reflecting El Niño weather effects on crops. With food carrying a heavy weight in consumer baskets across emerging Asia, a sustained rise in global food prices would quickly find its way into regional inflation.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Sep 28 2026
Economic Letter from Asia: Beyond the Summit
In this week's Letter, we explore US-China dynamics and their implications for Asia following last week's summit in Washington, alongside other pertinent issues for the region. The summit was long on diplomacy but short on tangible economic outcomes, with the fragile trade truce extended by just two months. Asia's trade orientation, meanwhile, has shifted from the US towards China since the turn of the millennium (chart 1). Some economies, Taiwan among them, have since tilted back towards the US partly on AI-related trade. Bilaterally, the narrowing of the US goods deficit with China seen last year has stalled and even reversed slightly this year, alongside easing effective US tariffs (chart 2). Further easing may follow, with tariff relief recommended on $30bn of goods in each direction. China, for its part, has more than replaced lost US export revenue with sales to the ASEAN-6 and India, keeping export growth robust while domestic demand flounders (chart 3). AI was the summit's other key theme. The two sides agreed to set up a Super Intelligence Dialogue and an incident communication channel, a timely step after the Hugging Face incident sharpened calls for a slowdown in AI development (chart 4). In the US, AI is the leading reason cited for job cuts this year, though broad displacement has arguably yet to emerge (chart 5). So far, the change lies more in how people work. Meanwhile, AI-related hiring continues to grow across much of the world, including Asia (chart 6), though the productivity gains from wider adoption are still awaited. Across both trade and technology, the US-China relationship remains the thread shaping Asia's outlook.

Asia’s trade situation The US-China summit in Washington concluded last week, with mutual diplomacy on full display, including China sending a pair of giant pandas to the US. Tangible economic outcomes, however, were few. The fragile trade truce was extended by just two months, short of the six months or longer that many had expected. Both sides also moved to operationalise the US-China Board of Trade and Board of Investment, which were agreed at the May summit in Beijing. Asia's trade picture continues to evolve nonetheless (chart 1). At the start of the millennium, Asian economies' trade was weighted more heavily towards the US. Over the following decades, their ties with China grew steadily closer. Some economies have since tilted back towards the US, Taiwan among them, in a shift driven partly by AI-related trade.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Sep 21 2026
Economic Letter from Asia: Held in Reserve
This week, we assess whether Asia is really moving away from the dollar by examining its US asset holdings, reserves, gold purchases and trade settlement. We then turn to Japan’s monetary normalisation. Asia’s presence in US portfolio markets has declined since the early 2010s (chart 1). Japan's share of foreign holdings of US long-term securities has halved, and mainland China's has fallen further still. The euro area and the UK have absorbed most of that ground. Even so, Japan is still the largest foreign holder of Treasuries, and a reshuffling among creditors need not mean an exit from dollar assets. Official reserves tell a similar story (chart 2). The dollar's share is down close to 6 percentage points over eight years, to 57.1%, yet no single currency has picked up all of it. The residual group of other currencies gained most, which points to diversification rather than substitution. Gold fits that reading (chart 3), with Singapore, India, Thailand and China all adding heavily in volume terms. Reserve growth alone may explain part of the rise. Trade settlement has moved least of all (chart 4). South Korea still settles about 84% of exports and 79% of imports in dollars, and broader studies point the same way. Moving to Japan, the central bank raised its policy rate to 1.25% last week, with Governor Ueda striking a hawkish note (chart 5). The spread to Fed, ECB and Bank of England policy rates has narrowed to about 2 percentage points. The yen, meanwhile, has rebounded from a record low after coordinated intervention, while the 10-year JGB yield has touched 3% (chart 6).

Gold, the US, and the US dollar Asia's footprint in US portfolio markets has thinned considerably since the early 2010s (chart 1). Japan's share of overall foreign holdings of US long-term securities has roughly halved, from a peak near 14.5% in 2012 to about 8% in July 2026. Mainland China's slide is starker, from 13.4% at the start of 2012 to roughly 3%. The euro area has absorbed most of that ground, rising from about 19% to around 26%, while the UK sits at a record 10.6%. Japan nonetheless remains the largest foreign holder of Treasuries at USD 1.1tn, while China's holdings have slipped to USD 618bn, the lowest since September 2008. A reshuffling among creditors is not always the same as an exit from dollar assets. Japan also remains Asia's largest holder on both sides of the ledger, accounting for about 8.6% of US holdings of foreign securities.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Sep 14 2026
Economic Letter from Asia: Same Shocks, Different Paths
In this week's Letter, we examine the divergences running through Asia's inflation, monetary policy and currency performance. Headline CPI inflation has risen across much of the region, driven in large part by the closure of the Strait of Hormuz. Underlying dynamics nonetheless remain disparate, with China recording the region's lowest inflation rates and India facing renewed food and oil pressures (chart 1). China warrants closer attention still, since its producer price inflation now runs far ahead of consumer inflation (chart 2). Weak passthrough to domestic prices, soft demand and Beijing's campaign against destructive price competition all help explain that gap. Disparate inflation outcomes, in turn, are feeding divergent monetary policy stances, though that divergence has narrowed somewhat (chart 3). India has paused its rate cuts, while the Bank of Japan continues its gradual normalisation. Japan also sits at the centre of a protracted rise in yields, shared with its major-economy peers. A decomposition suggests real yields, rather than breakevens, have been the greater driver, amid concerns about fiscal policy and capex (chart 4). Divergence runs through currency performance too, with relative standings shifting repeatedly on a trade-weighted basis (chart 5). The Indian rupee has been the worst performer year-to-date, only recently ceding that position to the Philippine peso. At the other end of the table, the Chinese yuan has been dethroned by a resurgent South Korean won. Strong AI-driven export inflows had long been offset there by persistent portfolio outflows.

Inflation divergence Headline CPI inflation has risen across much of Asia this year, on many measures. Surging energy prices, driven by the continued closure of the Strait of Hormuz, account for a large part of that rise. Underlying inflation dynamics within the region, however, remain quite disparate from one economy to the next. External forces such as oil prices and supply shocks are only part of the story. Domestic conditions matter too, notably the strength of domestic demand and each economy's dependence on imported goods, which is another way of describing its degree of self-sufficiency. China illustrates the point, with inflation still short of breaking conclusively above the low to no inflation region. That owes arguably in part to domestic demand conditions, which remain comparatively weak. It has once again logged the region's lowest inflation rates in recent months, reclaiming that spot from Thailand (chart 1). India sits at the other end, having ceded the top spot for headline CPI inflation to the likes of Vietnam and the Philippines since early 2025. Its recent resurgence in consumer inflation nonetheless points to a dependence on imported oil. Fresh risks have also emerged more recently from food and agricultural shocks, tied to ongoing and possibly worsening El Niño effects.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Sep 07 2026
Economic Letter from Asia: Shock and Boom
In this week's Letter, we weigh Asia's building supply-side inflation risks against the AI export boom still powering regional growth. The US-Iran conflict has escalated once again, lifting crude prices and keeping geopolitical risk elevated (chart 1). Should oil hold at current levels without advancing further, base effects should eventually pull that impulse out of inflation. A second price risk is now building, and it is El Niño, an event already under way (chart 2). Drier conditions in parts of Southeast Asia and redistributed rainfall elsewhere stand to disrupt crops and lift food prices. Markets have started to price these risks in through higher yields. Japanese government bond yields have surged alongside global peers, also pushed by fiscal concerns as the budget is drawn up. Domestic buyers have reduced their net sales of JGBs, with the 10-year yield now flirting with 3% (chart 3). Set against these pressures, advanced Asia's AI buildout continues to run apace. Producers of critical AI chips in Japan, Taiwan and South Korea are posting double and triple-digit export growth (chart 4). The focus is also broadening from AI infrastructure towards physical applications such as humanoid robots. China has benefited too, with integrated circuits and computer equipment contributing about half of its export growth (chart 5). The remainder has come from other goods, including EVs, amid a still-robust overall export trend. By region, ASEAN-6 and India have driven that growth, offsetting the steep fall in shipments to the US (chart 6). That success, however, has again deferred China's longer-term rebalancing towards consumption.

US-Iran tensions: No let up The US-Iran situation has escalated once again with a familiar headline, as both sides traded strikes over the weekend, with no clear resolution in sight. The latest strikes have brought the conflict well into its sixth month, pushing crude oil prices higher and keeping measures of geopolitical risk elevated (chart 1). All of this continues to give policymakers reasons to worry. With that said, while elevated oil prices have been pushing inflation upwards, that impulse should eventually fade. If prices stay at current high levels for at least another six months without advancing substantially further, base effects will pull them out of inflation calculations.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Sep 01 2026
Economic Letter from Asia: Lingering Unease
In this week’s Letter, we examine why the continuing oil shock is placing renewed pressure on several Asian currencies—and why the mechanisms differ significantly across economies. The US–Iran conflict shows no meaningful sign of abating, with further strikes exchanged earlier this week. Meanwhile, shipping through the Strait of Hormuz remains severely disrupted (chart 1), effectively putting a floor beneath crude prices. The resulting increase in energy costs is sustaining inflation risks and worsening the terms of trade for oil-importing economies. This has contributed to the weakness of both the yen and the rupee this year, although energy dependence is only part of the explanation (chart 2). Unfavourable interest-rate differentials remain the principal constraint on the yen, while portfolio flows have amplified the rupee’s decline. Pressure on the Indonesian rupiah, by contrast, owes more to concerns about domestic politics and fiscal credibility. Although broad dollar strength is often blamed for the region’s currency weakness, our trade-weighted nominal dollar index has moved largely sideways.

India’s vulnerability to the oil shock is particularly pronounced. Domestic crude production covers only a small share of consumption, leaving the economy highly exposed to movements in global prices (chart 3). South Korea, Japan and Taiwan face similarly heavy import dependence, while the headline figures for China probably understate its underlying exposure. For India, however, a deteriorating energy bill has coincided with financial-account pressure. Portfolio investors withdrew capital for an extended period after conflict erupted in late February (chart 4). These outflows subsequently reversed after the RBI introduced incentives in June to attract dollar deposits—measures that proved effective enough to be withdrawn ahead of schedule. Nevertheless, the rupee has recovered little of its earlier decline. Indonesia presents a different risk profile. Investor unease centres less on oil-import dependence than on the direction of fiscal policy and the broader political environment. Foreign ownership of rupiah-denominated government bonds has fallen below 13%, even as the outstanding stock of debt has continued to expand (chart 5). President Prabowo’s USD 230bn budget for 2027 targets a smaller deficit (chart 6), but it remains unclear whether this will be sufficient to restore investor confidence.

The oil situation There is little sign of a substantive let-up in the US-Iran situation. Both sides exchanged strikes earlier this week, the first such exchange in about a month. Absent the strikes, the underlying economic reality remains broadly unchanged. Shipping traffic through the Strait of Hormuz has remained weak (chart 1), leaving an implicit floor under crude oil prices. Upside inflation risks stemming from energy therefore remain alive, and with them the implications for monetary policy. Beyond inflation, this protracted bout of elevated oil prices continues to add to the hefty bills faced by net energy importers, in the region and well beyond it.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Aug 24 2026
Economic Letter from Asia: Heating Up
In this week's Letter, we examine how Japan's hard-won reflation is being tested by an energy shock and a fiscal turn. Japan has come a long way in achieving substantive inflation and, more recently, real wage growth, substantiating its tightening cycle (chart 1). Q2 real GDP growth nonetheless underwhelmed, dragged partly by a slump in public inventories that may prove one-off (chart 2). More discouraging was private consumption, whose contribution to growth was flat over the quarter. Delving into the household picture, real spending has continued to shrink despite real wage gains in recent months (chart 3). Elevated energy prices appear to be affecting household behaviour, stalling the translation of higher wages into domestic demand-led growth.

Recent market moves have reflected other drivers, including renewed yen weakness after a short-lived appreciation prompted by intervention. Government bond yields have surged, reflecting both tightening expectations and concerns over Japan's fiscal health, in a climb extending well beyond Japan (chart 4). One potential offset to elevated global oil prices is domestic, and it lies in rice. Last year's constrained supply has evolved into a glut this year, with prices diving (chart 5). Given rice's weight in the consumption basket, the deflationary effects may be significant. Lastly, we turn to fiscal prospects, with talk of the 2027 budget already underway. Investors are watchful of the cabinet's expansionary bias, and how increased spending and food tax cuts may lift bond issuance, with details still scant at this juncture (chart 6).

Japan’s state of play Japan has already managed to get many things going in its favour. After decades of low to negative inflation, consumer inflation rose above 2%, though it has since eased to just above 1% (chart 1). Accompanying the pickup in price pressures is wage growth, which has risen in nominal terms over recent years. Only more recently has it grown in excess of consumer inflation, indicating an interim period of real wage growth that generally benefits households. Sustained inflation alongside wage growth is what the Bank of Japan has long sought. With such conditions among others fulfilled, the central bank had some justification to begin normalising monetary policy, with its latest rate hike in June this year. Complications nonetheless remain. Persisting tensions between the US and Iran are keeping oil prices elevated, threatening to upend Japan's recovery in its domestic sector. They have also prompted government measures to support growth and help households tide through price increases. Those measures have drawn their own concerns, especially over Japan's fiscal health, which we discuss in more detail later.
by:Tian Yong Woon
|in:Economy in Brief