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, and a Bachelor of Science in Banking and Finance from the University of London.

Publications by Tian Yong Woon

Asia| May 06 2025
Economic Letter from Asia: Art of the Deal
This week, we focus on trade developments between the US and major Asian economies. Early indications coming out of US-India trade talks seem encouraging, with terms such as “forward most-favoured-nation” for the US and “zero-for-zero” tariffs appearing in news reports — terms which, if enacted, would represent a significant win for the US. India stands to benefit greatly as well if key exports to the US, such as pharmaceuticals (chart 1), receive substantial tariff relief. The benefits could be strongly mutual if a deal also grants the US greater access to India’s large auto consumer market, particularly for major US electric vehicle (EV) producers, given that EV adoption in India remains at a very early stage (chart 2).

Turning to South Korea, discussions also appear to be progressing at a healthy pace, although details remain limited and ongoing domestic political challenges continue to hinder substantive breakthroughs. Nonetheless, the South Korean won has shown signs of stabilisation, while local equity markets have remained buoyant (chart 3). Recent trade data for April has also provided some investor relief, as weak exports to the US were more than offset by a strong performance in semiconductor shipments (chart 4).

In Japan, the race to secure a trade deal with the US is well underway, with automotive exports expected to be a key focal point given their significance to Japan’s economy and the US being a major export destination (chart 5). China, however, remains a notable outlier, with formal trade talks with the US not yet underway. Still, the US-China trade relationship continues to be the most closely watched, given its scale and potential impact on global growth and trade dynamics. While markets await China’s official April trade data, early indicators such as port activity already suggest a decline in bilateral trade flows (chart 6).

US-India trade talks US-India trade discussions have reportedly been progressing rapidly, with both sides having already finalized in April the terms of reference for talks, setting the stage for formal negotiations. One early sign of favourable momentum is India’s possible offering of a “forward most-favoured-nation” clause to the US. This would ensure the US always receives the most favourable tariff terms, ahead of any other trade partner. If enacted, this would be a significant win for the US and a major leap forward in the US-India trade relationship. Another reported breakthrough involves India’s reported proposal of “zero-for-zero” tariffs on steel, auto components, and pharmaceuticals—offered on a reciprocal basis up to a certain quantity. If agreed, this would be mutually beneficial, especially as pharmaceuticals remain one of the US economy’s key imports from India, as shown in chart 1. On a separate note, and more recently, India’s phone exports to the US have reportedly gained prominence. With steep US tariffs on China, firms like Apple are increasingly incentivised to accelerate production shifts to India.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Apr 29 2025
Economic Letter from Asia: How Freightening?
This week, we focus on the immediate impacts of the recent US-China trade escalation. As we discuss below these are already being exhibited in the data. While still within historical ranges, high-frequency estimates of US and China cargo trade volumes have begun to deteriorate (chart 1). In tandem with these volume declines, freight rates on certain Shanghai-to-US routes have fallen (chart 2), suggesting reduced shipping demand. This has been further corroborated by widespread reports of large-scale shipment cancellations from China to the US. A potentially clearer signal comes from South Korea’s trade data for the first 20 days of the month, often viewed as a bellwether for global trade. The figures point to a notable slump compared with a year ago (chart 3). More complete April data are expected later this week.

Turning to broader developments in China, we observe that the dominant shifts in the country's financial balances over the past decade have occurred between the general government and the private sector. In contrast, China’s foreign sector balance—essentially its current account—has remained relatively stable (chart 4). As we further discuss financial balances and the underlying causes of the US’ persistent current account deficit (chart 5) have been a recurring topic in recent conversations with clients in Asia. It is argued that the US dollar’s role as a global reserve currency effectively necessitates the US running a current account deficit. Consequently, attempts to narrow the deficit through tariffs may address symptoms rather than root causes. Finally, we revisit the China Plus One strategy adopted by firms since the initial US-China trade fallout in 2018. This approach has contributed to ballooning trade deficits between the US and some of its other major trading partners (chart 6), prompting renewed scrutiny under President Trump’s early “Liberation Day” trade actions.

US and China cargo trade Financial markets have recently found some reason for relief, as both the US and China appear to be lowering the temperature on further trade tariff actions. Recent messaging has leaned more toward a de-escalation of trade tensions, though concrete details remain sparse, and it is unclear how or when formal negotiations might begin. That said, the substantial and mutually imposed tariffs between the US and China remain firmly in place, and a significant rollback does not seem likely in the near term. In the meantime the economic impact of these tariffs is beginning to surface in the data, as shown in charts 1 to 3. Chart 1, based on IMF estimates, shows a sharp decline in daily activity at several key ports involved in US-China trade. However, while the drop is notable, port activity still remains within historical ranges, so a more fundamental shift is not yet evident.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Apr 15 2025
Economic Letter from Asia: Game of Chicken
This week, we maintain our focus on global trade, particularly following the decision by the US administration to reverse its “reciprocal” tariffs coupled with its significant escalation of trade tensions with China. Markets have been understandably volatile over the past week (chart 1), with President Trump’s decision to hold “reciprocal” tariffs at 10% and pause a further increase offering a temporary reprieve. Still, China’s significantly increased exposure to US tariffs (chart 2) remains a key concern for investors, even as weekend announcements of exemptions for certain electronics and semiconductor products provide some relief—albeit a partial one. Nonetheless, the reality is that the US and China remain deeply interdependent when it comes to trade. Neither can be independent of the other without substantial economic costs. The latest escalation is reminiscent of a game of chicken between the two global powers—except this is not a game. It is real life, with real consequences for businesses, consumers, and economies around the world. That said, the degree of mutual reliance is not equal. The US is arguably more dependent on Chinese imports, particularly in goods trade, despite some signs of decoupling in recent years (chart 3). This becomes especially clear when looking at specific product categories: many of the US economy’s low export-to-import ratio goods (chart 4) are primarily sourced from China (chart 5). Without readily available and complete alternatives, the latest round of tariffs may soon be felt in the form of rising consumer prices. Looking beyond goods, however, the US continues to maintain a strong services trade surplus globally, including with much of Asia (chart 6). This may serve as an alternative channel for the US to manage its trade balance going forward.

Latest US-China trade developments Just days after US President Trump unveiled his sweeping “reciprocal” tariffs on April 2, he announced a 90-day pause for all economies except China, opting instead to maintain a 10% additional tariff on others in the interim. What followed was a flurry of tit-for-tat measures between the US and China. Within days, the US raised its additional economy-wide trade tariffs on China from 20% in March to a staggering 145%. In response, China’s retaliatory measures saw its additional tariffs on US goods jump from 0% (excluding product-specific tariffs) to 125%. Amid the escalation, China’s Customs Tariff Commission declared it would no longer respond to additional US tariff hikes. It explained that American exports to China are no longer economically viable under the latest tariffs, underscoring just how severely tensions have deteriorated. Unsurprisingly, the markets have been on a nerve-racking roller coaster over the past few weeks. Initial reactions to President Trump’s “reciprocal” tariffs were clearly negative, although a brief sense of relief emerged after he narrowed the scope of his most recent trade escalations to target China alone.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Apr 07 2025
Economic Letter from Asia: Just Tariffic
This week, we focus on the sweeping "reciprocal" US tariffs announced by President Trump last week. As shown in chart 1, these tariffs are primarily based on US trade deficits with its trading partners. This is in contrast to earlier indications that suggested other factors, such as tariff and non-tariff barriers, would also be considered. Using the tariff formula provided by the US Trade Representative, we derive the announced tariff rates. We also highlight the factors contributing to Vietnam’s relatively high "reciprocal" tariff rate, compared to other Asian economies such as Singapore (chart 2). However, we argue that focusing solely on trade deficits does not fully capture the trade dynamics between the US and its partners. The applied tariff rates of other economies should also be factored in (chart 3), especially in relation to trade with the US. Moreover, non-tariff trade barriers (chart 4) should also be considered, as tariffs and trade deficits alone may not provide a complete picture of trade dynamics. To present an alternate view, we introduce a “tariff scorecard”, which incorporates these factors and offers a perspective on how US "reciprocal" tariffs could have been applied (chart 5). Looking ahead, with the "reciprocal" tariffs already in place, we also discuss the initial and varying responses from Asian economies, considering their significant exposure to these tariffs (chart 6).

US “reciprocal” tariffs Last week, US President Trump’s announcement of “reciprocal” tariffs caught many economists by surprise. While the tariffs themselves were anticipated, their scope and scale were far more severe than expected, contradicting much of the messaging leading up to the announcement. Prior statements—both before and during the unveiling of the tariffs—suggested that the "reciprocal" measures would account for various factors, including trade barriers (both tariff and non-tariff) and currency manipulation. However, the formula revealed by the US Trade Representative’s Office showed that the tariffs were simply based on the US trade deficit with other countries, as outlined in chart 1. This approach was far simpler than expected, relying solely on trade deficits without factoring in the other economic considerations. Also, many investors and observers were shocked by the announcement, as it contradicted earlier messaging that the tariffs would be “lenient.” Some had also expected bilateral negotiations with trading partners to influence the final tariff structure. Instead, the formula was purely based on the US trade deficit. Furthermore, even countries with low or no tariffs on US imports—or those with which the US runs a trade surplus (such as Singapore)—were still subjected to a 10% tariff floor.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Apr 01 2025
Economic Letter from Asia: Liberation Day
This week, we turn our focus to India in the context of US President Trump’s upcoming “Liberation Day” tariff announcements on April 2. Investors are likely on edge, uncertain about the specifics of Trump’s proposed “reciprocal” tariffs. However, early indications suggest that initial concerns may have been overstated, with significant impacts likely limited to only a handful of economies. As we noted in our previous letter, India could be among the most exposed in Asia to these tariffs, given its relatively high tariff rates (chart 1) and specifically those on imports from the US. Beyond tariffs, India also maintains comparatively high non-tariff trade barriers—both in contrast to the US and its more trade-liberal Asian peers (chart 2). Despite these concerns, India’s financial markets have demonstrated strong performance lately. The Indian rupee has staged a strong recovery from earlier selloffs, while equities have rallied (chart 3). The rupee’s resurgence may be partly driven by seasonal flows, whereas equities appear to have benefited from a sharp rebound in foreign portfolio inflows (chart 4). Looking at longer-term structural challenges, one area where India has yet to fully capitalize is its workforce. Despite a relatively young population, a significant portion remains unemployed (chart 5). A closer examination reveals several contributing factors, including insufficient job creation, a persistent skills mismatch, and, more fundamentally, the need for improved access to basic education (chart 6), among other challenges.

US “reciprocal” tariffs As discussed in last week’s economic letter, India is among the most exposed countries in Asia to US President Trump’s upcoming “reciprocal” tariffs, set to be unveiled later this week (April 2). This exposure stems from the fact that not only does the US run a significant trade deficit with India, but India also imposes comparatively high tariff rates on imports in general, and not just from the US, as shown in chart 1. While there are concerns about the potential impact of these tariffs, India has already begun trade deal talks with the US to mitigate the effects if they are implemented. It seems that Trump’s underlying strategy may be working: US-India trade talks are reportedly progressing well, with India considering tariff reductions or even eliminations on more than half of its imports from the US.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Mar 24 2025
Economic Letter from Asia: Reciprocity
This week, we explore the growing impact of recent US policy moves—particularly President Trump’s “reciprocal” tariffs scheduled for April 2—with a spotlight on their implications for Asia. The effects of China’s retaliation to the US’s first round of 10% tariffs are already visible in the data (Chart 1). Similarly, in South Korea, the Biden administration’s tightening of chip export restrictions has likely contributed to a slump in the economy’s recent semiconductor exports to China (Chart 2). Despite these challenges, investor concerns about Trump’s upcoming "reciprocal" tariffs have been eased by reports suggesting they may not be a blanket measure, with certain economies potentially exempt. While the potential impact of these tariffs on Asia may initially seem significant, the effects are likely to be concentrated in a few economies, particularly India. This is mainly because, India still maintains one of the highest average tariff rates in the world (charts 3 and 4), despite progress in reducing tariffs over the years (Chart 5). In contrast, South Korea, though it has a relatively high average tariff rate, benefits from a very low effective tariff rate on US imports (Chart 6), thanks to its bilateral trade agreement with the US.

Tariff effects on China Earlier, China responded to the US’s first round of 10% tariffs on Chinese imports by placing tariffs on certain energy products and large-engine cars from the US. The effects of these tariffs are already evident in the data, as shown in chart 1. Specifically, China’s imports of US cars have continued to decline sharply, and its imports of certain energy-related products have also decreased through the year so far. However, China’s overall imports from the US have increased on a year-over-year basis. Looking ahead, investors are likely focused on the impact of China’s second round of retaliatory tariffs, which mainly target US agricultural goods.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Mar 17 2025
Economic Letter from Asia: Cherry Blossoms
This week, our focus turns to Japan as the Bank of Japan (BoJ) prepares for its key policy decision on Wednesday. While the BoJ has made meaningful progress toward monetary policy normalization, it remains an outlier among major central banks, many of which have already begun easing after previous tightening cycles (chart 1). The rationale for Japan’s shift is clear—after decades of chronic price stagnation during the so-called Lost Decades, the country has finally experienced sustained inflation, warranting a gradual recalibration of monetary policy (chart 2). That said, Japan’s inflation story is not without challenges. A rice shortage has driven prices sharply higher, underscoring supply-side pressures in an economy that remains vulnerable to commodity price fluctuations (chart 3). Meanwhile, wage growth is also picking up, with annual wage negotiations delivering encouraging preliminary results—this spring, it’s not just cherry blossoms that are in full bloom (chart 4). These developments have been reflected in rising Japanese government bond yields and a notable recovery in the yen against the US dollar (chart 5). However, part of this yen strength may also be linked to Japan’s recent divestment of US Treasuries, as the country has significantly reduced its holdings over the past year (chart 6). As the BoJ navigates its policy shift, the coming months will be crucial in determining whether Japan can sustain its inflation momentum without sacrificing economic stability.

Japan monetary policy The Bank of Japan (BoJ) initiated a major shift last year, gradually moving away from its eight-year-long negative interest rate policy, signalling a transition from its ultra-loose monetary stance. Since then, the BoJ has raised interest rates three times, citing positive developments in inflation and wage growth—topics we will explore in more detail shortly. However, as shown in chart 1, the BoJ remains far behind its peers in the policy cycle. Major central banks like the US Federal Reserve, the Bank of England, and the European Central Bank have already completed their tightening cycles and are now easing, as inflation has become better-behaved. Moreover, Japan’s real policy rates remain deeply negative, with low policy rates persisting while inflation continues to rise. Despite this, investors do not anticipate another rate hike during this week’s BoJ monetary policy meeting, with the next tightening move expected sometime in Q3.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Mar 10 2025
Economic Letter from Asia: Tit for Tat
This week, we look again at US tariff policy and explore its potential implications for Asia, particularly China and South Korea. While US President Trump has temporarily dialled back his actions on Canada and Mexico, he has moved forward with doubling the tariff rate on China to 20%. However, China’s trade data have already started to exhibit more fragility (chart 1), and lingering uncertainties are also beginning to affect other trade-dependent economies, such as South Korea (chart 2). To make matters worse, South Korea is grappling with significant political uncertainty at home, with much-needed fiscal support still in limbo. This only adds to the policy uncertainty it faces (chart 3). We also take a closer look at the key messaging coming out of China’s National People’s Congress, which began last Wednesday. Notably, China reaffirmed its commitment to an annual growth target of "around 5%" (chart 4), supported in part by more expansionary fiscal policy (chart 5). Additionally, we examine China’s increased focus on shifting toward a more consumption-driven economy and the associated challenges (chart 6). This shift seems increasingly necessary, given the potential decline in export revenues due to more protectionist US policies.

The US’ latest tariff actions Last week, US President Trump proceeded with the implementation of blanket 25% tariffs on Canada and Mexico, following a prior delay. Additionally, he doubled import tariffs on China, increasing them from 10% to 20%. However, he later provided an interim reprieve for goods covered under the United States-Mexico-Canada Agreement (USMCA), delaying some tariffs on Canada and Mexico until April 2. In response, China swiftly retaliated by imposing tariffs ranging from 10% to 15% on US agricultural products, among other countermeasures. It is important to note that China's response to the US's broad tariffs has been relatively restrained. In terms of numbers, China’s export growth has already slowed amid heightened trade uncertainty, as shown in chart 1. This slowdown is partly due to the easing of growth following prior front-loading of exports, as well as a decline in imports driven by softer demand.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Feb 18 2025
Economic Letter from Asia: Talking Steel (and Aluminium)
This week, we focus on the steel and aluminium sector, following last week’s round of tariff measures from the US administration. President Trump’s 25% tariffs on steel and aluminium are aimed at addressing concerns over unfair trade practices and excess capacity, with China explicitly singled out as a major contributor to these issues. However, it remains to be seen whether these tariffs will effectively resolve the problems they are intended to address, especially since China’s share of US imports in these sectors is relatively small (chart 1). In fact, Canada is the largest supplier of these products to the US (chart 2), and may face cumulative tariffs of 50% if all of the US's announced measures against the country are implemented. That said, even with these steep tariffs, the immediate impact on Canada’s exports and broader economy may be limited, given that steel and aluminium exports account for a small portion of Canada’s overall exports (chart 3).

Delving deeper into China’s overcapacity issues, several indicators continue to signal persistent challenges, such as the ongoing deflation in producer prices for related metal products and broader export prices (chart 4). A closer look at China’s steel industry shows that local producers have been struggling long before the prospect of Trump’s tariffs re-emerged (chart 5), facing weak domestic demand and fierce competition that have driven prices down. Beyond tariffs, we also touch on political interventions driven by national security concerns, such as the US blocking Nippon Steel’s acquisition of US Steel, though President Trump has recently signalled some flexibility on this matter. While this transaction is small in the context of Japan’s broader foreign direct investment in the US (chart 6), it highlights the intersection of trade and national security policies.

The US’ latest tariff actions On February 10th, US President Trump escalated his tariff actions by announcing a 25% tariff on all US steel and aluminium imports, set to take effect on March 12. According to the White House, this move is intended to protect the US steel and aluminium industries, which are said to have been negatively impacted by unfair trade practices and global excess capacity. Specifically, China has been identified as one of the key sources of this excess capacity.

However, according to official figures, China’s share of US steel imports is relatively small, accounting for less than 2% by the end of last year, as shown in chart 1. China’s share of aluminium imports to the US is higher but still not dominant, at around 10%. These statistics may not fully capture the situation, however, as some US steel and aluminium imports could have been rerouted from other countries, possibly to bypass previous tariffs, before ultimately entering the US market. This rerouting may be a key factor in President Trump's decision to impose blanket tariffs this time, rather than offering exemptions as in previous instances.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Feb 10 2025
Economic Letter from Asia: Talking Oil
This week, we explore potential opportunities in Asia if the US ultimately follows through with imposing tariffs on Canadian crude oil exports.

We begin by acknowledging the US-Canada energy relationship, where Canada has become a dominant supplier of crude oil to the US over the years (chart 1). If a 10% tariff were imposed on Canadian crude, it could result in significant economic disruption for both nations. This reliance on Canadian crude highlights critical aspects of the US energy sector. Although the US is a net exporter of refined oil, it remains heavily dependent on Canada’s heavy, sour crude, particularly for refineries in the Midwest (chart 2). Additionally, fully and immediately replacing this crucial supply is challenging for US refiners, as alternatives like Venezuelan crude are politically unfeasible and currently lack the necessary scale (chart 3).

However, what may seem disruptive to some presents a window of opportunity to others. With the recently operational Trans Mountain (TMX) pipeline, Canada has improved its access to Asian markets, and China has already begun absorbing a growing share of Canada’s crude oil output (chart 4). The competitive pricing of Canadian crude further enhances its appeal to China’s manufacturers and refiners (chart 5). While it may still be early for Canada to become a major supplier to China—given that countries from the Middle East, Russia, and Africa dominate the market—this shift signals potential for growth (chart 6).

Nonetheless, the scope and intensity of US trade actions continue to evolve. Recently-announced policy measures include a 25% tariff on all steel and aluminium imports into the US, and observers are now awaiting "reciprocal" tariffs, as promised by US President Trump, set to be revealed later this week.

The US-Canada energy relationship On February 1 this year, the United States initially announced a 10% tariff on energy imports from Canada, along with a 25% tariff on all other imports, as part of an effort to pressure Canada into addressing US concerns about illegal immigration and the flow of drugs across their shared border. In response, Canada initially announced retaliatory tariffs. However, the situation was temporarily de-escalated after a conversation between US President Trump and Canadian Prime Minister Trudeau. As part of the discussions, Trudeau agreed to ramp up security along the US-Canada border, leading to a one-month delay in the implementation of the tariffs.

This exchange between the two countries sparked widespread debate on the potential consequences of such tariffs, should they be enforced in the future. One key aspect that emerged from the discussions was the critical energy relationship between the US and Canada. Specifically, Canada’s crude oil exports to the US have become increasingly dominant over the years, as illustrated in chart 1. This growing trend underscores Canada's importance as a key supplier of crude oil to the US, highlighting the potential economic ramifications of any trade barriers between the two nations.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Feb 03 2025
Economic Letter from Asia: A New (Lunar) Year
This week, we examine the actions taken by the new US administration in the context of Asia. US President Trump is now following through on policies he raised during his electoral campaign, imposing 25% tariffs on Canada and Mexico, and 10% tariffs on China—countries with which the US has the largest trade deficits (chart 1). These measures have already sparked retaliatory actions. As a result, investor concerns about global growth are starting to materialize. Many of our Blue Chip panelists, for instance, having already downgraded their growth forecasts for Asia due to the risks posed by these US actions (chart 2).

We also explore growing US-China competition in the AI sector, with recent steep market sell-offs (chart 3) following the revelations about China’s DeepSeek AI model. A key factor driving China’s AI ambitions is the availability of AI chips, which faced the possibility of tighter export controls ahead of Trump’s return to office. This likely prompted China to stockpile supplies in anticipation (chart 4) and accelerated its pursuit of semiconductor self-sufficiency.

Finally, we turn to the Lunar New Year, the Year of the Wood Snake, and examine tourism trends both within China and outbound. Investors and officials alike are closely monitoring Chinese travel patterns—both domestic (chart 5) and international (chart 6)—as a key indicator of consumer health. However, country-specific developments, such as recent abduction scares in Thailand, are threatening to impact Chinese tourism receipts.

US trade actions so far A trade war may have now begun. US President Donald Trump has followed through on his earlier threats, imposing tariffs on imports from Canada, Mexico, and China. Specifically, Trump announced a 25% tariff on Canadian and Mexican imports, and a 10% tariff on Chinese goods. In response, Canadian Prime Minister Trudeau has introduced retaliatory tariffs of 25% on US imports worth approximately $105 billion. Meanwhile, Mexico and China have vowed to take countermeasures, with China filing proceedings with the World Trade Organization. One of Trump’s key justifications for these actions is to reduce the US’s substantial trade deficit, which is primarily driven by imports from these aforementioned countries, as shown in chart 1.
by:Tian Yong Woon
|in:Economy in Brief
Asia| Jan 27 2025
Economic Letter from Asia: On Japan
This week, we focus on Japan following last week’s decision by the Bank of Japan (BoJ) to raise interest rates again. That decision brings Japan’s central bank closer to policy normalization, supported by the latest inflation data. However, Japan still has a considerable distance to cover before fully exiting its accommodative monetary policy stance, with the real policy rate remaining deeply negative (Chart 1). A closer look at Japan's inflation dynamics reveals that the recent uptick in price pressures has been driven primarily by fresh food and energy, with specific food items seeing price surges due to supply issues and rising production costs. That said, non-"core core" inflation components continue to show inflation consistently above 2% (Chart 2).

The outlook from here is increasingly supportive of BoJ tightening, including on the wage front. Annual spring wage negotiations have resulted in rising wage hikes in recent years, with the wage-price dynamic beginning to unfold as the BoJ desired (Chart 3). More recent wage data also shows a broad-based increase, though the manufacturing sector was a laggard in November, amid ongoing challenges (Chart 4). Externally, Japan still has considerable ground to cover in terms of monetary policy compared to its G10 peers. The wide yield differentials between Japan and other economies continue to weigh on the yen, creating unfavourable conditions that impact both locals and foreigners (Chart 5). Finally, like other net exporters to the US, Japan faces ongoing tariff risks, with added uncertainty surrounding its investments in the US (Chart 6).

The BoJ’s January decision Last Friday, the Bank of Japan (BoJ) raised its policy rate by 25 basis points to "around 0.5%," marking the highest interest rates in 17 years. Leading up to the decision, markets had already priced in the rate hike, following signals from BoJ officials that further tightening was possible in January. In addition, the central bank released updated economic forecasts, now projecting slightly lower real GDP growth for fiscal year 2024 but higher CPI inflation for both fiscal years 2024 and 2025. The upward revision in inflation forecasts coincided with Japan's December CPI report, which showed a notable increase in price pressures, rising to 3.6% y/y, up from 2.9% previously. However, despite the BoJ's rate hike, Japan still has a long way to go before exiting its accommodative monetary policy stance, with the real policy rate remaining deep in negative territory, as illustrated in Chart 1.
by:Tian Yong Woon
|in:Economy in Brief