Geoff Yu at BNY notes that North Asian economies face supply-related risks to their balance of payments despite ample energy reserves. He argues that rising headline inflation and low wage growth versus developed markets have depressed APAC real effective exchange rates, but a renewed global supply-driven inflation push could allow these currencies to tolerate higher REERs and narrow valuation gaps.

North Asian FX and inflation dynamics

"Despite reports of ample energy reserves, North Asian economies and currencies continue to face supply-related risks to their balance of payments."

"Although some fiscal resources to limit energy price gains will be deployed, headline inflation will likely rise in the near term, and central banks will need to respond accordingly."

"In contrast, developed market partners have seen sticky wages driving inflation, thereby leading to price differentials that are heavily depressing APAC real effective exchange rates (REER)."

"A renewed global supply-based inflation push represents an opportunity to shift mindsets."

"These economies in particular can withstand higher REERs through the inflation channel."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)