South Korea and Japan are the top two source nations for Chinese imports respectively, and generally they export the same kinds of manufactured goods. With the expected explosion in demand from China’s reopening, both countries stand poised for a trade windfall. However, we could see the marginal dollar of import demand flow to Japan rather than South Korea.

South Korea has stayed China’s top exporter through 2021 and much of 2022 due to the Japanese Yen’s relative strength, but that has started to change. The Yen has been trending lower against the Korean Won since mid-2020 and continued to do so precipitously last year. Consequently, the gap between Japanese and Korean export volumes to China has narrowed, reversing toward the end of last year.

Tonight’s official Chinese PMI readings will shed some light on the reopening’s vigor, but it is safe to say that China will be looking for more imports from both countries in the months to come. If recent currency action continues as expected, there is potential for Japanese manufacturers to capture significant upside over the next few quarters.