APAC Markets Weekly

Japan

The Japanese stock markets demonstrated robust gains as the Nikkei 225 Index surged by 6.6%, and the broader TOPIX Index recorded a noteworthy 4.2% increase. This impressive performance was attributed to the continuation of highly stimulative monetary policies and the yen's weakness, propelling Japan's exporters and leading the indexes to achieve their highest levels in nearly 34 years.

Simultaneously, the yen maintained its lowest levels in approximately a month, weakening beyond JPY 145 against the U.S. dollar. This shift was influenced by a hot U.S. inflation print, tempering expectations about the Federal Reserve's potential interest rate cuts. The yield on the 10-year Japanese government bond experienced fluctuations around 0.6% during the week, struggling for a definitive direction.

Economic indicators supported the persistence of highly stimulative monetary policy, as investors scaled back their expectations of the Bank of Japan (BoJ) promptly reversing its negative interest rate policy. The aftermath of the Noto Peninsula earthquake contributed to the reassessment of near-term policy normalisation. Economic data releases reinforced the need for policy continuity, with headline wage growth slowing sharply in November and the Tokyo core consumer price index indicating a modest 2.1% year-on-year increase in December, the slowest pace since June 2022.

Prime Minister Fumio Kishida emphasized the government's commitment to utilising all policies to ensure that growth in disposable income surpasses price rises. Additionally, the chief of Rengo, Japan's largest trade union federation, highlighted the importance of achieving wage increases for the second consecutive year, aiming for levels even higher than the negotiations held in 2023.

China

Chinese equities experienced a retreat as data revealed the persistence of China's deflationary cycle into December, heightening expectations of increased government support in 2024. The Shanghai Composite Index declined by 1.61%, and the blue-chip CSI 300 relinquished 1.35%. In Hong Kong, the Hang Seng Index fell by 1.76%, according to FactSet.

The consumer price index contracted by 0.3% in December compared to the prior-year period, marking the third consecutive monthly decline. This easing, from November's 0.5% drop, was influenced by lower pork prices continuing to impact food prices. The producer price index declined by 2.7% from a year ago, compared with November's 3% drop, marking the 15th consecutive monthly decline. The latest inflation data heightened expectations that China's central bank would lower its key policy rate and inject more cash into the financial system at its next policy meeting, addressing concerns of sustained deflation impacting the economy.

In other economic developments, China's exports exceeded expectations, rising by 2.3% in December from a year earlier, up from a 0.5% rise in November. Although U.S. shipments declined after a brief rise in November, exports to Europe and Southeast Asian nations improved. Imports also saw a slight increase of 0.2% in December, rising from November's 0.6% decline. The overall trade surplus rose to USD 75.34 billion, up from November's USD 68.39 billion. However, China's exports experienced a 4.6% decline in 2023, marking its first annual decrease in seven years as global demand softened.

In geopolitical developments, Chinese officials announced new sanctions on five U.S. defense companies in response to the U.S.'s latest weapons sales to Taiwan. The measures included freezing the U.S. companies' local assets and prohibiting domestic organisations from engaging in transactions with them. This action was widely interpreted as a retaliatory response to the U.S. State Department's approval of an estimated USD 300 million in potential military sales to Taiwan disclosed in December.