APAC Weekly Review

Japan

Market Performance and Monetary Policy Speculation

Throughout the week, Japan's stock markets experienced a downturn, marked by declines of 2.5% in the Nikkei 225 Index and 2.1% in the broader TOPIX Index. Notably, speculation regarding the potential cessation of Japan's negative interest rate policy by the Bank of Japan (BoJ) gained momentum following reports of substantial wage increases among Japan's labour unions, the highest seen since the early 1990s. The BoJ's monetary policy adjustments remain contingent upon meeting its 2% inflation target, anticipated to be supported by wage growth, prompting economists to forecast a possible interest rate hike in either March or April.

Currency and Bond Market Movements

Furthermore, the BoJ's prolonged accommodative policy has led to a depreciation of the yen, thereby benefiting many of the country's major exporters reliant on foreign revenues. Consequently, the yen weakened further against the USD, reaching towards the upper end of the JPY 148 range from around JPY 147 the previous week. Concurrently, the yield on the 10-year Japanese government bond rose to 0.79%, marking its highest level in approximately three months, reflecting market anticipation of potential adjustments in BoJ's monetary policy.

Economic Recovery and Revised GDP Figures

Moreover, revised data revealed that Japan narrowly avoided recession in the last quarter. BoJ Governor Kazuo Ueda maintained a cautiously optimistic stance on the country's economic recovery, acknowledging weaknesses in certain economic indicators. However, recent GDP figures showed a 0.1% expansion in the fourth quarter of 2023, contradicting earlier estimates of a 0.1% contraction. On an annualised basis, this translated to a 0.4% growth compared to the previously reported 0.4% decline.

China

Market Uptick and Government Interventions

In contrast, Chinese stock markets saw an uptick amidst recent government interventions aimed at stabilizing the market, thereby bolstering investor confidence despite lingering concerns over the economic outlook. Notably, the Shanghai Composite Index rose by 0.28%, while the blue-chip CSI 300 gained 0.71%, with the Hang Seng Index in Hong Kong surging by 2.25%, according to FactSet.

Inflation and Monetary Policy Actions

In February, China's consumer price index registered a higher-than-expected increase of 0.7% compared to the previous year, reversing January's 0.8% decline. This positive reading, attributed to rising food and services prices during the Lunar New Year holiday, marked the first uptick since August 2023. However, the producer price index recorded a larger-than-anticipated decline of 2.7% year-on-year, extending the 17th consecutive monthly drop, primarily due to weak domestic demand.

Government Spending Initiatives and Property Market Challenges

Additionally, the People's Bank of China maintained its medium-term lending facility rate at 2.5% and injected RMB 387 billion into the banking system, aligning with market expectations. However, with RMB 481 billion in loans set to mature this month, the operation resulted in a net withdrawal of RMB 94 billion from the banking system, the first such extraction since November 2022.

Furthermore, the State Council unveiled plans to increase spending by at least 25% from last year until 2027, aimed at stimulating consumer and business activities across various sectors including industry, agriculture, transport, education, and healthcare. This initiative is pivotal for China to achieve its 2023 economic growth target of 5%, declared during the National People's Congress earlier in March.

Despite these measures, China's property market continued to decline, with new home prices falling by 0.3% in February for the eighth consecutive month. Moody's recent downgrade of China Vanke, one of the country's largest developers, further exacerbated concerns within the property sector, indicating ongoing challenges despite government efforts to boost demand.