Asia - Inflation picks up in Japan

As expected, the Bank of Japan kept its monetary policy unchanged in September, maintaining its short-term interest rate target at minus 0.1% and an annual target of around 80 trillion yen for government bond purchases. Another increase in consumption tax is expected in October 2019, and Japanese interest rates are likely to remain unchanged until the impact of this increase has been evaluated. 

  • Japan’s exports picked up in August
  • Australia’s economy grew by 3.4% YoY in Q2
  • S&P upgraded its outlook for Australia from “negative” to “stable”

As expected, the Bank of Japan (BoJ) kept its monetary policy unchanged in September, maintaining its short-term interest rate target at minus 0.1% and an annual target of around 80 trillion yen for government bond purchases. Another increase in consumption tax – from 8% to 10% – is expected to take place in October 2019, and Japanese interest rates are likely to remain unchanged until the impact of this increase has been evaluated. 

The BoJ also highlighted risks to Japan’s economic outlook, including US macroeconomic policy and the consequences of rising protectionism. The value of Japan’s exports rose at an annualised rate of 6.6% during August, having risen by 3.9% in July. Meanwhile, imports rose by 15.3%, compared with July’s increase of 14.7%.

Share prices in larger Japanese companies rose more strongly during September than their medium-sized counterparts. Over the month as a whole, the benchmark Nikkei 225 Index rose by 5.5%, while the broader-based Topix Index climbed by 4.7%. In comparison, the TSE Second Section Index rose by a more muted 1.3%.

Core consumer prices in Japan rose at an annual rate of 0.9% during August, representing their strongest gain since March. The BoJ’s inflation target remains at 2%. BoJ Governor Haruhiko Kuroda aims to maintain the central bank’s programme of monetary easing measures until inflation reaches its target. He also expressed concern that trade wars might hit supply chains and undermine global economic growth. 

Having expanded by 3.1% during the first quarter, Australia’s economy grew at an annualised rate of 3.4% during the second quarter of 2018. According to the country’s Treasurer, Josh Frydenberg, this represented the strongest growth since the peak of the mining boom. Growth was boosted by robust household consumption; the household savings ratio dropped to 1% of disposable income to reach its lowest rate since December 2007. The ASX All Ordinaries Index declined by 1.6% over the month. 

Credit ratings agency Standard & Poor’s (S&P) upgraded its credit outlook for Australia from “negative” to “stable” during September and maintained its “AAA” status. S&P cited the government’s fiscal prudence, a return to surplus by the early 2020s, a strong labour market, the orderly unwinding of property prices, and a resilient banking system. However, S&P also called on the country’s government to strengthen its fiscal buffer in case of a crash in house prices.