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Japanese markets surge over 2017

December 2018

Confidence amongst Japanese businesses has continued to improve, according to the Bank of Japan’s quarterly Tankan survey of business sentiment. Credit ratings agency Moody’s reaffirmed Japan’s “A1” rating and “stable” outlook. Elsewhere, optimism amongst officials at Australia’s central bank appears to be rising, boosted by signs of employment growth.   

  • Japanese mid-caps performed particularly well in 2017
  • Japan’s inflationary backdrop remained subdued
  • Policymakers at Australia’s central bank remained concerned about high levels of household debt

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“December’s Tankan showed that sentiment amongst companies has been boosted by robust export activity”

Confidence amongst Japanese businesses has continued to improve, according to the Bank of Japan’s quarterly Tankan survey of business sentiment. December’s Tankan showed that sentiment amongst companies has been boosted by robust export activity. Domestic demand is also providing strong support for growth and providing welcome validation for Prime Minister Shinzo Abe’s “Abenomics” economic reforms.

Although the benchmark Nikkei 225 Index rose by only 0.2% during December, it soared by 19.1% over 2019 as a whole. Meanwhile, the broader-based Topix Index  rose at a monthly rate of 1.4% and an annual rate of 19.7%. In comparison, the TSE Second Section Index  – which represents medium-sized Japanese companies – performed very strongly, climbing by 7.1% over the month and by 39.1% over the year.

Japan’s consumer price inflation rose at an annualised rate of 0.6% in November. However, once the impact of energy and fresh food was stripped out, consumer prices rose by only 0.3% year on year.

Credit ratings agency Moody’s reaffirmed Japan’s “A1” rating and maintained its “stable” outlook for the country. Moody’s cited Japan’s “improved prospects of a broadly stable debt burden” and greater debt affordability, underpinned by strengthening GDP growth and an increasingly competitive economy. Nevertheless, Moody’s acknowledged that Japan’s debt burden remains “extraordinarily high” and therefore very dependent upon the ongoing availability of large domestic savings flows against a deteriorating backdrop of demographic decline.

Australia’s economy expanded at a quarterly rate of 0.6% and an annualised rate of 2.8% during the third quarter of 2017, boosted by strong growth in business investment. Optimism amongst officials at Australia’s central bank appears to be rising, according to minutes from the Reserve Bank of Australia’s (RBA’s) December monetary policy meeting. The RBA expects growth in employment to be “somewhat above average over the next few quarters”; combined with signs of stronger economic growth, this could provide support for an improving inflationary backdrop and much-needed growth in average earnings.

Evidence of improving confidence amongst policymakers stoked speculation that the RBA might consider an increase in its key interest rate for the first time since 2010. The cash rate has remained at 1.5% since August 2016. Nevertheless, the central bank remains concerned about the high level of household debt, which undermines the outlook for consumption. The ASX All Ordinaries Index rose by 1.8% during December, and by 7.8% over 2017.


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