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Asian markets weakened in February

February 2018

Like many other major equity markets around the world, stock indices in Asia fell sharply during February amid speculation that US monetary policy might begin to tighten more quickly than expected. Over February as a whole, the Nikkei 225 Index fell by 4.5%, while the Topix Index fell by 3.7%. Medium-sized Japanese companies performed slightly better in comparison, and the TSE Second Section Index declined by 1.9% over the month. 

  • The Bank of Korea left its key interest rate unchanged
  • Japan’s rate of consumer price inflation remained below target
  • Australia’s central bank upgraded its economic growth forecast

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Like many other major equity markets around the world, stock indices in Asia fell sharply during February amid speculation that US monetary policy might begin to tighten more quickly than expected. Over February as a whole, the Nikkei 225 Index fell by 4.5%, while the Topix Index fell by 3.7%. Medium-sized Japanese companies performed slightly better in comparison, and the TSE Second Section Index declined by 1.9% over the month. 


“Japan’s economic expansion lost momentum over the fourth quarter of 2017”


Despite posting eight consecutive quarters of positive growth, Japan’s economic expansion lost momentum over the fourth quarter of 2017. Having grown at an annualised rate of 2.2% in the third quarter, the country’s economy expanded by only 0.5% year on year during the fourth quarter. 

Japan’s annualised rate of consumer price inflation – excluding fresh food – rose by 0.9% during January; however, this figure was driven up by strong increases in energy costs. In contrast, the Bank of Japan (BoJ) has a “price stability target” of 2%. BoJ Governor Haruhiko Kuroda’s first term in office comes to an end in April and, as he enters his second term, Japan’s inflationary backdrop remains relatively lacklustre.

South Korea’s central bank left its key interest rate unchanged during the month at 1.5%. The Bank of Korea (BoK) warned of downside risks to South Korean’s economy, including intensifying US protectionist trade policies and tightening monetary policy in major countries. Looking ahead, the BoK believes the country’s economic growth will continue, underpinned by strengthening export activity and investment, although growth in employment remains somewhat anaemic. The Kospi Index fell by 5.3% during February. 

The Reserve Bank of Australia (RBA) left its key interest rate unchanged at 1.5% at policymakers’ February meeting. Governor of the RBA Philip Lowe said, “The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”. The RBA upgraded its economic growth forecast to “a bit above 3% over the next couple of years. Wage growth remains weak and inflation below target, according to the International Monetary Fund (IMF), which recommended the continuation of an “accommodative” monetary policy stance until there is evidence that growth in domestic demand and inflation is becoming more robust. Over February as a whole, the ASX All Ordinaries Index fell by 0.5%.


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