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Trade fears dampen confidence

July 2018

Concerns over the impact of trade wars is starting to affect confidence amongst Japanese companies, according to the Bank of Japan’s quarterly Tankan survey of business sentiment. Optimism amongst large manufacturers posted a larger-than-expected decline during the second quarter. 

  • Japan’s retail sales rose for an eighth consecutive month
  • Japan’s core inflation remained stubbornly low at 0.2%
  • Australia’s central bank warned against high levels of household debt

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Concerns over the impact of trade wars is starting to affect confidence amongst Japanese companies, according to the Bank of Japan’s (BoJ’s) quarterly Tankan survey of business sentiment. Optimism amongst large manufacturers posted a larger-than-expected decline during the second quarter. 

“Japan’s trade surplus with the US widened to over 590 billion yen”

Exports to the US fell at an annualised rate of 0.9%, led by a decline in shipments of cars and semiconductor equipment. Overall export activity rose by 6.7% year on year during June, while imports climbed by 2.6%. However, Japan’s trade surplus with the US widened to over 590 billion yen as imports from the US fell by 2.1%, raising concerns that President Donald Trump’s protectionist policies might focus next on Japan. 

Over July as a whole, the Nikkei 225 Index rose by 1.1% while the Topix Index climbed by 1.3% and the TSE Second Section Index edged 0.2% higher. In a sign that optimism amongst consumers is improving, retail sales increased for an eighth consecutive month during June, rising at an annualised rate of 1.8%. Nevertheless, despite ongoing tightness in Japans labour market – which should help to push up wages – Japan’s core rate of inflation remains stubbornly low at 0.2%.

The Bank of Japan (BoJ) remains optimistic towards the outlook for all nine regions of the country. The BoJ found that every area is either expanding or recovering, underpinned by strengthening private consumption and healthy demand from overseas. Looking ahead, the central bank intends to stick with its ultra-loose monetary policy stance and, although the BoJ made some slight adjustments to its monetary policy in July, including the introduction of forward guidance for policy rates, officials are unlikely to change their strategy until inflation reaches its official target of 2%.

As Australia’s key interest rate remained unchanged at 1.5% for yet another month, the Reserve Bank of Australia (RBA) issued a warning over the high level of household debt that has been stoked by low borrowing rates and financial deregulation. The RBA believes high levels of indebtedness have increased households’ vulnerability to “economic shocks”. Central bank officials also warned that further escalation in trade tensions “could harm global growth by undermining confidence and delaying investment decisions and could dampen international trade”. The ASX All Ordinaries Index rose by 1.2% during July, and leading Australian media companies Nine Entertainment and Fairfax announced an agreed merger.


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