Asian Japan markets review: Japan faces economic headwinds in 2019

December 2018

Japan’s economy contracted at an annualised rate of 2.5% during the third quarter of 2018, compared with an earlier calculation of -1.2%. Activity was curtailed during the year by a series of natural disasters. Looking ahead, Japan’s economy faces headwinds including the possibility of a no-deal Brexit, rising US interest rates, trade tensions between the US and China, and signs of a slowdown in China. 

  • Japanese indices posted double-digit losses in December
  • Japan’s export growth slowed down
  • Australia’s economic growth lost momentum in Q3

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Japan’s economy contracted at an annualised rate of 2.5% during the third quarter of 2018, compared with an earlier calculation of -1.2%. Activity was curtailed during the year by a series of natural disasters. Looking ahead, Japan’s economy faces headwinds including the possibility of a no-deal Brexit, rising US interest rates, trade tensions between the US and China, and signs of a slowdown in China. A long-awaited increase in consumption tax will be implemented in October 2019 and, on balance, central bank policymakers are likely to wait until this has taken effect before deciding to tighten monetary policy.

“A long-awaited increase in consumption tax will be implemented in October 2019”

The Nikkei 225 Index fell by 10.5% during December and by 12.1% over 2018, while the Topix Index fell by 10.4% over the month and by 17.8% over the year. Meanwhile, the TSE Second Section Index fell by 12.3% over December and by 14.3% over 2018.

Export growth in Japan decelerated during November, easing from 8.2% year on year in October to only 0.1%. Imports rose by 12.5% year on year, raising Japan’s trade deficit to 737.3 billion yen. Concerns are mounting over the prospects for Japanese exports against a backdrop of slowing global economic growth and a rising climate of protectionism. Exports to the US rose at an annualised rate of 1.6% in November, compared with October’s rate of 11.6%. 

Australia’s economic growth lost momentum during the third quarter of 2018, expanding at an annualised rate of 2.8%. Growth was adversely affected by a slowdown in household consumption and a lower build-up of business inventories. The data came in sharp contrast to a statement from the Reserve Bank of Australia (RBA), which expects the country’s economy to post average annual expansion of 3.5% in 2018 and 2019. The ASX All Ordinaries Index fell by 0.7% during December and by 7.4% over 2018

South Korea posted quarter-on-quarter economic growth of 0.6% during the three months to September, which was unchanged from the second quarter. On an annualised basis, the economy expanded by 2%, which was lower than the second-quarter growth of 2.8%. South Korea’s economy relies heavily on exports, and there are concerns that trade tensions between the US and China could undermine activity, despite a recent break in hostilities between the two countries. The Kospi Index fell by 2.7% in December and by 17.3% over 2018.


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