The yen weakened as Japanese equities rose on the Tokyo Nikkei 225, which gained 0.7 per cent as weaker than anticipated exports data underscored the case for more fiscal or monetary stimulus. Australia’s S&P/ASX 200 fell 0.7 per cent, as hopes for monetary easing next month dwindled.
In Tokyo, new data showed that Japan recorded a sixth straight monthly traded deficit as exports rose just 0.6 per cent from a year ago in September versus expectations of a 3.8 per cent jump. Imports retreated 11.1 per cent. That resulted in a monthly trade deficit of Y114.5bn, against expectations of a Y87bn surplus, partly because exports to China pulled back 3.5 per cent.
The weak report heightens the risk that Japan, whose economy contracted by an annualized 1.2 percent in the second quarter, has fallen into its fourth recession since the 2008 financial crisis and its second since Shinzo Abe took power in late 2012.
“We estimate that export volumes were broadly flat last quarter while import volumes jumped by around 2 per cent quarter-on-quarter. Accordingly, net trade may have lowered third-quarter GDP by as much as 0.3 percentage points,” said Marcel Thieliant at Capital Economics.
Analysts widely expect the Bank of Japan to deliver more stimulus when it meets on October 30. Governor Haruhiko Kuroda has been pretty adamant that stimulus is not needed, but poor data have added to evidence the economy is not growing and prices are hardly rising. To maintain its credibility the BoJ might have no choice but to ease, some analysts say.
“Regardless of whether or not the BoJ eases further this month, we believe neither the domestic nor overseas economic outlook is strong enough for it to begin the normalisation process prior to the next consumption tax hike” in April 2017, said strategists at Barclays this week.
In Australia, equities have been lacklustre this week after minutes from the Reserve Bank of Australia’s latest meeting painted an upbeat picture of the economy, dimming hopes for a third rate cut this year. The swaps market is now pricing in just a 50-50 chance of a rate cut in November, down from a 69 per cent chance on Monday.
Currency markets reinforced the diverging expectations for monetary stimulus. The Japanese yen was down for a fifth straight session, losing 0.1 per cent to 119.9 per US dollar, while the Australian dollar added 0.2 per cent, a second straight gain, to US$0.7271.
In China, equities were quietly drifting upwards in the absence of any real developments. The Shanghai and Shenzhen Composite indices were up 0.1 per cent and 0.2 per cent respectively, pushing October gains to 12.3 per cent and 17.2 per cent.
Chinese stocks have been back in fashion this month as investors bet that Beijing will take action to revive an economy now growing at its slowest pace since early 2009. Some investors are using leverage to amplify gains: margin lending, in which brokerages lend money to investors to play the markets, has risen for nine consecutive sessions on the Shanghai Exchange.
Hong Kong markets were closed for a public holiday. In South Korea, the Kospi Composite added 0.3 per cent.
Brent crude oil erased a 0.2 per cent gain on Tuesday, falling by 0.4 per cent to $48.53 a barrel. The price of gold increased 0.2 per cent, a second gain, to $1,178.43 an ounce.
Overnight in New York, the S&P 500 and the US dollar index were both flat.
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