The Bank of Japan defied expectations and its economic assessment to leave policy unchanged. The inaction spurred a 3% rally in the yen and an even larger slump in stocks. The financial sector took its the hardest and dropped almost 6%. The yen’s surge helped underpin other Asian currencies, especially the South Korean won, which gained nearly 1%.
The FOMC delivered a statement largely as expected. It upgraded its assessment of the global economy by dropping the reference to risks. It downgraded its assessment of the domestic economy by acknowledging that growth has slowed.
ASEAN is on the lookout for ways to accelerate trade facilitation and eliminate trade barriers by 2025 under its new 10-year ASEAN Economic Community (AEC) roadmap. Extensive research has demonstrated the vital role of global value chains (GVCs) in enhancing economic integration and liberalising trade.
According to World Bank and OECD research, GVC-driven policies have been shown to drive productivity growth, create jobs and improve living standards. So what exactly are GVCs and are they the solution that ASEAN is looking for?
Under Kuroda’s leadership, the BOJ has surprised the market a number of times, most recently with the move to negative rates at the end of January.
In the past six years, Washington and Manila have been cementing a military alliance, which is reassuring to many Filipinos but leaves some apprehensive – including the leading presidential contenders.
The foreign exchange market is largely quiet as the market awaits fresh trading incentives and the FOMC statement later in the North American session. The main exception to the consolidative tone is the Australian dollar, which is posting its largest loss (~1.7%) in a couple of months.
After years of talks, negotiators concluded an agreement on the US-led Trans-Pacific Partnership (TPP) in October 2015. Since China is excluded from the TPP, one would expect antagonism rather than symbiosis between the Washington-advocated trade package and Beijing’s One Belt, One Road (OBOR) strategy. However, closer scrutiny suggests that the TPP and OBOR may be converging by design and destiny.
China is experiencing the most sustained domestic political crackdown since Tiananmen Square. Much attention has been devoted to the increasing state repression being directed at lawyers, journalists and civil society activists. However, there is a separate and more fundamental concern.
The authoritarian rules of the game that have held sway since the beginning of the modern reform era are steadily breaking down. For all of the problems associated with China’s existing system of authoritarianism, worse consequences will emerge as these rules give way.
The gains the US dollar registered in the second half are being pared, but it is sterling’s strength that stands out. It is difficult to attribute it to Obama’s push against Brexit, but there does appear to have been a change in sentiment.
We expect the FOMC statement this week to recognize the improvement in the global conditions that have been an increasing worry for officials over Q1. At the same, time the soft patch of the US economy is undeniable.
We suspect the Fed will look past the weakness of the US economy. The strength of the labor market, with weekly initial jobless claims at their lowest level since 1973 and continuing claims at their lowest level since 2000, it is difficult to get too negative the US economy.
