Asia: ADB cuts Southeast forecast, reshuffle rumoured at PBOC

Tokyo traders left the Nikkei closing on a high overnight, while Chinese indices were mostly flat on reports of a potential new governor at the central bank.

Japan was buoyed by further weakness in the yen and it being the last day before a raft of stocks go ex-dividend.

Also, and with wider implications, a report from the Asian Development Bank said that while domestic demand for some of the major Southeast Asian countries has moderated, it felt the region was now much less susceptible to potential hikes in US interest rates.

The Manila-based bank’s chief economist Shang-Jin Wei said a rise in US rates would be “unlikely to create a major disturbance in Asia”.

“There’s less of a surprise element this time around. Markets are better prepared.”

ADB maintained its annual growth forecast for the region at 6.2% for 2014 and 6.4 for 2015, but it slightly trimmed its 2015 GDP growth forecast for the Southeast Asia sub-region from 5% to 4.6% in 2014, and from 5.4% to 5.3% for 2015.

It said this was due to political unrest in Thailand, weak commodity exports from Indonesia and a slowdown in government spending in the Philippines.

"Next year, better performance in the major industrial economies and Thailand's recovery from its slump will spur Southeast Asian growth," it said.

ADB said China was on track to meet its forecast of 7.5% in 2014 and 7.4% in 2015.

Deutsche Bank's Jim Reid pointed out: “China is still a key variable for many globally and in particular those who are directly connected via the commodity export trade.

“Iron ore prices had a flat day yesterday even though the commodity has fallen to lows not seen since 2009 as economic momentum in China continues to show limited impetus. Chinese authorities seem also adamant that no stimulus is on the cards in the near term which adds uncertainty to the outlook especially on commodity prices.”

Reshuffle at the PBOC?

After internal disagreements at the People's Bank of China over the best method to pep up the economy, Chinese leaders are discussing replacing the current bank governor Zhou Xiaochuan, the Wall Street Journal reported.

Zhou, who has led the PBOC since 2002 and recently led the bank's moves to liberalising interest rates and market reforms, told the paper he would not be stepping down soon.

Many traders took the implication to be a potentially even more aggressive loosening of monetary policy.

A wider personnel reshuffle is expected to be finalised at a major party meeting in October, although it is rumoured that no final decision about Zhou has been made.