Asia report: China holds interest rates, Japan export growth slows

Stock markets closed in a mixed state in Asia on Wednesday, as China’s central bank stood pat on its main interest rates.

In Japan, the Nikkei 225 was up 0.86% at 27,217.85, as the yen strengthened 0.75% against the dollar to last trade at JPY 127.94.

It was a positive day for the benchmark’s major components, with automation specialist Fanuc up 0.74%, fashion firm Fast Retailing rising 2.5%, and technology conglomerate SoftBank Group 1.44% firmer.

The broader Topix index was ahead 1.03% by the end of trading in Tokyo, closing at 1,915.15.

Japan’s central bank announced fresh measures in a bid to underpin the weakening yen during the day, with the Bank of Japan saying it was prepared to buy an unlimited number of 10-year government bonds at 0.25%.

The currency had slid significantly against the dollar in recent weeks as markets expected Japanese policymakers to bring monetary policy back to normal at a slower pace than some of their Western counterparts.

In fresh data out of Tokyo, meanwhile, exports from Japan grew 14.7% year-on-year in March, slowing from 19.1% in February.

That was below what the market was anticipating, with consensus expectations being for an improvement of 17.1%.

“China’s problems are increasingly spilling over to its neighbours, and drove the deceleration in Japanese exports in March,” said Craig Botham at Pantheon Macroeconomics.

He noted exports to China - which account for more than 20% of the total - grew just 2.9% year-on-year in March, from 25.8% in February, and those to Korea and Taiwan - around 14% of total exports between them - also slowed, as regional supply chains “snarled up” again.

Exports to the European Union, meanwhile, recovered after a February dip, growing 16.8%, and those to the United States accelerated for the third month in a row, rising 23.8%, from 16% in February.

“We suspect that China’s lockdowns have freed up container ships to shift freight from Japan to the West,” Botham said.

“We need to account for the distorting impact of the Lunar New Year holiday, particularly for trade with China and Korea, to get a complete picture, but it’s still not a pretty one.”

Pantheon estimated that exports slowed less on that basis, but were already underperforming headlines, at 13.1% year-on-year in March from 14.5% in February - the fourth consecutive month of declines.

“A faint sliver of light can be found in the seasonally-adjusted month-on-month growth rate, up to 5% in March from -1.6% in February, but it is too soon to get excited by this noisy series,” Craig Botham added.

“A further slowdown is likely next month, given China’s battle with Covid has intensified, and regional shipping traffic is becoming more congested.

“Supply issues will probably disrupt Japan’s trade with other countries before too long.”

On the mainland, the Shanghai Composite was down 1.35% at 3,151.05, and the smaller, technology-heavy Shenzhen Composite lost 1.71% to 1,985.65.

The People’s Bank of China went against expectations and kept its main lending rates on hold during the session.

Its one-year loan prime rate was left at 3.7%, and the five-year rate was held steady at 3.7%, after most analysts in a snap Reuters poll said they expected a rate cut.

“The loan prime rate is calculated from the rates offered by a panel of 18 banks for their most creditworthy customers,” Pantheon’s Craig Botham explained.

“It appears, therefore, that banks are not slashing the cost of loans, overall, despite pressure from the PBoC and a recent flurry of announcements of lower mortgage rates.”

Botham said the PBoC itself recently injected more liquidity through a small ratio reserve requirement (RRR) cut, but refrained from cutting interest rates, talking instead of the need to improve monetary transmission.

“Today’s LPR numbers suggest more needs to be done, in this regard.

“Expect more PBoC browbeating, and a growing focus on special re-lending facilities, to bypass obstinate banks.”

South Korea’s Kospi was off 0.007%, or just 0.2 points, at 2,718.69, while the Hang Seng Index in Hong Kong was 0.4% lower at 20,944.67.

The blue-chip technology stocks in Seoul were mixed, with Samsung Electronics up 0.15%, while SK Hynix finished flat.

Oil prices were higher at the end of the Asian day, with Brent crude futures last up 0.59% on ICE at $107.88 per barrel, and the West Texas Intermediate quote on NYMEX 0.76% firmer at $103.34.

In Australia, the S&P/ASX 200 eked out gains of 0.05% to 7,569.20, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 1.1% firmer at 11,966.19.

The down under dollars were both 0.77% stronger on the greenback, with the Aussie last trading at AUD 1.3453, and the Kiwi changing hands at NZD 1.4736.