The US Federal Reserve and other monetary giants are used to having their way with traders. They drop hints of what markets should do and punters react dutifully.
Now the traders are running the asylum and, arguably, ruining it. Not financiers, mind you, but rather huge nations running roughshod over global commerce. Yes, Donald Trump, we’re talking to you.
The US leader’s escalating trade war is boomeranging back on Fed Chairman Jerome Powell. The minutes of the Fed’s latest policy meeting raised “concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity.”
Powell’s team also found indications that “plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” What’s more, US policymakers highlighted worries across industries “about the effect of potentially higher tariffs on their exports.”
Extraordinary and illuminating stuff. At the very least, Trump’s assault on trade will limit Fed rate hikes in the months ahead. Might a similar recalculation preoccupy Asia in the second half of 2018? Absolutely.
Tokyo is awash in breathless speculation about stealth tightening by the Bank of Japan (BOJ). Well, “tapering” at least. By the end of June, the media unearthed at last three examples in a 30-day period where the BOJ cut bond purchases.
That’s now an extraordinarily difficult balancing act for BOJ Governor Haruhiko Kuroda to pull off. Gross domestic product (GDP) growth cratered between January and March, Japan’s first contraction in nine quarters.
Making that 0.6% drop all the more credible was a sizable downward revision to fourth quarter output. That effectively made the October to March period a wash from a growth perspective.
The BOJ’s latest “tankan” survey of confidence among big manufacturers left little doubt Trump is slamming the world’s third-biggest economy.
The deterioration in confidence over the last three months –- down to 21 from 24 in March -– has grave implications not just for capital investment but wages. This, after all, was supposed to be the year in which Japan Inc finally gave the long-suffering salaryman a raise.
That virtuous cycle is running into a Trump White House willing to hurt its biggest allies -– Japanese Prime Minister Shinzo Abe, included –- to cheer his voting base. Trump’s efforts to destabilize China also has Japan Inc reeling and the BOJ at a crossroads.
Bank of Korea (BOK) Governor Lee Ju-yeol is having his own troubles navigating Trump’s trade war. In November, Lee lifted the spirits of Asian peers when he became the region’s first major central banker to tighten since 2011. Since then, the external sector has turned on Korea Inc with a ferocity few saw coming.
At the very least, the addition BOK rate hikes traders had been pricing in are off the table. As the Korea Times reports, think tanks are racing to downgrade growth forecasts. Initially pegged at 3% for 2018, expectations are changing fast for consumption and employment prospects.
China’s newish central banker, Yi Gang, is also left with stabilizing a giant, imbalanced economy Trump is determined to shake. Like some hedge fund genius, Yi’s People’s Bank of China (PBOC) predecessor Zhou Xiaochuan retired at the very top tick of the mainland’s economic rise.
Yi now faces an unenviable choice: add more liquidity to a bubble-plagued economy or let market forces guide Chinese asset prices? The odds overwhelmingly favor the first option. Yet the plot thickens when you consider the yuan’s growing weakness, down more than 2% versus the dollar this year.
Its drop, one can argue, is a rational response to Trump’s trade shenanigans and plunging Shanghai stocks. Yet concerns about defaults on dollar-denominated debt are sure to limit how low the PBOC lets the yuan go.
Other Asian policymakers have been plenty busy of late. Bank Indonesia, for example, has raised its benchmark rate by 100 basis points in two months. Trump’s trade war has current account deficit-running nations like Indonesia on the run.
That includes India, where the central bank boosted short-term rates in June for the first time in more than four years.
Yet no Asian central banker will come out of Trump’s trade war unscathed. With nimble, creative and forward-looking moves, monetary authorities can indeed regain some control over markets.
In the short run, all traders who thought they knew about interest rates for the rest of 2018 is getting trumped as we speak.
Joe Wong well said,sir…evil ..useless state of a…..sad stupid and pathetic exceptionalism,ya..tq have a nice day sir
Karen Egan Stone, USA is 10,000 miles away on the other side of the Pacific. USA is not an Asian nation, and American is an alien to Asian, American became rich and powerful through imperialism, colonialism, selling opium, religious indoctrination of the conquered, ethnic cleansing, genocide, slavery, racial discrimination, regime change, weapons trade, shock and awe, skillful propaganda, etc.
For over seventy years the US has dominated Asia, ravaging the continent with two major wars in Korea and Indo-China with millions of casualties, and multiple counter-insurgency interventions in Indonesia, Thailand, Malaysia, the Philippines, Timor, Myanmar, Pakistan and Afghanistan. The strategic goal has been to expand its military and political power, exploit the economies and resources and encircle China.
American is a toxin and a plague to Asian, They have done enough damage to Asian already, they are not wanted, not invited and not loved in Asia, go home Yankee.
But Greece, UK, Germany, Japan, South Korea, and other American allies’ economies are tied to the US moves even deeper, are you saying all those economies are fake?
If Japanese economy is fake, then what is that 100 billion dollar trade with Iran you are talking about? Is it fake or real? You should know "fake" means "does not exist", fabrication, created thru the thin air, lie, blowing smoke, virtual, … Could you rephrase your comment to make it more logical?
Trump should know "BANKS DONOT HAVE THEIR OWN MONEY.IT IS ALL DEPOSTORS MONEY.
RUN ON BANK.AND BANK DISAPPEARS.
The problem is all asian countries put their SURPLUS in US ECONOMY. They never developed their neighborhood economies.Japan is the biggest culprit.it is a slavish country which thought Asia backward and not worthy of its money.
China is trying half heartedly with belt and road.Arab are born idiots .they love mobsters.Anybody who can show them stick they walk along like lambs.these self inflicted wounds.if they can learn they have to use their money to create bigger PIE. THEN THERE HOPE FOR THE FUTURE.
CHICKENS ARE ALWAYS AFRAID TO CROSS THE ROAD.
THEY WANT TO WALK THE TREADED PATH.
A
I expect these nations really liked having the advantage against America, our former presidents bought into the bs that these ‘developing’ nations like China and Japan needed an advantage because the big bad USA was to rich, its about time the US looks out for the US, and when we do that the rest of the world is blessed too. The Asian markets are just gonna have to suck it up, its not America’s responsiblity to make sure other nations economies are more robust than ours…give me a break
The Asian economies are fake as they are tied to US moves. For example, Japan can have a 100 Billion dollar trade with Iran but unfortunately they tiptoe US and hurting their own economy. They have lost out on trillions of deals. Its all self inflected as they are not independent countries.