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South Korea inflation, China reopening

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Week ahead: PMIs in Asia-Pacific, trade data, inflation readings

Key economic events in the Asia-Pacific next week will be dominated by Purchasing Managers’ Index readings in the region.

China’s National Bureau of Statistics is scheduled to release the official manufacturing and non-manufacturing PMI prints on Saturday. Reuters expects China’s factory activity to show a contraction with a reading of 48.

South Korea is also slated to report its December trade data over the weekend, in which economists polled by Reuters predict will show a drop of 10.1% compared with a year ago.

Singapore is scheduled to release manufacturing PMI readings next week, while S&P Global is scheduled to release its PMI readings for South Korea, Indonesia and India on Monday.

Inflation prints for the Philippines and Indonesia will also be closely watched, with the releases scheduled for Tuesday and Monday, respectively.

Japan’s PMI reading and China’s private survey for services PMI will be released on Wednesday. Singapore will release November’s retail sales on Thursday as well as South Korea’s unemployment rate for December.

– Jihye Lee

Yamaguchi emerging as candidate for next Bank of Japan governor: Sankei

Former Bank of Japan deputy governor Hirohide Yamaguchi is emerging as a candidate to lead the central bank, Japanese local media Sankei reported, citing people familiar with the matter.

Yamaguchi, who held the deputy position at the central bank until 2013, has been a vocal critic of the current governor Haruhiko Kuroda’s ultra-dovish monetary policy.

The newspaper added that Yamaguchi would indicate a shift away from former Japanese Prime Minister Shinzo Abe’s economic stimulus strategy also known as “Abenomics.”

Sankei reported Yamaguchi is garnering attention as current Prime Minister Fumio Kishida moves away from the stimulus-oriented monetary stance, and that the appointment for the next central bank head would become clear next month.

– Jihye Lee

Foreign talent to be less inclined to come to Singapore after Hong Kong’s reopening, says UOB

With Hong Kong’s reopening, foreign nationals may be less inclined to move to Singapore, said Alvin Liew, senior economist at United Overseas Bank.

“Singapore has benefited in terms of the talent pool that came here due to the more stringent rules in Hong Kong itself,” Liew said, adding that the influx of workforce moving to Singapore “may see some easing” now that the city has reopened.

“Talent pool itself may be less inclined to move here,” the Singapore-based economist said.

Liew also added Hong Kong’s reopening is a step in the right direction for the region to “return back to business as usual,” Liew said.

China’s markets to see a “tactical” recovery next year, says analyst

Chinese markets will likely see a “tactical bounce” of a recovery in the coming year, Port Shelter Investment Management said.

“It’s only obvious to say that we’re likely to see a tactical bounce,” Richard Harris, chief executive of the firm told CNBC.

“It will be tactical, because China, at the end of the day, has to fit in with the rest of the world,” he said.

Harris expects China’s recovery to take place in the first quarter of the year, and carry on the sentiments into the second quarter as well.

This recovery also hinges on many currently unknown elements, such as whether heavy stimulation will be injected into the Chinese economy, and what will be done about inflation when the economy picks up, he added.

—Lee Ying Shan

New China tech ETF can ‘bring retail liquidity’ to Singapore market: Investment firm

The Singapore-listed CSI Star and ChiNext 50 Index Exchange Traded Fund can bring liquidity from mainland China to Singapore, Ding Chen, CEO of CSOP Asset Management, told CNBC’s “Squawk Box Asia.”

The firm’s ETF was listed on the Singapore Exchange on Friday and is a sub-fund of the CSOP SG ETF Series I, a Singapore unit trust, according to the fund’s page.

“Through SGX, Singapore investors and global investors can also get access to China-listed ETFs,” said Ding, adding that China investors can also directly invest in Singapore ETFs.

When asked about the evolution of the firm’s ETF portfolio, Ding said that it will “bring more emerging, younger generation of tech companies” on the market.

– Sheila Chiang

South Korea’s inflation unchanged in December

South Korea’s December consumer price index rose 5% on an annualized basis, statistics from the Bank of Korea showed.

The reading maintained cooler levels for the month and remained unchanged from November.

The print is in line with economists’ expectations polled by Reuters.

– Jihye Lee

Stocks close higher Thursday

All of the major averages ended higher on Thursday.

The Dow Jones Industrial Average rose 345.09 points, or 1.05%. The S&P 500 gained 1.75% and the Nasdaq Composite climbed 2.59% to 10,478.09.

— Tanaya Macheel

CNBC Pro: Chip stocks did badly this year — but this fund manager is still bullish, naming 2 to buy

Jobless filings rose last week; continuing claims hit highest since February

Jobless claims increased last week amid Federal Reserve efforts to cool the economy and in particular the labor market.

First-time filings for unemployment benefits totaled 225,000 for the week ended Dec. 24, the Labor Department reported Thursday. That was an increase of 9,000 from the previous week and slightly above the 223,000 estimate from Dow Jones.

Longer-term, continuing claims, which run a week behind the headline number, jumped to 1.71 million, an increase of 41,000 to the highest level since early February.

The numbers this time of year are always noisy due to the holidays. Claims not adjusted for seasonal factors surged by 23,146, a 9.3% increase.

—Jeff Cox

CNBC Pro: Citi names its top biotech stock picks for 2023 — and gives one 73% upside

Biotech is set to remain a “stock-pickers market” in 2023, according to Citi.

The bank explains how biotech could perform based on various economic scenarios, and names three top picks for 2023.

CNBC Pro subscribers can read more here.

— Weizhen Tan

Read original article here

Business

South Korea inflation, China reopening

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Week ahead: PMIs in Asia-Pacific, trade data, inflation readings

Key economic events in the Asia-Pacific next week will be dominated by Purchasing Managers’ Index readings in the region.

China’s National Bureau of Statistics is scheduled to release the official manufacturing and non-manufacturing PMI prints on Saturday. Reuters expects China’s factory activity to show a contraction with a reading of 48.

South Korea is also slated to report its December trade data over the weekend, in which economists polled by Reuters predict will show a drop of 10.1% compared with a year ago.

Singapore is scheduled to release manufacturing PMI readings next week, while S&P Global is scheduled to release its PMI readings for South Korea, Indonesia and India on Monday.

Inflation prints for the Philippines and Indonesia will also be closely watched, with the releases scheduled for Tuesday and Monday, respectively.

Japan’s PMI reading and China’s private survey for services PMI will be released on Wednesday. Singapore will release November’s retail sales on Thursday as well as South Korea’s unemployment rate for December.

– Jihye Lee

Yamaguchi emerging as candidate for next Bank of Japan governor: Sankei

Former Bank of Japan deputy governor Hirohide Yamaguchi is emerging as a candidate to lead the central bank, Japanese local media Sankei reported, citing people familiar with the matter.

Yamaguchi, who held the deputy position at the central bank until 2013, has been a vocal critic of the current governor Haruhiko Kuroda’s ultra-dovish monetary policy.

The newspaper added that Yamaguchi would indicate a shift away from former Japanese Prime Minister Shinzo Abe’s economic stimulus strategy also known as “Abenomics.”

Sankei reported Yamaguchi is garnering attention as current Prime Minister Fumio Kishida moves away from the stimulus-oriented monetary stance, and that the appointment for the next central bank head would become clear next month.

– Jihye Lee

Foreign talent to be less inclined to come to Singapore after Hong Kong’s reopening, says UOB

With Hong Kong’s reopening, foreign nationals may be less inclined to move to Singapore, said Alvin Liew, senior economist at United Overseas Bank.

“Singapore has benefited in terms of the talent pool that came here due to the more stringent rules in Hong Kong itself,” Liew said, adding that the influx of workforce moving to Singapore “may see some easing” now that the city has reopened.

“Talent pool itself may be less inclined to move here,” the Singapore-based economist said.

Liew also added Hong Kong’s reopening is a step in the right direction for the region to “return back to business as usual,” Liew said.

China’s markets to see a “tactical” recovery next year, says analyst

Chinese markets will likely see a “tactical bounce” of a recovery in the coming year, Port Shelter Investment Management said.

“It’s only obvious to say that we’re likely to see a tactical bounce,” Richard Harris, chief executive of the firm told CNBC.

“It will be tactical, because China, at the end of the day, has to fit in with the rest of the world,” he said.

Harris expects China’s recovery to take place in the first quarter of the year, and carry on the sentiments into the second quarter as well.

This recovery also hinges on many currently unknown elements, such as whether heavy stimulation will be injected into the Chinese economy, and what will be done about inflation when the economy picks up, he added.

—Lee Ying Shan

New China tech ETF can ‘bring retail liquidity’ to Singapore market: Investment firm

The Singapore-listed CSI Star and ChiNext 50 Index Exchange Traded Fund can bring liquidity from mainland China to Singapore, Ding Chen, CEO of CSOP Asset Management, told CNBC’s “Squawk Box Asia.”

The firm’s ETF was listed on the Singapore Exchange on Friday and is a sub-fund of the CSOP SG ETF Series I, a Singapore unit trust, according to the fund’s page.

“Through SGX, Singapore investors and global investors can also get access to China-listed ETFs,” said Ding, adding that China investors can also directly invest in Singapore ETFs.

When asked about the evolution of the firm’s ETF portfolio, Ding said that it will “bring more emerging, younger generation of tech companies” on the market.

– Sheila Chiang

South Korea’s inflation unchanged in December

South Korea’s December consumer price index rose 5% on an annualized basis, statistics from the Bank of Korea showed.

The reading maintained cooler levels for the month and remained unchanged from November.

The print is in line with economists’ expectations polled by Reuters.

– Jihye Lee

Stocks close higher Thursday

All of the major averages ended higher on Thursday.

The Dow Jones Industrial Average rose 345.09 points, or 1.05%. The S&P 500 gained 1.75% and the Nasdaq Composite climbed 2.59% to 10,478.09.

— Tanaya Macheel

CNBC Pro: Chip stocks did badly this year — but this fund manager is still bullish, naming 2 to buy

Jobless filings rose last week; continuing claims hit highest since February

Jobless claims increased last week amid Federal Reserve efforts to cool the economy and in particular the labor market.

First-time filings for unemployment benefits totaled 225,000 for the week ended Dec. 24, the Labor Department reported Thursday. That was an increase of 9,000 from the previous week and slightly above the 223,000 estimate from Dow Jones.

Longer-term, continuing claims, which run a week behind the headline number, jumped to 1.71 million, an increase of 41,000 to the highest level since early February.

The numbers this time of year are always noisy due to the holidays. Claims not adjusted for seasonal factors surged by 23,146, a 9.3% increase.

—Jeff Cox

CNBC Pro: Citi names its top biotech stock picks for 2023 — and gives one 73% upside

Biotech is set to remain a “stock-pickers market” in 2023, according to Citi.

The bank explains how biotech could perform based on various economic scenarios, and names three top picks for 2023.

CNBC Pro subscribers can read more here.

— Weizhen Tan

Read original article here

Business

Asia-Pacific markets, Wall Street, industrial output, Hong Kong eases restrictions

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Bank of Japan announces unscheduled bond purchases

The Bank of Japan announced two rounds of unscheduled purchases of Japanese government bonds in attempt to contain upward pressure in yields, according to a notice.

The central bank offered to buy unlimited amounts of two- and five-year notes at a fixed rate – and another offer to buy 600 billion yen ($4.5 billion) of one-to-10 year bonds, it said.

This is in addition to its latest announcement to purchase JGBs every business day at a rate of 0.5% starting Dec. 20.

The 10-year JGB yield was last 0.22% lower to stand at 0.465%. Bond yields move inversely to prices.

The central bank last week widened its band of yield curve tolerance for 10-year JGBs to 0.5% of either side of its 0% target from the previous range of 0.25%.

—Lee Ying Shan

South Korea’s retail sales see third month of declines, industrial output recovers

South Korea’s November retail sales fell 1.8% on an annualized basis, declining further after seeing a 0.2% drop in October, government data showed.

Meanwhile, its industrial production inched up 0.4% for the month, slightly recovering after seeing four straight months of declines previously.

South Korea is expected to release its consumer price index on Friday, in which economists polled by Reuters are expecting to see further cooled inflation of 5%.

– Jihye Lee

Oil prices dip as China’s reopening optimism fizzles

Oil prices dipped marginally as China continues to see a rising number of Covid cases as well as a strain in medical resources fizzle optimism in the nation’s reopening and fuel demand outlook.

Brent crude futures shed 0.46% to stand at $82.88 per barrel. Similarly, the U.S. West Texas Intermediate dropped 0.49% to $78.58 per barrel.

“Even the China re-opening narrative may be hobbled by record Covid breakout in China,” Mizuho Bank’s Vishnu Varathan wrote in a note, adding that its reopening should also not be mistaken for an “enduring immunity” from global recession risks.

—Lee Ying Shan

Apple’s Asia suppliers fall after shares from the tech giant record fresh low

Italy makes Covid tests mandatory for travelers from China: Reuters

Italy will require all inbound travelers from China to undergo Covid tests, Reuters reports its health minister as saying, after authorities in Milan reported that almost 50% of passengers on two flights from China tested positive.

It has not been specified what measures would be imposed on arrivals who test positive, Reuters reported.

Separately, the UK is considering following suit after the U.S. announced mandatory testing on arrivals from China, the Telegraph reported.

—Lee Ying Shan

CNBC Pro: Tech is ‘down but by no means out’ — watch these stocks in 2023, fund manager says

It’s been a bad year for tech companies, and many investors have been wondering when tech stocks will rebound.

Tech fund manager Jeremy Gleeson of AXA Investment Managers told CNBC Pro Talks last week that he still believes in the sector.

He explains why and names the stocks to buy.

CNBC Pro subscribers can read more here.

— Weizhen Tan

Crypto exchange Kraken to shut down Japan operations

Digital currency exchange Kraken announced it will cease operations in Japan next month, and deregister from Japan’s Financial Services Agency on Jan. 31, 2023.

The exchange cited a confluence of “current market conditions in Japan” and a “weak crypto market globally” as the reasons behind its move.

The decision was also part of Kraken’s efforts to “prioritize resources and investments in those areas that align with [its] strategy and will best position Kraken for long term success.”

Bitcoin fell 0.64% in the past 24 hours and last traded at $16,571.12, according to Coin Metrics. Ether dropped 1.18% to $1,193.34.

— Ryan Browne, Lee Ying Shan

U.S. will require negative Covid test from China travelers

Airline passengers entering the U.S. from China will need to have a negative Covid test, a federal health official announced on Wednesday.

The rule goes into effect on Jan. 5 and applies to all travelers who are at least two years of age from China, Hong Kong and Macau. The rule applies regardless of nationality or vaccination status.

After attempting a zero Covid policy for much longer than other major countries, China is now seeing a wave of infections after rolling back its public health restrictions in recen weeks.

— Jesse Pound

Apple breaks key technical level, sets new 52-week low

Apple fell through the key $129 level and set a new 52-week low for a second day Wednesday. 

Some analysts look at Apple, the largest market cap stock, as a bellwether for the overall market and a major influence on investor sentiment.

“It’s not great for the overall market,” said Todd Sohn, technical analyst at Strategas. “The end of year is a funky time, but if it continues into the first couple of weeks of the year, it’s for real.”

Apple fell through $129 support in early trading Wednesday and touched a low of $126.41 before reversing. The stock was at $127.15 in afternoon trading.

“If your largest weight is weak and making new lows, that’s not great. Your top player is not scoring,” he said. Sohn said the five largest market cap names are still losing steam. “The silver lining is the influence on the (S&P 500) index is dropping.”

–Patti Domm

 

 

CNBC Pro: China eases its Covid restrictions. That could spell a buying opportunity in these stocks

An reopening in the world’s second-largest economy could spell a buying opportunity for investors as China unwinds much of its Covid restrictions.

Investors have taken recent developments as a signal to start snapping up China equities. They expect that China’s economy could get a boost in 2023, while the U.S. and Europe continue to deal with the lagging effect of monetary tightening that could put a damper on economic growth.

“A lot of institutional investors have been very underweight Chinese equities,” said Carlos Asilis, co-founder and CIO at Glovista Investments.

“And I think that that’s been a mistake, because it has ignored this very important potential baseline case which is now being priced in, which is that of the Chinese economy undergoing next year a similar recovery path that we saw this year in the case of the United States,” he added.

CNBC Pro subscribers can read the full story here.

— Sarah Min

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Business

Asia-Pacific shares, China, yuan, Bank of Japan, Hang Seng index

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Hong Kong’s John Lee announces further easing of measures

Hong Kong will remove all mandatory PCR tests for inbound travelers, Chief Executive John Lee said in a press briefing announcing further easing of the city’s Covid restrictions.

Lee added the city will also cancel the vaccine pass scheme, adding that the government will adopt “more targeted measures” for elderly vaccination.

Hong Kong will also remove all social distancing measures, including a ban on group gatherings of more than 12 people, Lee said, adding the measures will take into effect Dec. 29.

– Jihye Lee, Lee Ying Shan

Hong Kong to scrap Covid tests for arrivals, SCMP reports

Hong Kong is slated to scrap its mandatory PCR tests for inbound travelers, South China Morning Post reported, citing people familiar with the matter.

The report added that Hong Kong will fully drop its vaccine pass scheme, which requires proof of three doses of Covid vaccination to enter certain premises – the city will also remove a mandatory five-day home isolation for close contacts.

Hong Kong Chief Executive John Lee is expected to announce the latest updates in a media briefing at 3:30 p.m. local time.

The measures will also include lifting a current ban on public gatherings of more than 12 people, while maintaining rules for wearing masks.

—Lee Ying Shan

Hong Kong reopening stocks rise on China’s reopening measures

Nio shares plunge after trimming fourth quarter delivery outlook

Hong Kong-listed shares of Chinese EV maker Nio dropped 9.11% in Asia trading hours after the company lowered its fourth quarter delivery outlook, citing supply chain disruptions from Covid outbreaks in major Chinese cities.

The company now expects to deliver between 38,500 to 39,500 vehicles, down from its initial projection of 43,000 to 48,000 vehicles, according to the updated delivery guidance.

Its New York-listed shares saw an 8% drop during U.S. trading hours.

— Rebecca Picciotto, Lee Ying Shan

South Korea expected to see a further drop in exports and imports

South Korea’s export growth in December is expected to mark the third month of annualized drop, according to economists polled by Reuters.

Average forecasts project exports to fall 10.1% in December on an annualized basis – a slight improvement after seeing a drop of 14% in November, when it saw the biggest contraction since May 2020.

Economists expect the country’s import growth in December to have dropped 0.6%, resulting in a trade deficit of about $6.7 billion.

South Korea is scheduled to release its trade data on January 1.

— Lee Ying Shan

Bank of Japan says yield curve tolerance adjustment doesn’t mean monetary policy change

The Bank of Japan reiterated that its latest decision to expand the yield curve control tolerance range does not mean a change in its direction of monetary policy, according to the Summary of Opinions from its December meeting.

“The expansion of the range of 10-year JFB yield fluctuations from the target level is not intended to change the direction of monetary easing,” it said.

“It is a policy measure to make the current monetary easing … more sustainable,” it added.

Japan’s central bank added that reviewing its inflation target of 2% is “not appropriate.”

“Revision of that value is not appropriate since it could make the target ambiguous and the monetary policy response inadequate,” it said.

– Jihye Lee

Tesla’s Asia suppliers fall after production halt reported at Shanghai plant

Shares of Tesla suppliers in Asia fell as production at the company’s Shanghai plant reportedly remained paused after seeing a wave of Covid infections among its Chinese workforce.

South Korea’s LG Chem fell 3.66% and Japan’s Panasonic lost 0.31% in early Asia trade. Shares of Contemporary Amperex Technology, also known as CATL, fell 3.39%.

– Jihye Lee

Oil prices supported by China reopening and Moscow’s decree to ban oil sales

Oil prices rose on the back of a potential demand boost fueled by China’s reopening, as well as Moscow’s announcement to ban oil sales to countries participating in the U.S.-led price cap on Russian crude.

Brent crude futures rose 0.2% to $84.50 a barrel, while the U.S. West Texas Intermediate futures gained 0.19% to $79.7 a barrel.

According to a decree by Russian President Vladimir Putin, which was published on the Kremlin portal, Moscow said the established ban “applies to all stages of sales up to and including the final buyer.”

– Lee Ying Shan

U.S. weighs new rules for travelers from China

The U.S. government is considering imposing new Covid rules for travelers from China, officials said.

“There are mounting concerns in the international community on the ongoing COVID-19 surges in China and the lack of transparent data, including viral genomic sequence data, being reported from the PRC,” officials said.

Separately, Japan announced on Tuesday it would require a negative Covid test for visitors from China starting Dec. 30.

Read the full story here.

– Jihye Lee

China’s factory activity expected to contract for third straight month

China’s official manufacturing Purchasing Managers’ Index for December is expected to come in at 48 on Saturday, below the 50-point mark that separates growth from contraction.

Analysts polled by Reuters predict the reading will remain unchanged from November’s reading released by the National Bureau of Statistics.

PMI readings are sequential and represent month-on-month changes in factory activity.

— Lee Ying Shan

Tesla extends suspension of production at Shanghai plant: Wall Street Journal

Tesla suspended production at a plant in Shanghai on Saturday after a Covid outbreak among its employees at the facility, the Wall Street Journal reported.

The decision comes as an extension of a planned eight-day production pause, according to the report. The electric vehicle maker had informed employees that production will resume on January 2, it said.

Tesla stocks plunged 11% at the close and continued to slide further in after-hours trading.

—Lee Ying Shan, Alex Harring

Platinum on pace for best quarter since 2009

Platinum is on track for its best quarter since 2009 — and stocks associated with the metal are also posting strong performances.

The metal is trading up nearly 19.86% compared with the start of the quarter. That’s the best performance platinum has seen since the first quarter of 2009, when it gained 19.89%.

If platinum surpasses that quarter, it will be the best quarter since the first in 2008. In that period, it gained 33.96%.

Stocks associated with platinum are rising in turn. During this quarter, Impala Platinum added 31.7%. Anglo American Platinum and Sibanye Stillwater followed, gaining 21% and 17.6%, respectively, in the same period.

The Platinum Investment Council attributed some of the price increase to physical stocks of the metal being imported into China, which has decreased supply elsewhere.

— Alex Harring, Gina Francolla

Oil hits three-week high as investors cheer China’s quarantine changes

Oil prices reached a three-week high as investors hedged hopes of demand recovering on the latest news of China’s Covid restrictions easing.

Brent crude gained $1.55, or 1.9%, to $85.47 a barrel. U.S. West Texas Intermediate crude added $1.37, or 1.7%, to $80.93. 

Both hit highs not seen since Dec. 5 earlier in the trading day. China’s National Health Commission said Monday it would stop requiring travelers coming into the country to quarantine, a move viewed by investors as a key step in rolling back the Covid restrictions that have hampered global supply chains and travel.

China-linked stocks rise as country eases restrictions

Shares of China-based companies trading on U.S. exchanges rose in the premarket as the country eases Covid restrictions. China announced it plans to lift quarantine requirements for travelers beginning Jan. 8.

Shares of Alibaba gained 1.5%, while JD.com and Pinduoduo rose more than 2% each.

China ETFs also gained, with the KraneShares CSI China Internet ETF up 2.7% in the premarket, on pace for its first gain in three sessions. iShares China Large-Cap and iShares China Large-Cap added 2% each.

The news also lifted Macau-linked casino stocks in the premarket. Las Vegas Sands was last up 1.4%, while Wynn and Melco Resorts rose 2.5% and 4.2%, respectively.

— Samantha Subin

International and emerging market stocks seen returning most over next 7 years, GMO says

International stocks, but especially emerging market stocks — and most notably emerging market value stocks — offer the greatest likelihood of outperforming large and small stocks in the U.S. over the next seven years, even after adjusting for inflation, according to the latest monthly projection from Grantham Mayo Van Otterloo & Co.

Emerging market value stocks are likely to return a real 9% per annum over the next seven years, while emerging market stocks as a whole are forecast to return 5.2% a year. International small-cap stocks are projected to return a real 4.5% while international large-cap stocks come in at 2.4% a year, after inflation.

The U.S. isn’t forecast to keep up, with U.S. small caps projected to shrink 1.4% each year after inflation, and U.S. large caps estimated to fall an average 1.8% annually over seven years.

Similarly, emerging market debt is likely to end up as the best-performing fixed-income class, returning a real 3.5% annually, followed by U.S. cash at +0.8%, U.S. inflation-linked bonds at 0.3%. International bonds hedged against currency exposure are forecast to lose 1.8% a year and U.S. bonds to return -0.3%.

As stocks floundered in 2022, valuations improved and the outlook for future returns has brightened. At the start of 2022, GMO pegged emerging market value stocks to return +5% annually over seven years, emerging market stocks +2.2%, international small caps -1.2%, international large caps -2.5%, U.S. small caps -6.5% and U.S. large caps -7.3%.

U.S. cash was projected to lose the least amount of money at the start of the year, falling 1.1% a year after inflation looking out over the next seven years, followed by emerging market debt at -1.7%, U.S. inflation-linked bonds (-3.7%), U.S. bonds (-4.1%) and currency-hedged international bonds (-4.7%).

— Scott Schnipper

Treasury yields climb

Bonds yields climbed Tuesday, putting pressure on growth stocks like technology.

The yield on the 10-year Treasury note was last up by 11 basis points at 3.854%. The 2-year Treasury yield rose 8 basis points to last trade at 4.402%.

Yields and prices have an inverted relationship. One basis point is equivalent to 0.01%.

The tech-heavy Nasdaq Composite, which is more susceptible to moves in rates, last traded 1.2% lower.

— Samantha Subin

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S. Korea launches jets, fires shots after North flies drones

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SEOUL, South Korea (AP) — South Korea’s military fired warning shots, scrambled fighter jets and flew surveillance assets across the heavily fortified border with North Korea on Monday, after North Korean drones violated its airspace for the first time in five years, officials said.

South Korea’s military detected five drones from North Korea crossing the border, and one traveled as far as the northern part of the South Korean capital region, South Korea’s Joint Chiefs of Staff said.

The military responded by firing warning shots and launching fighter jets and attack helicopters to shoot down the North Korean drones. The attack helicopters fired a combined 100 rounds but it wasn’t immediately known if the North Korean drones were shot down. There were no immediate reports of civilian damage on the ground in South Korea, according to the Defense Ministry.

One of the aircraft, a KA-1 light attack plane, crashed during takeoff but its two pilots both ejected safely, defense officials said. They said they also requested civilian airports in and near Seoul to halt takeoffs temporarily.

South Korea also sent surveillance assets near and across the border to photograph key military facilities in North Korea as corresponding measures against the North Korean drone flights, the Joint Chiefs said. It didn’t elaborate, but some observers say that South Korea likely flew unmanned drones inside North Korean territory.

“Our military will thoroughly and resolutely respond to this kind of North Korean provocation,” Maj. Gen. Lee Seung-o, director of operations at the South Korean Joint Chiefs of Staff, told reporters.

South Korea’s public confirmation of any reconnaissance activities inside North Korea is highly unusual and likely reflects a resolve by the conservative government led by President Yoon Suk Yeol to get tough on North Korean provocations. North Korea could respond with more fiery rhetoric or weapons tests or other provocation, some observers say.

On Friday, South Korea detected two short-range ballistic missile launches by North Korea, the latest in the country’s torrid run of weapons tests this year. Friday’s launches were seen as a protest of the South Korean-U.S. joint air drills that North Korea views as an invasion rehearsal.

It’s the first time for North Korean drones to enter South Korean airspace since 2017, when a suspected North Korean drone was found crashed in South Korea. South Korean military officials said at the time that the drone with a Sony-made camera photographed a U.S. missile defense system in South Korea.

North Korea has previously touted its drone program, and South Korean officials said the North has about 300 drones. In 2014, several suspected North Korean drones equipped with Japanese-made cameras were found south of the border. Experts said they were low-tech but could be considered a potential security threat.

Earlier this month, North Korea claimed to have performed major tests needed to acquire its first spy satellite and a more mobile intercontinental ballistic missile capable of reaching the U.S. mainland. They were among high-tech weapons systems that North Korean leader Kim Jong Un has vowed to introduce along with multi-warheads, underwater-launched nuclear missiles, nuclear-powered submarines and hypersonic missiles.

North Korea released low-resolution photos of South Korean cities as viewed from space, but some experts in South Korea said the images were too crude for surveillance purposes. Such assessments infuriated North Korea, with Kim’s powerful sister Kim Yo Jong issuing a series of derisive terms to insult unidentified South Korean experts and express her anger.

North Korea is to hold a key ruling Workers’ Party conference this week to review past policies and set policy goals. Some experts say that during the meeting, North Korea will likely reaffirm its push to bolster nuclear and missile arsenals to cope with what it calls hostile U.S. policies, such as U.S.-led international sanctions and its regular military training with South Korea.

North Korea would eventually use its boosted nuclear capability as a bargaining chip to win international recognition as a legitimate nuclear state, the relaxing of international sanctions and other concessions, analysts say.

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Business

Asia-Pacific markets mixed as Japan stocks see second day of losses

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Indonesia to ban bauxite exports starting June 2023

India’s central bank chief warns that the next financial crisis will come from private cryptocurrencies

The next financial crisis will come from private cryptocurrencies, Shaktikanta Das, India’s central bank governor said on Wednesday.

Speaking at the BFSI Insight Summit 2022 organized by Business Standard, Das said he stands firm that cryptocurrencies should be prohibited, adding that it has no underlying value and poses risks for macroeconomic and financial stability.

Bitcoin was last higher by about 0.24% at $16,840, according to Coin Metrics. Ether rose 14% to $1,211.77.

— Charmaine Jacob

Japan’s 2-year yield briefly tops zero for first time since 2015

The yield on 2-year Japanese government bonds briefly rose above zero for the first time since 2015 in Wednesday morning trade. The note gained 2.7 basis points to stand just below the flatline.

Japan’s 2-year yield rises above zero for the first time since 2015

The yield on the 10-year JGB jumped more than 3 basis points to stand at 0.451%, also reaching 2015 highs, while the yield on the 30-year JGB inched up 2 basis points to trade at 1.6%.

Yields move inversely to price, and a basis point is equal to 0.01%.

— Jihye Lee

HKEX launches New York office in boost to expand international reach

Hong Kong’s stock exchange operator launched its New York office in a bid to expand its international reach and grow its global client base.

The new office of the Hong Kong Exchanges and Clearing Limited (HKEX) will be promoting its connectivity with Mainland China’s markets and its liquid primary and secondary cash markets, it said.

“At HKEX, we are fully focused on supporting the growth ambitions of our customers around the globe,” said HKEX CEO Nicolas Aguzin.

“We look forward to deepening our relationships with investors, companies and risk managers across the region, connecting capital with opportunities and East with West,” he added.

About 41% of Hong Kong’s cash equities market trading turnover are attributed to international investors. HKEX currently has offices in Beijing, Shanghai and Singapore. 

— Lee Ying Shan

Bank stocks in Tokyo rise again as wider index falls

Japanese yen at strongest in more than four months

The Japanese yen strengthened further overnight, after the Bank of Japan announced to widen its yield curve control band.

The currency strengthened by more than 5% against the Australian dollar and the New Zealand dollar – while it strengthened past 3% against the U.S. dollar.

The yen strengthened after the Bank of Japan announced to expand its yield curve control band

CNBC Pro: Fund manager says a recession is ‘imminent’ — and names cheap stocks to play it

Market watchers are increasingly worried about a looming recession and fund manager Steven Glass is no exception.

Against this backdrop, he says he’s focusing on companies with earnings visibility that are trading at attractive valuations.

His picks include a Big Tech name that he said is “extremely cheap” with “huge margin potential.”

Pro subscribers can read more here.

— Zavier Ong

Stocks hold onto gains, snap 4-day loss streak

Stocks eked out a gain Tuesday, snapping a four-day streak of losses.

The Dow Jones Industrial Average rose 92.47 points, or 0.28%, to close at 32,850.01. The S&P 500 gained 0.11% to 3,821.73, while the Nasdaq Composite ticked up 0.01% to close at 10,547.11.

—Carmen Reinicke

Bank of Japan is more hawkish sooner-than-expected, signals

The Bank of Japan’s surprise policy shift sent interest rates rising globally, as investors reacted to more evidence central bankers around the world will continue to pressure interest rates higher.

“It was definitely a surprise. I don’t think there was anyone out there who expected it,” said Ben Jeffrey, rate strategist at BMO. The Japanese central bank moved sooner-than-expected to tighten policy. The BOJ changed its yield curve policy to allow the yield on the 10-year Japanese government bond to move 50 basis poins either side of its zero target rate, up from 25 basis points.

The announcement drove rates higher around the world, as yields on Japanese government bonds (JGBs) rose to 7-year highs. Rates move opposite yield. The U.S. 10-year jumped o 3.68%.

“They were definitely the last one standing in terms of being dovish, and now they’re still dovish but less so,” said Jeffrey. “It’s obviously bearish JGBs and fixed income globally, but in the longer term it should help the yen which will make Treasurys more attractive to Japanese investors next year.”

–Patti Domm

Expect a more challenging environment ahead, says Atlantic Equities

Atlantic Equities analysts are anticipating a more challenging backdrop for the global consumer in 2023.

“Inflation may well have peaked on a headline basis but input costs still remain elevated and companies will be looking to at least hold if not take further pricing in some cases,” analyst Edward Lewis said in a note Tuesday. “That may become more challenging as levels of elasticity are beginning to normalize with U.S. retailers starting to push back against pricing, in line with where European peers have been all year.”

He highlighted Coca-Cola and Pepsi as some of his favorite consumer picks, citing “category momentum, ongoing investment and strong execution supporting elevated growth.”

— Tanaya Macheel

Stock market has shed $11.7 trillion so far this year

It’s been a rough year for stocks, which are currently in a bear market and down year to date.

From the market’s yearly high on January 3 to this morning, U.S. stocks have shed $11.7 trillion in market cap, according to data from Bespoke Group.

“The max drawdown was $13.6 trillion at the low on 9/30, so we’ve seen market cap increase by just under $2 trillion since then,” analysts wrote Tuesday. “In dollar terms, this drawdown has been more extreme than anything investors have ever experienced. That’s pretty deflationary if you ask us!”

Of the $11.7 trillion, more than $5 trillion in losses come from just five companies – Apple, Microsoft, Amazon, Alphabet, Meta and Tesla.

—Carmen Reinicke

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World

North Korea slams Japan’s military buildup, promises ‘action’ | Nuclear Weapons News

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North Korea’s foreign ministry calls Japan’s new $320bn security strategy ‘wrong and dangerous’, promises a response.

North Korea has condemned Japan’s planned military build-up and pledged action against what it described as Tokyo’s “wrong and dangerous choice” to bolster its defence sector.

The statement on Tuesday from North Korea’s foreign ministry comes just days after Japan unveiled a new $320bn security strategy that outlined plans for Japan’s military to mount “counter-strike capabilities”, and to respond to the threats posed by China, Russia and North Korea.

Japan’s sweeping, five-year military strategy will see the country become the world’s third-largest military spender after the United States and China.

Japan’s new security strategy effectively formalises a “new aggression policy” and fundamentally changes East Asia’s security environment, a spokesperson for Pyongyang’s foreign ministry said in a report published by North Korea’s official Korean Central News Agency (KCNA).

In response to Japan’s move to “realise unjust and excessive ambition”, North Korea “will continue to show how concerned and displeased we are with practical action,” the spokesperson said.

The spokesperson blasted the US for “exalting and instigating Japan’s rearmament and re-invasion plan,” adding that Washington had no right to raise issue with Pyongyang’s efforts to bolster its own defences.

North Korea’s efforts to upgrade military capabilities have included a record number of ballistic missile launches this year, including missiles capable of carrying nuclear payloads and with varying ranges that could reach the US mainland and allies South Korea and Japan.

North Korea claimed advances on Monday in its efforts to acquire a spy satellite, saying that it had launched a test satellite and releasing low-resolution, black-and-white photos that showed a view from space of the South Korean capital, Seoul, and the nearby city of Incheon.

Some analysts in South Korea said the images were too crude to be satellite photos, according to the South Korean Yonhap news agency.

North Korea hit back at that criticism on Tuesday, with Kim Yo Jong, the powerful sister of North Korean leader Kim Jong Un, saying it was “inappropriate and hasty” to assess her country’s satellite capabilities from those two photos alone.

Pyongyang’s efforts to develop a spy satellite were a “pressing priority directly linked to our security,” she said, adding that additional sanctions on her country would not stop such technological developments.

South Korea will seek international support and “try hard to impose additional sanctions on us”, she added.

“But, with our right to survival and development being threatened, why are we afraid of sanctions … and why would we stop?”

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Business

Japanese yen strengthens as central bank widens yield target range, Asia markets fall

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Bank of Japan holds rates steady, widens yield curve control band

The Bank of Japan held its benchmark interest rates steady and announced it will modify its yield curve control band, the central bank said in a statement.

The BOJ will expand the range of 10-year Japan government bond yield fluctuations from its current plus and minus 0.25 percentage points to plus and minus 0.5 percentage points, it said.

The adjustment is intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions,” the BOJ said.

The Japanese yen strengthened nearly 2% to stand at 134.33 against the U.S. dollar shortly after the announcement.

– Jihye Lee

Reserve Bank of Australia minutes show range of options were considered in December

Minutes from the Reserve Bank of Australia’s December meeting showed that the central bank had considered a number of options for its cash rate decision, including a complete pause in hikes.

“The Board considered several options for the cash rate decision at the December meeting: a 50 basis point increase; a 25 basis point increase; or no change in the cash rate,” the minutes said.

RBA board members also noted the importance of “acting consistently,” adding that the central bank will continue to consider a range of options for the upcoming year as well.

– Jihye Lee

China keeps key lending rates unchanged

The People’s Bank of China kept its one-year and five-year loan prime rates unchanged in December, according to an announcement.

The central bank maintained its one-year loan prime rate at 3.65% and its five-year loan prime rate at 4.30%, in line with expectations in a Reuters poll.

The offshore and onshore Chinese yuan were relatively flat at 6.9808 and 6.9783 against the U.S. dollar, respectively.

– Jihye Lee

CNBC Pro: Is China set for a rebound in 2023? Wall Street pros weigh in — and reveal how to trade it

What’s next for China after it rolled back a slew of Covid-19 measures?

Market pros weigh in on the prospect of a rebound in the world’s second-largest economy and reveal opportunities for investors.

CNBC Pro subscribers can read more here.

— Zavier Ong

Bank of Japan expected to hold rates steady

The Bank of Japan is expected to keep its interest rates steady at -0.10%, according to survey of economists by Reuters.

The rate decision is expected after the central bank’s two-day monetary policy concludes Tuesday.

Separately, Japan’s government and the BOJ are reportedly aiming revise a statement committing to a 2% inflation target at the earliest possible date, according to Kyodo News, citing government sources.

— Jihye Lee

The Fed is overdoing rate hikes, Evercore ISI says

The Federal Reserve is likely overdoing it’s rate hikes to tame inflation and could end up tipping the U.S. economy into a recession, Ed Hyman of Evercore ISI wrote in a Sunday note.

The Federal Funds rate is now 6.5% versus a core PCE of 4.7% on the year and bond yields at 3.5%, Hyman wrote.

“And it’s not just the Fed tightening: ECB, BoE, Mexico, Switzerland, and Norway also tightened last week,” he said. “Perhaps more profoundly, the money supply is contracting.”

In addition, Evercore’s economic diffusion index is approaching recession territory along with other indicators such as company surveys, inflation data and layoff announcements. And, wage gains have started to slow and high rents are showing early signs of easing, signaling that inflation has likely run its course.

“In any event, 87 percent of American voters are concerned about a recession,” said Hyman.

—Carmen Reinicke

S&P 500 headed for worst December in four years

The S&P 500 has dropped more than 6% this month, as Wall Street struggles heading into year-end. That puts in on track for its worst monthly performance since September. It would also be its biggest December decline since 2018, when it slid 9.18%.

Stocks close lower for fourth day in a row

Recession fears and dashed hopes of a year-end rally weighed on stocks Monday, sending them to the fourth consecutive negative close.

The Dow Jones Industrial Average shed 163.85 points, or 0.50%, to close at 32,756.61. The S&P 500 fell 0.91% to 3,817.47, and the Nasdaq Composite shed 1.49%to 10,546.03 weighed down by shares of Amazon, which slipped 3%.

—Carmen Reinicke

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US

N Korea fires 2 ballistic missiles in resumption of testing

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SEOUL, South Korea (AP) — North Korea fired a pair of ballistic missiles on Sunday toward its eastern waters, its first weapons test in a month and coming two days after it claimed to have performed a key test needed to build a more mobile, powerful intercontinental ballistic missile designed to strike the U.S. mainland.

South Korea’s military detected the launch of two North Korean ballistic missiles from its northwest Tongchangri area. The missiles flew across the country toward its eastern waters, South Korea’s Joint Chiefs of Staff said in a statement.

It said the missiles were fired about 50 minutes apart but gave no further details, like precisely what type of weapons North Korea fired and how far they flew. The Joint Chiefs of Staff said South Korea’s military has bolstered its surveillance posture and maintains a readiness in close coordination with the United States.

Japanese officials said the two missiles fell in the waters between the Korean Peninsula and Japan and that no damage to ships or human injuries have been reported. Japanese Vice Defense Minister Toshiro Ino told reporters that both missiles flew a distance of 500 kilometers (310 miles) at a maximum altitude of 550 kilometers (340 miles). He criticized North Korea for threatening the safety of Japan, the region and the international community.

The Tongchangri area is home to North Korea’s Sohae Satellite Launching Ground, where the country in past years launched satellite-carrying long-range rockets in what the U.N. called a disguised test of ICBM technology.

North Korea said Friday it tested a “high-thrust solid-fuel motor” for a new strategic weapon in the Sohae facility the previous day, a development that experts say could allow it to possess a more mobile, harder-to-detect arsenal of intercontinental ballistic missiles that can reach the U.S. mainland.

Sunday’s launch is the North’s first public weapons test since the country last month launched its developmental, longest-range liquid-fueled Hwasong-17 ICBM capable of reaching the entire U.S. homeland. Earlier this year, North Korea test-launched a variety of other missiles at a record pace, despite pandemic-related economic hardships and U.S.-led pressures to curb its nuclear program.

North Korea has defended its weapons testing as self-defense measures to cope with the expanded U.S.-South Korea military drills that it views as an invasion rehearsal. But some experts say North Korea likely used its rivals’ military training as an excuse to enlarge its weapons arsenal and increase its leverage in future negotiations with the U.S. to win sanctions relief and other concessions.

“In the face of mounting diplomatic pressure after an unprecedented year for North Korean missile tests, the Kim regime is determined to show no weakness ahead of its New Year’s political events,” said Leif-Eric Easley, a professor at Ewha University in Seoul.

The weapon North Korea said it could build with the recently tested motor likely refers to a solid-fueled ICBM, which is among a list of high-tech weapons systems that leader Kim Jong Un vowed to procure during a major ruling party conference early last year. Other weapons systems Kim promised to manufacture include a multi-warhead missile, underwater-launched nuclear missiles and spy satellites.

All of North Korea’s existing ICBMs use liquid propellant, which must be added to the weapons before they’re fired. This makes it relatively easier for outsiders to spot their launch preparations via satellites. But fuel in solid-propellant rockets is already loaded inside, so it shortens launch preparation times, increases their mobility and makes it harder for outsiders to learn what’s happening ahead of liftoff. North Korea already has a growing arsenal of short-range, solid-fueled ballistic missiles targeting key locations in South Korea, including U.S. military bases there.

In reaction to North Korea’s testing activities, the South Korean and U.S. militaries have expanded their regular drills and resumed trilateral trainings with Japan. But security jitters about North Korea’s nuclear weapons have increased in South Korea and Japan, as the North has threatened the preemptive use of nuclear weapons, taking reported steps to deploy nuclear-capable, short-range missiles along its border with South Korea and test-firing a missile over Japan.

The exact status of North Korea’s nuclear attack capability remains in secrecy.

Some experts speculate North Korea already has functioning nuclear-tipped missiles that can hit the entire U.S. and its allies South Korea and Japan, given the number of years it has spent on its nuclear program. But others say the country is still years away from acquiring such weapons, noting it has yet to publicly prove it has a technology to build warheads small enough to be placed on missiles or protect warheads from the harsh conditions of atmospheric reentry.

—

Associated Press writer Mari Yamaguchi in Tokyo contributed to this report.

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World

Taiwan’s military has a problem: As China fears grow, recruitment pool shrinks

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Taipei, Taiwan
CNN
 — 

Taiwan has noticed a hole in its defense plans that is steadily getting bigger. And it’s not one easily plugged by boosting the budget or buying more weapons.

The island democracy of 23.5 million is facing an increasing challenge in recruiting enough young men to meet its military targets and its Interior Ministry has suggested the problem is – at least in part – due to its stubbornly low birth rate.

Taiwan’s population fell for the first time in 2020, according to the ministry, which warned earlier this year that the 2022 military intake would be the lowest in a decade and that a continued drop in the youth population would pose a “huge challenge” for the future.

That’s bad news at a time when Taiwan is trying to bolster its forces to deter any potential invasion by China, whose ruling Communist Party has been making increasingly belligerent noises about its determination to “reunify” with the self-governed island – which it has never controlled – by force if necessary.

And the outlook has darkened further with the release of a new report by Taiwan’s National Development Council projecting that by 2035 the island can expect roughly 20,000 fewer births per year than the 153,820 it recorded in 2021. By 2035, Taiwan will also overtake South Korea as the jurisdiction with the world’s lowest birth rate, the report added.

Such projections are feeding into a debate over whether the government should increase the period of mandatory military service that eligible young men must serve. Currently, the island has a professional military force made up of 162,000 (as of June this year) – 7,000 fewer than the target, according to a report by the Legislative Yuan. In addition to that number, all eligible men must serve four months of training as reservists.

Changing the mandatory service requirement would be a major U-turn for Taiwan, which had previously been trying to cut down on conscription and shortened the mandatory service from 12 months as recently as 2018. But on Wednesday, Taiwan’s Minister of National Defence Chiu Kuo-cheng said such plans would be made public before the end of the year.

That news has met with opposition among some young students in Taiwan, who have voiced their frustrations on PTT, Taiwan’s version of Reddit, even if there is support for the move among the wider public.

A poll by the Taiwanese Public Opinion Foundation in March this year found that most Taiwanese agreed with a proposal to lengthen the service period. It found that 75.9% of respondents thought it reasonable to extend it to a year; only 17.8% were opposed.

Many experts argue there is simply no other option.

Su Tzu-yun, a director of Taiwan’s Institute for National Defense and Security Research, said that before 2016, the pool of men eligible to join the military – either as career soldiers or as reservists – was about 110,000. Since then, he said, the number had declined every year and the pool would likely be as low as 74,000 by 2025.

And within the next decade, Su said, the number of young adults available for recruitment by the Taiwanese military could drop by as much as a third.

“This is a national security issue for us,” he said. “The population pool is decreasing, so we are actively considering whether to resume conscription to meet our military needs.

“We are now facing an increasing threat (from China), and we need to have more firepower and manpower.”

Taiwan’s low birth rate – 0.98 – is far below the 2.1 needed to maintain a stable population, but it is no outlier in East Asia.

In November, South Korea broke its own world record when its birth rate dropped to 0.79, while Japan’s fell to 1.3 and mainland China hit 1.15.

Even so, experts say the trend poses a unique problem for Taiwan’s military, given the relative size of the island and the threats it faces.

China has been making increasingly aggressive noises toward the island since August, when then-US House Speaker Nancy Pelosi controversially visited Taipei. Not long after she landed in Taiwan, Beijing also launched a series of unprecedented military exercises around the island.

Since then, the temperature has remained high – particularly as Chinese leader Xi Jinping told a key Communist Party meeting in October that “reunification” was inevitable and that he reserves the option of taking “all measures necessary.”

Chang Yan-ting, a former deputy commander of Taiwan’s air force, said that while low birth rates were common across East Asia, “the situation in Taiwan is very different” as the island was facing “more and more pressure (from China) and the situation will become more acute.”

“The United States has military bases in Japan and South Korea, while Singapore does not face an acute military threat from its neighbors. Taiwan faces the greatest threat and declining birth rate will make the situation even more serious,” he added.

Roy Lee, a deputy executive director at Taiwan’s Chung-hua Institution for Economic Research, agreed that the security threats facing Taiwan were greater than those in the rest of the region.

“The situation is more challenging for Taiwan, because our population base is smaller than other countries facing similar problems,” he added.

Taiwan’s population is 23.5 million, compared to South Korea’s 52 million, Japan’s 126 million and China’s 1.4 billion.

Besides the shrinking recruitment pool, the decline in the youth population could also threaten the long-term performance of Taiwan’s economy – which is itself a pillar of the island’s defense.

Taiwan is the world’s 21st largest economy, according to the London-based Centre for Economics and Business Research, and had a GDP of $668.51 billion last year.

Much of its economic heft comes from its leading role in the supply of semiconductor chips, which play an indispensable role in everything from smartphones to computers.

Taiwan’s homegrown semiconductor giant TSMC is perceived as being so valuable to the global economy – as well as to China – that it is sometimes referred to as forming part of a “silicon shield” against a potential military invasion by Beijing, as its presence would give a strong incentive to the West to intervene.

Lee noted that population levels are closely intertwined with gross domestic product, a broad measure of economic activity. A population decline of 200,000 people could result in a 0.4% decline in GDP, all else being equal, he said.

“It is very difficult to increase GDP by 0.4%, and would require a lot of effort. So the fact that a declining population can take away that much growth is big,” he said.

Taiwan’s government has brought in a series of measures aimed at encouraging people to have babies, but with limited success.

It pays parents a monthly stipend of 5,000 Taiwan dollars (US$161) for their first baby, and a higher amount for each additional one.

Since last year, pregnant women have been eligible for seven days of leave for obstetrics checks prior to giving birth.

Outside the military, in the wider economy, the island has been encouraging migrant workers to fill job vacancies.

Statistics from the National Development Council showed that about 670,000 migrant workers were in Taiwan at the end of last year – comprising about 3% of the population.

Most of the migrant workers are employed in the manufacturing sector, the council said, the vast majority of them from Vietnam, Indonesia, Thailand and the Philippines.

Lee said in the long term the Taiwanese government would likely have to reform its immigration policies to bring in more migrant workers.

Still, there are those who say Taiwan’s low birth rate is no reason to panic, just yet.

Alice Cheng, an associate professor in sociology at Taiwan’s Academia Sinica, cautioned against reading too much into population trends as they were affected by so many factors.

She pointed out that just a few decades ago, many demographers were warning of food shortages caused by a population explosion.

And even if the low birth rate endured, that might be no bad thing if it were a reflection of an improvement in women’s rights, she said.

“The educational expansion that took place in the 70s and 80s in East Asia dramatically changed women’s status. It really pushed women out of their homes because they had knowledge, education and career prospects,” she said.

“The next thing you see globally is that once women’s education level improved, fertility rates started declining.”

“All these East Asian countries are really scratching their head and trying to think about policies and interventions to boost fertility rates,” she added.

“But if that’s something that really, (women) don’t want, can you push them to do that?”

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