Indonesia Stock Market & Rupiah: Japan Stimulus & Cabinet Reshuffle

Overall, Asian markets were mixed, settling near a one-year high. While Japan's Nikkei 225 index led gains (jumping 1.72 percent) on the back of the government's stimulus program, Chinese shares were under heavy selling pressure on concern that there are asset bubbles that need to be prevented. China's President Xi Jinping reportedly called for regulatory scrutiny. As a result, the Shanghai Composite Index fell 1.91 percent today.

Meanwhile, crude oil prices extended their declines on Wednesday (27/07) as markets remain concerned about the global supply glut. The World Bank stated that it sees the price of oil remaining around USD $43 per barrel for the remainder of the year.

Stocks on Wall Street were mixed overnight as investors are in a 'wait and see'-mode ahead of the closure of the (two-day) July policy meeting of the Federal Reserve later today (27/07). The Fed is widely expected to refrain from making any adjustments to its monetary policy. Given the upcoming US presidential election on 8 November (Clinton versus Trump) may cause some volatility in markets, the Fed may wait until after the election before adjusting (tightening) its monetary policy. However, US June home sales beat expectations, while US home prices continued their steady upward trend. These data are regarded indicators that the US economy is quite stable.

Japan's Stimulus Program

On Friday (29/07) the Bank of Japan (BoJ) is scheduled to make a statement after its July policy meeting. The BoJ is expected to offer more monetary stimulus by ramping up purchases of government bonds. However, today Japan's Prime Minister Shinzo Abe already announced that a new and bigger-than-expected stimulus package is being prepared by the government. This package involves more than 28 trillion yen (approx. USD $265 billion) to boost the sluggish economy of Japan (although it is unclear how much of this new program in fact constitutes new spending). As a result the Japanese yen depreciated significantly against the US dollar, hence giving rise to strengthening (export-related) Japanese stocks.

Indonesia's Cabinet Reshuffle

Indonesian President Joko Widodo surprised analysts and markets by announcing a bigger-than-expected cabinet reshuffle on Wednesday (27/07). After it became known yesterday evening that the cabinet would be reshuffled, analysts believed it would only involve three positions. Around noon, when President Widodo announced the reshuffle, it turned out that nine ministers would be replaced.

Reform-minded former finance minister Sri Mulyani Indrawati has replaced Bambang Brodjonegoro as finance minister, a move that likely supported the positive performance of Indonesian stocks and the rupiah today as she is popular among investors. The comeback of Sri Mulyani is expected to speed up Indonesia's structural reforms. Widodo instructed her to use all of the available instruments to accelerate the nation's economic activities.

Read more: Update Cabinet Reshuffle Indonesia: Who Are the New Ministers?

Sri Mulyani, finance minister under Susilo Bambang Yudhoyono (2005-2010), worked as a managing director for the World Bank in the past six years. She left Indonesian politics in 2010 due to heavy pressures from political forces that have high business interests. Her reform policies and attitude clashed with these forces. In the current government under the leadership of reform-minded Joko Widodo, there should be more political room - and support from the president - for her policies.

President Widodo also announced that controversial former army leader Wiranto (who has been accused of human rights violations) has replaced Luhut Binsar Pandjaitan as Indonesia's new Chief Security Minister. However, this decision does not seem to have evoked negative reactions in markets.

Bank Indonesia's benchmark rupiah rate (the Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.15 percent to IDR 13,130 per US dollar on Wednesday (27/07).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Bank Indonesia Governor Agus Martowardojo said the rupiah is currently stable - and in line with its fundamentals - on the back of the positive impact of the government's tax amnesty program, vanished concerns about the negative impact of Brexit and another Fed Funds Rate hike, and the positive impact of today's cabinet reshuffle.

This article was written by R.M.A van der Schaar, the Managing Director of Indonesia Investments. He obtained his Masters degree in Southeast Asian Studies from Leiden University (the Netherlands) with a major focus on the society, history and linguistics of Indonesia.

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