Last week, the Asia-Pacific stock markets continued to show fluctuations, with Southeast Asian markets exhibiting mixed resultsThe Ho Chi Minh Stock Index in Vietnam rose by 1.51% to close at 1249.11 points, while the Jakarta Composite Index in Indonesia saw a weekly gain of 0.93%, finishing at 7154.66 pointsIn contrast, Thailand's SET Index slid down by 2% to 1340.63 points, and Malaysia's Kuala Lumpur Composite Index experienced a decline of 2.23%, closing at 1566.72 pointsSingapore's Straits Index increased by a marginal 0.24% to 3810.78 points, while the Manila Index in the Philippines fell by 2.22%, or 144.2 points, to settle at 6352.12 points.

Meanwhile, the Nikkei 225 Index also witnessed a significant decline, dropping by 1.89% or 738.94 points, marking its third consecutive week below the 40,000 mark at 38451.46 pointsAustralia's stock market recorded a slight uptick, with the S&P/ASX 200 index closing up by 0.2% at 8310.4 points

The KOSPI index in South Korea continued its upward trajectory for three weeks, rising by 0.31% last week to 2523.55 points.

The volatility observed in the Asia-Pacific stock markets last week was attributed to various factors, including economic expectations, market sentiments, and policy-related uncertaintiesThere seems to be a diminishing expectation regarding global economic recovery, particularly concerning weak external demand that directly impacts export-driven economies like South Korea and VietnamThis has led to a slowdown in capital inflow momentum as investors expressed concerns over the potential impact of tariffs and economic policies on the global trading system—thus aggravating market fluctuationsAdditionally, uncertainties surrounding the Federal Reserve's policy have prompted fears of liquidity tightening, leading to increased risk aversion as funds flowed into dollar-denominated assets, further undermining the performance of the Asia-Pacific stock markets.

On Thursday, remarks from Federal Reserve officials suggested the possibility of interest rate cuts in March, followed by a gradual retreat in U.S

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Treasury yields, which managed to ease market sentiments somewhat.

With the impending "2.0" administration in the U.S., attention circles back to how the new government will approach economic policy, particularly regarding tax cuts, increased tariffs, and stricter immigration policiesAnalysts believe that these could boost bond yields and strengthen the dollar, yet may also slow down U.Seconomic growth, keeping interest rates elevated for a more extended period and potentially increasing the risk of significant interest differentials between the U.Sand emerging markets, further catalyzing capital outflows.

Analysts at DBS Bank pointed out that in a hawkish interest rate environment, a stronger dollar poses a potential adverse impact on ASEAN emerging marketsThailand is likely to face the most destructive consequences from the ongoing global tariff war, with forecasts suggesting that its GDP growth may dip by 0.3 to 0.8 percentage points.

When discussing the detrimental effects of the "2.0" administration on Thailand’s economy, a key point is the pressure regarding trade surpluses

Thailand, as one of the prominent trade surplus countries in relation to the U.S., may find itself facing tariffs ranging from 10% to 20%, directly impairing its export competitiveness in vital sectors like electronics and auto partsAdditionally, the extended implications of the potential cancellation of the Generalized System of Preferences (GSP) could affect Thailand significantly due to its economic structure's vulnerabilities, heavily reliant on exports and tourismThese tariff policies may lead to foreign capital flight and supply chain relocation, compounding economic pressures.

Recently, Thailand's Prime Minister set the stage for a special address regarding the new challenges expected by 2025, outlining a developmental direction that emphasizes exploring new opportunities and leveraging new technologiesShe stressed that alongside crafting flexible financial and fiscal strategies, Thailand must identify and exploit its inherent potentials and advantages.

Amid this backdrop, the development of the digital economy has come into focus

Thailand has experienced rapid growth within its digital economy in recent yearsThe Thai government projects that by 2024, the country's digital economy will grow by 5.7%, which is over twice the projected GDP growth rate of 2.2%. Furthermore, the export of digital products and services is anticipated to grow by an impressive 17.2%, eclipsing the overall national export growth rate of 6.1% by 2.8 times.

Notably, this rapid development isn't exclusive to Thailand; the entire Southeast Asian region is witnessing an explosive growth trajectory within the digital economyAccording to the 2024 Southeast Asia Digital Economy Report published by Google, Temasek, and Bain & Company, there has been a paradigm shift in assessing the health of the digital economy from a profitability standpointOver the past two years, the overall profits of Southeast Asia's digital economy surged from $4 billion in 2022 to $11 billion in 2024, demonstrating a robust 2.5-fold increase.

Analyzing the multi-layered advantages Southeast Asian countries possess in their digital economy, Yang Xit, a researcher with Anbang Think Tank, noted several factors: the young and substantial population base provides foundational support for rapid growth; high mobile internet penetration at 75% facilitates the swift advancement of e-commerce and digital payment applications; a robust economic growth rate—averaging over 7% in GDP since 1990; and regional policy coordination backed by free trade agreements like RCEP is further fueling cross-border digital trade expansion.

As the "2.0" era looms, Southeast Asian central banks have been cautious regarding interest rate adjustments and have taken various steps toward rate cuts to stimulate national economies

A surprising move came from Indonesia, where the central bank announced a 25 basis point cut to 5.75% on January 15, contradicting the expectations of most economists who had predicted rates to remain stable at 6% amidst ongoing global challenges and uncertaintiesThe central bank’s decision aims to inject vitality into the economy.

In the accompanying statement from the Bank of Indonesia, officials also reduced the rates for deposit facilities and lending facilities, reflecting a coordinated approach to enhance economic growth prospectsIndonesia’s central bank is keen on maintaining a flexible monetary policy as an essential tool for economic growth, aiming for an ambitious target of 8% growth after Prabowo assumes office in October 2024, aspiring to elevate Indonesia from the current 16th-largest economy to within the top 10 globally.

The decision to reduce rates comes at a critical time as Indonesia faces external demand slowdown and diminishing capital inflow, with the expectation that lower rates will lower financing costs and enhance domestic consumption and investment

Furthermore, it provides a strategic response to external uncertainties.

Analysts predict that as financing costs decrease, Indonesian banks may lower credit interest rates, potentially spurring credit demandImportantly, after the rate cut, the Indonesian Rupiah experienced depreciation, reflecting a 0.89% decline against the dollar, hovering around 16399 Rupiah per dollar as of January 17.

On the other hand, due to rising wage growth, economic recovery, and Yen depreciation, expectations for interest rate hikes from the Bank of Japan have intensifiedOn January 15, a report indicated that the Japanese central bank believes many businesses should continue to raise wages, indicating a likelihood of rate hikes if economic and price conditions show sustained improvement.

Several insiders speculate that the BOJ may opt to raise its policy rate to 0.5% during its upcoming decision, the highest in 17 years

The grounds for this anticipation stem from Japan’s growing inflation pressures, high living costs, and robust wage growth indicating a necessary shift in monetary policyAdditionally, recent indications from BOJ officials suggested an inclination toward tightening policy, although uncertainties persist regarding the timing and impacts of potential rate changes.

In contrast, South Korea's financial markets are under scrutiny due to domestic political turbulence and the impending “2.0” eraThe Bank of Korea announced a policy rate decision maintaining current rates but indicated further scrutiny of exchange rates and political developments before pursuing any rate cutsDespite a general consensus within the monetary policy committee that adequate measures have been implemented to bolster economic growth, the BOK's Governor stated a significant likelihood of rate cuts within the next three months, suggesting a pause rather than an end to the easing cycle.

Following the interest rate announcement, the Korean won initially rose by about 0.4%, all the while maintaining a stable exchange rate against the dollar over the week with a 0.79% increase