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Asia Reacts With Caution, Surprise to US Government Shutdown

Capitol building in Washington D.C., Sept. 19, 2013.

Capitol building in Washington D.C., Sept. 19, 2013.

Asian markets saw a modest selloff of stocks and dollars in Tuesday trading upon the partial shutdown of the United States government.

Market players say news of the first U.S. government shutdown in 17 years did trim early gains on the Tokyo stock exchange, but the benchmark Nikkei managed to close 29 points higher, a gain of a fifth of a percent. Markets in Hong Kong and on the Chinese mainland were closed for a holiday, and South Korea's KOSPI rose one tenth of a percent.

Masamichi Adachi, an economist at JP Morgan in Tokyo, said investors had already anticipated the U.S. government shutdown, and were more worried about a possible impending showdown over the raising of the debt ceiling.

“If it takes longer than say a couple weeks or something, that's definitely negative. And we are more concerned on the debt ceiling issue because that's potentially accompanied by the technical default of the U.S. treasuries. And that's a significant negative impact for the financial markets,” explained Adachi.

The U.S. Treasury Department has warned that the government will exhaust its authority to borrow money in October. Congress must pass measures to raise the debt ceiling before then.

The vice president of Trinity Securities in Bangkok, Nuttachart Mekmasin, expects limited ramifications in Asia, for now.

“In the short term, there might be some outflow… In the past week foreigners net sold our stocks and also the other Asian countries stocks, but the market has withstood the pressure very well.”

Currency traders sent the U.S. dollar to a nine-month low in Asia as the yen benefitted from the uncertainty in Washington.

The news of the shutdown was covered extensively by domestic media throughout Asia on Tuesday.

China's state-run Xinhua news agency, in explaining the ramifications of the shutdown to readers, cautioned tourists heading to America that popular destinations, such as national parks and monuments in Washington, D.C., might be closed.

There is also concern about the impact the shutdown could have on trade with the United States.

Professor Chen Qi, at the Carnegie-Tsinghua Center for Global Policy in Beijing, thinks China is unlikely to make this a political issue.

Chen opined that if this had happened in another country, it might be more problematic, but he trusts that the maturity of the U.S. government and American politicians will “have the wisdom to come to a consensus and solve this issue smoothly,” especially since they have been down this road numerous times previously.

In India, some business executives told VOA they could not understand how a country as developed country as the United States could see its government shutdown because of a legislative impasse.

Meher Rana, a first year student at Jesus and Mary College in New Delhi, called it “pretty sad and shocking” and fears a direct impact on her family.

“My father, he is an exporter and he has been working with North American and parts of South American [markets] for a really long time. And the economy is really going down, the government is shut, so it's going to affect him and we are all really shocked,” said Rana.

The partial shutdown of the U.S. government occurred after lawmakers failed to reach agreement by midnight on Monday regarding funding for the new fiscal year, which started October 1st.

William Gallo in Washington, Aru Pande in New Delhi and VOA Beijing also contributed to this report.