Asian markets rebound, BOJ maintains easing

Asian shares continued their rally on Wednesday, with the Nikkei leading the way as the Bank of Japan (BOJ) unexpectedly expressed caution about rate hikes due to market volatility, causing the yen to drop sharply.

The Nikkei rose by 2.3 per cent following a 10 per cent rally on Tuesday, indicating that investors were regaining confidence after the recent market turmoil. The index had plummeted by 13 per cent on Monday.

MSCI’s Asia-Pacific shares index outside Japan rose by 1.4 per cent, with South Korean stocks up by 2.5 per cent and Taiwan surging by 3.4 per cent.

China’s blue-chip index increased by 0.2 per cent, and Hong Kong’s Hang Seng index gained one per cent following data showing a 7.2 per cent year-on-year increase in Chinese imports in July.

Sentiment in Asia initially seemed uncertain, but BOJ Deputy Governor Shinichi Uchida reassured business leaders that the central bank will not raise interest rates during unstable financial markets, which bolstered risk sentiment.

The dollar rose 1.9 per cent to 147.03 yen, rebounding from the 141.675 low on Monday but still below the July peak of 161.96.

Hamilton Reiner, head of US Derivatives at JPMorgan Asset Management, is optimistic about Japanese stocks recovering from Monday’s 13 per cent drop due to ongoing corporate reforms in the Nikkei index.

JPMorgan analysts suggest that the sell-off in Japanese stocks could be nearing its end, and there is a growing belief that the unwinding of yen carry trades is also close to completion.

The yen carry trade unwinding, where investors borrow yen at low rates to invest in higher yielding assets, was a key factor in the recent market turmoil but appears to be stabilizing.

The rally extended to the US, with Nasdaq futures surging one per cent despite a 12 per cent plunge in AI darling Super Micro Computer after disappointing earnings. S&P 500 futures were up 0.8 per cent, and EUROSTOXX 50 futures climbed 1.2 per cent.

Treasury yields rose for a second day, with the 10-year yield at 3.9127 per cent and the two-year yield at 4.0183 per cent. Markets scaled back expectations for an emergency rate cut from the Federal Reserve.

Gold prices fell by 0.2 per cent to $2,383.77 an ounce, slightly below last week’s peak of $2,477. Oil prices were unstable due to worries about declining global demand and potential supply disruptions in the Middle East.

Brent increased by 0.1 per cent to $76.57 per barrel, and US crude also rose by 0.1 per cent to $73.29 per barrel.

Attribution: Reuters