Japanese stocks rally as yen weakens on Thursday

Japanese stocks surged, and the yen plummeted on Thursday as investors reduced bets on further monetary policy tightening this year. Meanwhile, the recent surge in Hong Kong’s stock market took a breather.

The euro also suffered significant losses as market participants increased expectations that the European Central Bank (ECB) would cut interest rates at both its October and December meetings.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell one per cent, while Japan’s Nikkei index soared 2.2 per cent as a weaker yen boosted prospects for Japanese exporters.

The dollar gained another 0.3 per cent against the yen, reaching its highest level in a month. This followed comments from Japan’s newly elected Prime Minister, Shigeru Ishiba, who stated that the country was not prepared for additional rate hikes after a meeting with the central bank governor, Kazuo Ueda.

Ueda emphasised that the central bank would proceed cautiously in deciding whether to raise interest rates. Asahi Noguchi, a dovish member of the Bank of Japan’s policy board, echoed this sentiment, urging the central bank to maintain loose monetary conditions.

Futures markets currently imply less than a 50 per cent chance of the Bank of Japan raising interest rates by 10 basis points by December. Moreover, interest rates are expected to reach only 0.5 per cent by the end of next year, up from the current 0.25 per cent.

In other Asian markets, China’s mainland markets were closed for a holiday, while Hong Kong’s Hang Seng index lost 2.5 per cent after a 6.2 per cent surge the previous day.

The benchmark index remained up a staggering 30 per cent in just three weeks, following China’s announcement of a series of stimulus measures to revive its faltering economy.

In the foreign exchange market, the euro weakened to $1.1040, just above key support at $1.10. This level was last seen on September 12.

Oil prices rose on concerns that the escalating conflict in the Middle East could threaten oil supplies from the world’s top producing region. Brent crude futures increased 1.1 per cent to $74.68 a barrel. Gold prices hovered near a record high of $2,655.90 an ounce.

Attribution: Reuters

Subediting: M. S. Salama