Asian shares rise after BOJ eases interest rate concerns: markets rally

(Bloomberg) — Asian shares rose after the Bank of Japan’s deputy governor said she won’t raise interest rates if markets are unstable, reassuring investors unnerved by a recent rise in the yen.

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Japanese shares rose after the yen fell more than 2% against the dollar. Noting recent volatility in Japanese markets, Bank of Japan Deputy Governor Shinichi Uchida said the BOJ’s interest rate path will shift if it impacts the policy outlook. Stocks in Taiwan and South Korea rose further, while US futures also rose.

Uchida’s comments provided much-needed reassurance to markets at a time when investors remained concerned about whether the yen’s recent unwinding of carry trading has run its course. The BOJ’s dovish stance also removed one major uncertainty as traders continued to assess whether the recent global sell-off was an overreaction to weak U.S. economic data.

“Uchida-san’s comments may bring some stability to the Japanese stock market for now, but cannot take the focus away from US economic data and recession concerns,” said Charu Chanana, head of currency strategy at Saxo Markets. “Introducing new carry trades remains difficult in this environment of higher volatility and nervousness about the US economy.”

The Nikkei and Topix indexes entered a bear market on Monday after falling 20% ​​from their July highs. The Nikkei’s implied volatility reached its highest level since 2008 at the beginning of this week.

The yen carry trade expiration among speculative investors was 50% to 60% complete, Arindam Sandilya, co-head of global FX strategy, said on Bloomberg TV. Investors using the cheap currency to finance investments in higher-yielding assets were caught out as the yen rose 11% last month.

The Mexican peso, another trading target, also rose more than 1% against the dollar on Wednesday. The Australian dollar and its New Zealand counterpart both also advanced.

Back in shares, a broad Asian gauge rose 1.7%. Chinese shares moved higher after four straight days of losses, with all eyes on new trading data from the country later Wednesday.

The S&P 500 and Nasdaq 100 rose on Tuesday – following a Japan-led recovery in Asia – both rising 1% after a global crisis. Wall Street’s “fear gauge” – the VIX – suffered its biggest drop since 2010. Traders also tempered expectations of Federal Reserve rate cuts this year, with swaps predicting an easing of about 105 basis points, down from as much as 150 basis points on Monday.

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Yields on 10-year government bonds rose one basis point in Asian trading, after rising 10 basis points to 3.89% on Tuesday. Oil slipped.

“We could characterize the market’s recent pullback as a textbook correction, after months of low volatility so far in 2024,” said Carol Schleif of BMO Family Office. “The lack of volatility in recent weeks is unusual, and our current correction is actually quite normal, especially in August, which is historically a volatile time for markets given lighter trading volumes and the summer slump.”

A semblance of calm returned to markets on Tuesday after a decline fueled by weak economic data, disappointing technical results, tense positioning and poor seasonal trends. The wall of worry the market has built in recent days pushed the S&P 500 to the brink of a correction, down about 8.5% from highs.

Main events this week:

• Chinese trading, currency reserves, Wednesday

• US consumer credit, Wednesday

• Germany industrial production, Thursday

• First unemployment claims in the US, Thursday

• The Fed’s Thomas Barkin will speak on Thursday

• China PPI, CPI, Friday

Some of the major moves in the markets:

Shares

• Futures on the S&P 500 were little changed at 9:44 a.m. Tokyo time

• Hang Seng futures rose 0.5%

• Nikkei 225 futures (OSE) rose 0.3%

• Japan’s Topix rose 0.5%

• Australia’s S&P/ASX 200 fell 0.2%

• Euro Stoxx 50 futures rose 0.5%

• Nasdaq 100 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0926

• The Japanese yen fell 0.5% to 145.11 per dollar

• The offshore yuan was little changed at 7.1627 per dollar

• The Australian dollar rose 0.2% to $0.6532

Cryptocurrencies

• Bitcoin fell 0.8% to $56,114.51

• Ether fell 1.5% to $2,452.71

Bonds

• The yield on ten-year government bonds rose by one basis point to 3.90%

• The Japanese ten-year yield remained unchanged at 0.890%

• Australian ten-year yields rose six basis points to 4.08%

Raw materials

• West Texas Intermediate crude fell 0.3% to $73.01 a barrel

• Gold fell 0.4% to $2,382.63 an ounce

This story was produced with the help of Bloomberg Automation.

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