The BOJ maintained its 0.1 per cent negative interest rate, but abandoned its base money target.
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Hong Kong’s Hang Seng index rose 1.4 per cent to 24,007.40 points and the Shanghai Composite Index advanced 0.7 per cent to 3,046.49.
Markets in Tokyo reopened after a public holiday on Thursday, and digested Wednesday´s news that the U.S. Federal Reserve left interest rates unchanged but signalled it could still tighten monetary policy by the end of this year. “The economy has a little more room to run”. The Fed said the us job market has strengthened and economic activity has picked up but business investment is soft and inflation too low.
As a result, even unconventional monetary policy efforts from the BOJ and European Central Bank have shown a diminishing ability to weaken their respective regions’ currencies. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY.
The Fed’s expectations for short-term and long-term GDP growth dropped to 1.8% from 2%, while forecasts for unemployment remained mostly unchanged, with officials expecting the rate to fall to 4.6% by 2019.
Fidelity International global economist Anna Stupnytska says softer data over the past few weeks meant the hold on rates was widely expected. The Fed said US economic activity had picked up and job gains were “solid” in recent months.
The statement stated that the case for a rate hike had strengthened, but the committee made a decision to wait for further evidence.
“Most people were expecting some version of this, the idea that they weren’t actually going to hike rates but they didn’t want the notion that the Fed is never going to hike”, said Lewis Alexander, the chief US economist at Nomura.
Although there is an FOMC rate decision in November, it is widely expected the committee will again keep rates on hold as the meeting is just weeks before the U.S. presidential election. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 – a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election. Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren even dissented on the decision to stay put. Three out of 10 of its rate-setters voted against the decision, and called for an immediate increase.
Markets took to heart the Fed’s pointed signal that it could increase its benchmark rate in December. And the Nasdaq jumped 55 points, or 1%, at 5,295.18- a new record for the tech-heavy index, surpassing its close of 5,283.93 on September 7.
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“We can more effectively respond to surprisingly strong inflation pressures in the future by raising rates, than to a weakening labor market and falling inflation by cutting rates”, she said. Policymakers also reiterated that they expect inflation to rise to their 2 percent goal over the medium term.
