Asian stock markets were mostly lower Thursday as investors digested an upbeat Fed assessment of the USA economy that raised the prospect of further rate hikes as they anticipate more stimulus from Japan. It is up 10 percent in a month.
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Increasing the minimum wage is likely to encourage other wages to rise, which would be good news for the Bank of Japan (BOJ). “But the BOJ can’t save its face if it does not cut rates into negative territory after it introduced the negative interest rate policy (in January), so we need to brace for such possibility, too”.
But while expectations of new measures have boosted Japanese stocks and sent the yen tumbling – helping exporters – analysts warned of a sharp sell-off if policymakers disappoint.
Japanese bond yields are cratering again, reacting to the news that Shinzo Abe’s government is looking to compile a stimulus package of more than 28 trillion yen (around $US265 billion) in attempt to bolster flagging economic growth.
The news comes after Abe promised to ramp up spending on the stuttering economy following Britain’s shock vote to leave the European Union and a landslide parliamentary election win earlier this month that solidified his power.
Europe had an up day Wednesday with Germany’s Dax shaking off weak earnings from Deutsche Bank to close 0.7% higher while London’s FTSE gained 0.39%. “Once we see the details, I think the reaction is going to be worse”, he said.
“From all outward appearances, the Fed seems to be inching its way back to the rate hike table, with a lift in its economic assessment keeping its options open for a hike later in the year, should conditions warrant it”, David Croy, a senior rates strategist in Wellington at ANZ Bank New Zealand, said in a note to clients.
Since the global financial crisis, major central banks have inflated their balance sheets and injected trillions of dollars to reflate their economies.
The BoJ ends its gathering Friday and is widely tipped to unveil fresh stimulus as the world’s number three economy struggles and inflation is virtually non-existent.
The US dollar sank on Thursday after the Federal Reserve indicated it would take a slow, measured approach to any interest rate hikes, while Tokyo led Asian markets lower on worries the size of the Bank of Japan’s expected stimulus.
The Fed left its target interest rate in a range of 0.25 percent to 0.5 percent as expected and said near-term risks to the United States economic outlook had diminished and the labour market had improved, suggesting it will raise rates later this year.
The yen was last down 0.84% at 105.52 per dollar. “The market is still wary of any surprises from (Governor Haruhiko) Kuroda”, said Kyosuke Suzuki, director of forex at Societe Generale. The euro held steady at $1.0989.
Elsewhere, Hong Kong slipped 0.4 percent in late trade and Singapore was one percent off while Seoul ended down 0.2 percent and Manila dived 1.4 percent.
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In commodity markets, crude oil extended losses after suffering big hits overnight on renewed concerns about oversupply.
