Japan shares leads to a 34-year high level as the Bank of Japan (BOJ) stood rigid on its ultra-loose policy rates. Whereas, Chinese stock market loses steam over speculations of a huge rescue package from Beijing baffled the investors concerned about signs of a shaky economy.
European markets are also expected to open flat with EURO STOXX 50 futures as it went up by 0.1% in the previous trading session. S&P 500 futures remained flat, though Nasdaq gained 0.1% in yesterday’s session.
Though Nikkei (.N225) gained momentum initially, it was quickly wiped off because of the profit-taking by investors later in the day. However, the index is already up by 9% this year. MSCI (.MIAPJ0000PUS) also rose by 0.9%, while there was a 2.9% increase witnessed in the Hong Kong’s Hang Seng stock index (.HSI).
To boost a struggling economy that is losing its steam quickly, the government of China announced late on Monday to take more forceful and effective actions to support market confidence and boost the economy.
In addition to that, Blomberg’s report that Beijing is looking to mobilize 2 trillion yuan ($278 billion) to stabilize the country’s collapsing stock markets is seen as another green flag for the world’s second largest economy.
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World’s second largest economy
China, the world’s second largest economy and an industrial power has been under immense pressure lately, especially after the covid-19 pandemic and its aftermath. The country is grappling with various challenges including a falling demand and a deepening real-estate crisis that is fueling deflationary pressure.
These factors have had their weight on the country’s stock markets in recent times, with Chinese blue chip stocks (.CSI300) trembling between gain and losses, hitting five-year lows on Monday.
Matt Simpson, a senior market analyst at City Index said that, “there are reports of a rescue package that has seen an imminent question resurface: will it be enough to turn the ship around? And early market reactions suggest traders are underwhelmed.”
He viewed that, “the National Team have likely been supporting the market already, and whilst that may have deterred bears it hasn’t really enticed bulls from the sideline.”
The Bank of Japan (BOJ) remained rigid on Tuesday keeping interest rates to an ultra-low level in a move that was already anticipated by the market that leads the Japan shares to hit 34-year high.
The central bank reduced its short-term inflation outlook, but increased the outlook for fiscal 2025 from 1.7% to 1.8%. Governor Kazuo Ueda will hold a press briefing later in the day.
Traders are eagerly looking for any signs of BOJ pulling its monetary policy out of the negative territory, which is seen as the next move by Kazuo to dismantle the radical stimulus program initiated by his predecessor.
DONT FORGET: China exports picked up pace in December as global trade improved
Other markets
After dipping almost 0.3% in a reaction to BOJ’s statement, yen found its ground and steadied around 148.01 per dollar. An analyst at National Australia Bank suggested that BOJ revising its inflation forecast for 2025 hints that the country is moving closer to its target of 2% inflation.
He further noted that, “for our mind, April is the absolute earliest that they will contemplate tightening… We actually think the risk is that they end up moving later rather than sooner than April.”
Yields on Japanese government bonds lowered by 1 basis point to 0.64%, way down from its peak of 0.97% in November. Most Asian stock markets were also up, seeing a rally in Wall Street as the benchmark S&P 500 (.SPX) recorded another high amid little market movements.
Traders expectations about the timings of first rate cut by the Federal Reserve have dampened with only 40% of them weighing a likelihood of rate cuts in March. Still they expect at least five rate cuts in the year.
In the currency markets the Australian and the Kiwi dollar moved slightly up by 0.5% on talks of a big stimulus package being announced by Beijing to support the stock markets.
