Asian markets up on recovery hopes, yen sinks after Bank of Japan decision

HONG KONG, China – Asian markets rose Wednesday to maintain their strong start to the year, with Tokyo soaring and the yen tumbling after the Bank of Japan decided against further tweaking monetary policy.

Weak earnings from banking titan Goldman Sachs, a jobs warning by Microsoft, and a plunge in manufacturing data highlighted the bumpy road ahead for the United States, the world’s top economy, despite optimism over inflation and the improving interest rate outlook.

Still, hopes for China’s recovery continued to provide much-needed support, with Vice Premier Liu He telling the Davos forum that growth will likely rebound this year as the country reopens after zero-Covid while adding that Covid infections had peaked.

His comments came after data showed the Chinese economy expanded last year at its slowest pace since 1976 — excluding pandemic-hit 2020 — but beat forecasts.

The news added to hopes for a global recovery after last year’s pain caused by rising prices, rate hikes, China’s economic woes, a spike in energy costs and the war in Ukraine.

“Last fall, there was broad consensus that China was in the wrong place, Europe was slipping into a recession, and the Fed was ultimately caught ‘wrong-footed’ by very sticky inflation,” said SPI Asset Management’s Stephen Innes.

“But fast-forward to these early weeks of January, and China’s reopening has put the country on a path to much better growth, investors are far more optimistic about Europe’s recovery, and the bane of all ills US inflation is even starting to recede.”

Hong Kong, Shanghai, Sydney, Singapore, Wellington, Manila, Bangkok and Mumbai were all on the rise, though Seoul and Jakarta dipped.

Tokyo was the standout, however, piling on more than 2 percent after the Bank of Japan left its key policy rate unchanged.

London was flat after the open as data showed UK inflation slowed to 10.5 percent in December but remains around four-decade highs. Paris and Frankfurt inched up.

The yen tumbled from around 128.50 per dollar to more than 131 at one point Wednesday after the move. It also tumbled against the euro and sterling.

Japan is ‘a different story’

Traders had been keenly anticipating the decision, which came after the BoJ last month shocked markets by announcing a tweak that allowed its tightly controlled bond yields to move in a wider bracket.

Clifford Bennett, chief economist at ACY Securities, said the decision indicated the BoJ was “acting appropriately in what is still an uncertain economic growth path, and still low inflation levels”.

While other central banks have hiked rates, “Japan has long been a different story and remains so”, he added in a note.

The move in December sent the yen soaring, and while the bank held firm Wednesday, there is a growing expectation that officials will eventually move away from the policy of buying up bonds to keep yields in check.

“Speculation will remain that it will eventually review its policy,” said Takahide Kiuchi, executive economist at Nomura Research Institute and a former BoJ policy board member.

“Market focus will now shift to the appointment of a new governor,” he told AFP, noting that the bank needs to “make its policy flexible” whoever is appointed.

However, other observers said if the BoJ continued to stick to its position, the Japanese unit could fall back to around 135 per dollar.

The strategy has been in place for years as the BoJ has attempted to boost the stuttering economy by keeping borrowing costs low, but with other central banks hiking rates, the yen came under immense pressure and hit a three-decade low of around 152 per dollar in October.