Tokyo surges on weak yen as Asian traders cheer big US rate cut

Security guards stand an entrance of the Bank of Japan headquarters in Tokyo on September 19, 2024. (Photo by Kazuhiro NOGI / AFP)

Hong Kong, China — Tokyo’s Nikkei led Asian markets higher Thursday as the yen hit a two-week high after the Federal Reserve announced a bumper interest rate cut and pledged a series of further reductions that boosted sentiment.

After a keenly awaited meeting the US central bank decided to lower borrowing costs for the first time since the start of the pandemic by opting for a half-point reduction.

However, the bigger of two options — some had expected a 25-basis-point cut — split opinion, with some warning it could reignite inflation while others said it showed the bank was keeping ahead of the curve in supporting the economy in light of weak jobs data.

The bank’s “dot plot” guidance indicated another 50 points of reductions before January, followed by 100 next year and 50 in 2026.

READ: Federal Reserve signals end to inflation fight with half-point rate cut

After the meeting, Fed boss Jerome Powell said the economy was in “good shape” pointing to lower inflation and solid growth.

“The labour market is in a strong place. We want to keep it there,” he told reporters.

But he cautioned that the central bank would “go carefully” and weigh the matter “meeting by meeting” as it looks to keep easing.

“It is time to recalibrate our policy to something that is more appropriate, given the progress on inflation, and on employment moving to a more sustainable level.

“This is the beginning of that process.”

Equities have rallied through the year on expectations the cycle of tightening, which started in 2022, would come to an end this year as inflation slows and the labour market softens.

But, after an initial burst higher following the announcement — pushing the S&P 500 to a new record — Wall Street retreated and ended in the red.

READ: US stocks dip despite larger Fed interest rate cut

Analysts pointed out that investors had largely factored in 125 points of reductions this year, so a correction in valuations was to be expected.

Christian Hoffmann at Thornburg Investment Management said: “Considering the one dissenting voice from a governor… the Fed must have grappled with concerns not just about doing too much versus too little, but also concerns about signalling to markets, and perhaps more subtly, political optics and legacy considerations.

“The setup for this meeting was not ideal. With the market almost evenly split between a 25 basis point and 50 basis point cut, hopes were bound to be dashed. On top of that, US equity indices rallied nearly every day last week and are flirting with all-time highs and elevated valuations.”

Asian markets brushed off the weak US lead and mostly rose, with Tokyo piling on more than two percent as exporters were boosted by a weaker yen, which hit almost 144 per dollar, a level last seen at the start of the month.

That was just days after breaking below 140 for the first time since last summer.

There were also healthy gains in Hong Kong, where the de facto central bank lowered its own rates owing to the city’s currency peg to the dollar, while Shanghai, Sydney, Singapore, Wellington, Taipei, Manila and Jakarta also advanced.

Investors are now turning their attention to the Bank of Japan’s policy meeting, which concludes Friday and is expected to see officials stand pat, having sent markets into turmoil last month with a surprise hike — after doing so earlier this year for the first time since 2007.

Gold was sitting around $2,550, having burst to a new record high above $2,600 as the prospect of lower rates makes the precious metal more attractive as an investment.

Key figures around 0230 GMT

Tokyo – Nikkei 225: UP 2.5 percent at 37,284.43 (break)

Hong Kong – Hang Seng Index: UP 0.6 percent at 17,757.70

Shanghai – Composite: UP 0.3 percent at 2,725.31

Dollar/yen: UP at 143.61 yen from 142.29 yen on Wednesday

Pound/dollar: DOWN at $1.3182 from $1.3207

Euro/dollar: DOWN at $1.1092 from $1.1120

Euro/pound: DOWN at 84.14 pence from 84.17 pence

West Texas Intermediate: DOWN 0.8 percent at $70.37 per barrel

Brent North Sea Crude: DOWN 0.5 percent at $73.26 per barrel

New York – Dow: DOWN 0.3 percent at 41,503.10 (close)

London – FTSE 100: DOWN 0.7 percent at 8,253.68 (close)