Asia close: PBoC acts to prop up economy

Asian equities ground higher on Wednesday, as the Japanese Yen weakened significantly and Chinese authorities took new measures to prop up their weakening economy.

The dollar/yen ended the day higher by 1.51% to 108.6 yen even though by some accounts the US Federal Reserve only shifted its guidance for interest rates modestly. Admittedly, some analysts are now saying that a first rise in the Fed funds rate may arrive before mid-2015. In any case, the latest FOMC policy statement was sufficient to push the Japanese currency sharply higher.

As a result of the above the Nikkei-225 finished the session in the blue by 1.13% to 16,067.57, accompanied by gains of 0.35% in the Shanghai Stock Exchange´s main index to reach 2,315.93 and a rise of 0.46% in Taiwan´s benchmark, which finished the day at 9,237.03.

Nevertheless, and underlining the frailty of the Japanese economy, the latest figures available revealed that the country´s imports contracted at a 1.5% pace year-on-year in August, although sales of goods overseas only fell by 1.3%, less than the 2.6% drop projected by economists.

In parallel, the latest data also released on Wednesday showed that new home prices in China fell in all but two of the 70 cities monitored by authorities in Beijing as tighter credit conditions took their toll.

Reacting to the above, the People’s Bank of China (PBoC) sold 10bn yuan of 14-day repurchase contracts at 3.5% on Thursday, 20 basis points less than at its last sale. That new easing measure comes on the heels of the 500bn yuan in fresh funds which the PBoC made available to the country´s five largest lenders via its standing lending facility.

Not surprisingly, a measure of real estate stocks was the worst performer in Shanghai, falling by 1%.