Asia: China stocks slide as FOMC interest rate decision looms

Asian stocks declined outside of Japan on Tuesday as investors weighed the Bank of Japan’s decision to keep policy unchanged and looked ahead to the Federal Reserve’s interest rate announcement.

The Hang Seng index dropped 0.50% and the Shanghai fell 3.53% while the Nikkei 225 rose 0.34%.

The BoJ held off on expanding stimulus despite admitting that slowing emerging market demand was hurting exports.

BOJ Governor Haruhiko Kuroda, however, said that domestic demand remained strong despite external pressures including China’s slowdown.

“With the next sales tax hike due the following April, BoJ Governor Haruhiko Kuroda isn’t leaving himself much margin for error. I still think we’ll see an increase in asset purchases in the coming months though as the current package just isn’t achieving its target, or even close to doing so,” said Craig Erlam, senior market analyst at Oanda.

The yen strengthened against the dollar following the announcement.

The market is now turning to Thursday’s decision on interest rates by the Federal Open Market Committee. Market consensus is divided on whether the Fed will raise rates for the first time in nearly a decade amid turbulence in global stocks, prompted by concerns on China’s flagging economy.

“Although we continue to see economic activity in the US as solid and justifying modest rate hikes, we believe the Federal Reserve is unlikely to begin a hiking cycle in this environment of high volatility and uncertainty in global financial markets,” said Barclays Research analysts.

Meanwhile, Barclays cut its forecast on China’s growth next year to 6% from 6.6% after reports on Sunday showed factory output rose less than expected and investment in the first eight months rose at the slowest pace since 2000.

Among companies, technology and material stocks declined on the CSI 300, including Searainbow Holding Corp. and Yunnan Copper Co.

Banking stocks snapped earlier gains amid speculation of government intervention.