Asia report: Japan markets rise as BoJ holds interest rates

Stock markets in the Asia-Pacific region finished with a mixed performance on Tuesday, influenced by several economic factors and monetary policy decisions.

Japanese markets saw gains, driven by the Bank of Japan’s monetary policy announcement, while China’s stock markets faced some headwinds as manufacturing data for October came in lower than expected.

“Asia stock markets experienced mixed trading as the month came to a close,” said TickMill market analyst Patrick Munnelly.

“This period was marked by a significant influx of data releases, including discouraging official Chinese PMIs, and investors also had to digest a multitude of earnings reports, along with the conclusion of the Bank of Japan’s live meeting.

“The Nikkei 225 initially had a volatile session, with industrial production and retail sales missing expectations.”

However, Munnelly said the benchmark later found support following the Bank of Japan’s policy announcement, which was less aggressive than initially anticipated.

“On the other hand, the Hang Seng index dropped significantly, while the Shanghai Composite was [also] down.

“This decline came as a response to disappointing PMI data that indicated China’s factory activity had slipped into contractionary territory for October.

“Additionally, the market was influenced by a slew of earnings releases from major corporations such as Bank of China, BYD, and PetroChina.”

Japan’s equities rise, but the rest of the region struggles

In Japan, the Nikkei 225 index rose by 0.53% to 30,858.85, while the Topix index increased by 1.01% to 2,253.72.

Notable performers on Tokyo’s benchmark included Nippon Electric Glass, up by 10.19%, Nisshin Seifun Group, up by 7.81%, and Sumitomo Dainippon Pharma, up by 7.53%.

In contrast, China’s Shanghai Composite dipped 0.09% to 3,018.77, and the Shenzhen Component decreased by 0.65% to 9,863.80.

Companies like Beijing Changjiu Logistics and Hefei Changqing Machinery experienced significant declines in Shanghai, both dropping by 9.99%.

Hong Kong’s Hang Seng Index also declined, falling by 1.69% to 17,112.48.

Key players in the special administrative region, including Sunny Optical Technology, Lenovo Group, and Xinyi Solar, witnessed losses of 5.41%, 5.31%, and 5.15%, respectively.

South Korea’s Kospi slid 1.41% to 2,277.99, with notable drops in stocks like Korea Aerospace, down by 10.53%, and Posco Future M, down by 7.44%.

Australia’s S&P/ASX 200 index bucked the trend, posting a modest gain of 0.12% to close at 6,780.70.

Johns Lyng Group and Life360 were among the top performers, with gains of 4.81% and 4.73%, respectively.

New Zealand’s S&P/NZX 50 index also saw a slight increase of 0.15% to 10,757.69, with Stride Property and Serko being notable gainers, up by 4.62% and 4.48%, respectively.

In currency markets, the dollar was last 0.9% stronger on the yen to trade at JPY 150.44, while it managed a marginal gain of 0.04% against the Aussie to AUD 1.5695.

However, the greenback dipped by 0.16% against the Kiwi, last changing hands at NZD 1.7085.

Regarding oil prices, Brent crude futures were last up 0.86% on ICE at $88.26 per barrel, while the NYMEX quote for West Texas Intermediate increased 0.68% to $82.87.

Japan’s central bank maintains rates, adjusts approach to yield curves

In economic news today, the yen weakened after the Bank of Japan (BoJ) opted to keep its current interest rates and announced a shift towards greater flexibility in its yield curve control policy.

The central bank disclosed that it would continue to target a 0% yield for the 10-year Japanese government bond but would now consider the upper limit of 1% “as a reference”.

Furthermore, the BoJ raised its inflation forecast for the upcoming financial year, projecting a 2.8% increase in the core consumer price index, surpassing the 1.9% prediction made three months ago.

“The BoJ is likely to maintain loose monetary policy settings next year, including the negative short-term policy rate, while only incrementally adjusting the 10-year bond yield target,” said Pantheon Macroeconomics chief China economist Duncan Wrigley.

“US 10-year Treasury yields should fall next year, reducing the current intense pressure on the yen.

“A drop in US yields will be key for the BoJ’s ability to sustain easy monetary policy without risking significant JPY depreciation, leading to soaring import costs.”

Wrigley said Japan’s recovery remained narrowly based, relying heavily on tourism, while the broader services sectors were yet to pick up significantly, and soft exports hampered manufacturing activity.

“Governor Ueda indicated that the BoJ will be monitoring the upcoming spring union-employer wage negotiations.

“A strong outcome could catalyse the earlier attainment of sustained inflation in Japan, but overall we think Japan’s recovery isn’t strong enough yet for employers, especially SMEs, to support meaningful wage hikes in the broad economy.”

Looking at Japan’s retail sector, data showed that sales in the country experienced a 5.8% increase in September compared to the same period last year.

The growth was a slowdown from the 7% expansion seen in August and was the first instance of a reduced growth rate following four consecutive months of accelerating retail sales.

It was also slightly below the 5.9% anticipated by economists surveyed by Reuters.

Total commercial sales in Japan reached JPY 50.35trn in September, reaching its highest point since March.

Additionally, preliminary data from Japan’s Ministry of Economy, Trade, and Industry revealed that industrial production in the country increased by a modest 0.2% in September compared to last month.

That represented a turnaround from the 0.7% decline recorded in August, although it fell short of the 2.5% month-on-month growth predicted by economists polled by Reuters.

Regarding year-on-year comparisons, industrial output declined by 3.7% in September, indicating a milder contraction compared to the 4.4% decrease seen in August.

Turning to China, official data indicated an unexpected contraction in the country’s manufacturing activity for October.

China’s manufacturing purchasing managers’ index (PMI) came in at 49.5 for the month, falling below the Reuters poll estimate of 50.2.

A PMI reading below 50 indicates a contraction, while one above signals expansion.

“The downside surprise points to a fragile economic recovery and reinforces the case for continued support from the government,” said Pantheon's Duncan Wrigley.

“The NBS said the fall was largely due to the timing of the Golden Week holiday, meaning fewer working days in October, leading to weaker demand in the month.”

Wrigley noted that the overall new orders index dipped to 49.5, suggesting a moderate decline in demand, while the production index also cooled to 50.9 in October, owing to the holiday effect, from 52.7 previously.

Reporting by Josh White for Sharecast.com.