Asia report: Markets mixed as BoJ maintains ultra-loose policy

Markets in the Asia-Pacific region displayed mixed outcomes at the end of the trading week on Friday.

After maintaining its existing monetary policy, the Bank of Japan (BoJ) was in focus, leaving interest rates at -0.1%.

Moreover, the 10-year Japanese government bond yield continues to be anchored approximately at zero, further highlighting the bank's cautious approach amidst varied market behaviours across the region.

“Asian equity markets showed a mixed performance overnight; the Bank of Japan (BoJ) made no changes to its monetary policy in its latest update,” said TickMill’s Patrick Munnelly.

“BoJ governor [Kazuo] Ueda's post-announcement comments did not signal an imminent rise in interest rates.”

Munnelly noted that before the meeting, Japan's finance minister warned that action would be taken if the yen weakened further.

“Japanese annual CPI inflation fell slightly to 3.2% in August, down from 3.3% in July, while 'core' inflation remained unchanged.”

Japan’s equities in the red, mixed performance across region

Both major stock indices in Japan reported declines, as the Nikkei 225 saw a decrease of 0.52%, closing at 32,402.41 points, while the Topix index dropped by 0.3%, settling at 2,376.27 points.

Among the companies with notable losses on Tokyo’s benchmark was Kawasaki Kisen Kaisha, dropping 3.37%; Z Holdings, which dipped 2.99%; and Nippon Yusen, down by 2.69%.

On the other hand, China witnessed a more optimistic market outcome - the Shanghai Composite index rose by 1.55% to 3,132.43 points, and the Shenzhen Component also enjoyed an upswing, gaining 1.97% to conclude at 10,178.74 points.

Standout performers in Shanghai were China Science Publishing & Media, soaring by 10%, and China Bester Group Telecom, just a notch behind with a 9.99% increase.

Hong Kong's Hang Seng Index mirrored China's positive momentum, registering a 2.28% increment, finishing at 18,057.45 points.

Market leaders included Country Garden Services, which surged by 6.59%, closely followed by NetEase at 6.5%, and China Resources Beer, marking a 4.91% gain.

South Korea's Kospi reported a modest decline, shedding 0.27% and ending at 2,508.13 points.

The most significant losses were recorded by Samsung Engineering, down by 4.38%, and Hanwha Ocean Co, declining by 4.13%.

In contrast, Australia's S&P/ASX 200 index slightly gained, up by 0.05% to 7,068.80 points.

Pilbara Minerals and Mercury NZ were the market frontrunners, gaining 6.78% and 4.12%, respectively.

The S&P/NZX 50 in New Zealand advanced by 0.48%, settling at 11,372.62 points.

Top performers in Wellington were Manawa Energy, appreciating by 5.63%, and Skellerup Holdings, up by 3.7%.

The dollar was last 0.53% stronger on the yen in the currency sector, trading at JPY 148.37.

However, the greenback faced declines against the Aussie and Kiwi dollars, decreasing 0.27% and 0.36% to AUD 1.5546 and NZD 1.6800, respectively.

The oil market showed minimal fluctuations, with Brent crude futures edging up 0.14% on ICE to $93.43 per barrel, while the NYMEX quote for West Texas Intermediate marked a slightly higher gain of 0.27% to $89.87.

Japan retains ultra-loose monetary policy amid rising inflation

The Bank of Japan (BoJ) decided to keep its monetary policy consistent, maintaining interest rates at -0.1% on Friday, in a move widely expected by market watchers.

It also aligned with the bank's commitment to cap the 10-year Japanese government bond yield at approximately zero.

Governor Kazuo Ueda, the newest head of the BoJ, remained firm in his stance that Japan needed to adhere to a highly accommodative monetary policy until the country saw a consistent % inflation rate of 2%.

Japan's primary inflation figures have consistently surpassed that target since April 2022, with data from August showing a rate of 3.2%.

The BoJ's policy statement reflected a cautious and adaptable approach.

“Due to the profound uncertainties impacting both domestic and international economies and financial markets, the bank is committed to maintaining monetary easing,” it said.

“We remain agile, adapting to the evolving trends in economic activities, prices, and overall financial conditions.”

The approach from the BoJ offered a stark contrast to many of the world's major economies, which had been hiking interest rates to combat rising inflation.

“We think the BoJ will keep the negative short-term policy rate in place to support the economy while phasing out yield curve control policy in a measured fashion,” said Duncan Wrigley at Pantheon Macroeconomics.

“Governor Ueda in July cited international cases of exiting from yield curve control policy, with the lessons being to act preemptively, rather than leave it late and be forced to exit by the markets, and to make a gradual exit so that investors can rebalance their portfolios and avoid large losses.”

Diving deeper into Japan's latest inflation metrics, August's headline inflation settled at 3.2% - slightly decelerating from July's 3.3%.

That marked the 17th consecutive month that the inflation rate has surpassed the BoJ's 2% benchmark.

When omitting the fluctuating prices of fresh food, the core inflation rate was stable at 3.1%, marginally exceeding economists' predictions of 3%, as per Reuters.

The BoJ's ‘core-core’ inflation measurement, excluding energy costs, remained at 4.3%.

“The recent rise in international oil prices is likely to sustain elevated inflation for the rest of the year, partly offsetting the impact of household energy subsidies and easing food price inflation after October,” Duncan Wrigley added.

“Services inflation probably will remain confined to tourism-related sectors, given the soft domestic economic outlook.”

Moreover, recent data suggests a slowing pace in Japan's private sector growth.

The flash composite purchasing managers index (PMI) for September landed at 51.8, a decline from August's 52.6.

The manufacturing PMI highlighted an accelerating contraction, registering 48.6, while the services PMI for September demonstrated a tempered expansion at 53.3, compared to 54.3 in August.

Meanwhile, in Hong Kong, the inflation rate for August remained stable at 1.8% - slightly below the 2% forecast by economists, according to a Reuters poll.

The city's statistical department highlighted that the steepest price increases year-on-year were observed in alcoholic beverages, tobacco, clothing, footwear, electricity, gas, and water.

Contrarily, durable goods and staple foods witnessed a price decrease over the same period.

Reporting by Josh White for Sharecast.com.