Asia report: Most markets weaker as Xi cautions over interest rate rises

Most major stocks indices were in the red at the end of Tuesday in Asia, as Japan’s central bank stood pat on interest rates, and China’s president warned of the danger of hiking rates rapidly.

In Japan, the Nikkei 225 was down 0.27% at 28,257.25, as the yen weakened 0.07% against the dollar, last trading at JPY 114.71.

Technology investing giant SoftBank Group ended the day down 0.4%, while among the benchmark’s other major components, robotics developer Fanuc added 0.52% and fashion firm Fast Retailing jumped 2.37%.

The broader Topix index was off 0.42% by the end of trading in Tokyo, closing at 1,978.38.

In a decision announced during the day, the Bank of Japan sated market expectations by leaving its short-term interest rate target unchanged at -0.1%.

The central bank also confirmed it would continue purchasing Japanese government bonds as necessary, to keep the 10-year yield at around 0%.

It also raised its short-term expectations for inflation, with the BoJ now forecasting that for the next two financial years, prices will rise 1.1% in each.

Those forecasts were from previous estimates of 0.9% and 1% for each year, respectively, although they were still below the central bank’s inflation target of 2%.

Unlike a number of its peers, Japan’s central bank has so far shied away from suggesting a tightening in policy was imminent, retaining the rhetoric that it would maintain monetary easing for “as long as it is necessary” to reach that inflation target of 2%.

“The Bank of Japan raised its price outlook at today’s meeting, but the Japanese officials are rather happy that the global inflationary pressures will finally pull Japan out of a decades-long deflationary cycle,” said Swissquote senior analyst Ipek Ozkardeskaya.

“This is almost a dream coming true for Japan, which also means that the BoJ has no rush towards the easy-money policy exit.

“Dollar-yen should safely continue trending higher, even though the historical data shows that the pair tends to move lower in periods of Fed tightening due to a broad ‘buy the rumour, sell the fact’ behaviour that flips the price action and leads to a softer dollar versus the yen when the tightening actually starts.

“But for now, the USD-JPY is preparing an attempt toward the 116-118 region, with a solid positive trailing 100-dma support, that is near the 113 mark.”

On the mainland, the Shanghai Composite managed gains of 0.8% to 3,569.91, and the smaller, technology-centric Shenzhen Composite slipped 0.33% to 2,464.83.

Xi Jinping, the President of the People’s Republic of China, told a virtual economic conference overnight that rapid rises in interest rates could put the kibosh on any global recovery from the Covid-19 pandemic.

“If major economies slam on the brakes or take a u-turn in their monetary policies, there would be serious negative spillovers,” Xi said at the ‘Davos Agenda’ online event.

“They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it.”

South Korea’s Kospi was 0.89% weaker at 2,864.24, while the Hang Seng Index in Hong Kong lost 0.43% to 24,112.78.

The blue-chip technology stocks were on the back foot in Seoul, with Samsung Electronics down 0.65% and SK Hynix slipping 0.39%.

Oil prices advanced as the region went to bed, with Brent crude last up 1.27% at $87.58 per barrel, and West Texas Intermediate rising 1.35% to $85.43.

In Australia, the S&P/ASX 200 was behind by 0.11% at 7,408.50, while across the Tasman Sea, New Zealand’s S&P/NZX 50 eked out gains of 0.06% to 12,814.46.

The down under dollars were trading weaker against the greenback, with the Aussie last off 0.3% at AUD 1.3909, and the Kiwi retreating 0.29% to change hands at NZD 1.4758.