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Asian stocks muted as Fed cheer wanes; Nikkei rallies on ultra-dovish BOJ

Published 12/19/2023, 11:46 AM
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Investing.com-- Most Asian stocks kept to a tight range on Tuesday as a recent post-Federal Reserve rally appeared to be cooling, while Japanese markets shot up after the Bank of Japan maintained its ultra-dovish course.

Regional markets took few positive cues from a strong overnight session on Wall Street, as U.S. stock benchmarks ended close to record highs. A slew of Fed officials attempted to downplay bets that the Fed was completely pivoting away from its hawkish stance, given that inflation still remained elevated.

The comments from the Fed officials somewhat dampened optimism that interest rate cuts from the central bank were imminent, although markets still remained biased towards a March 2024 rate cut.

Dovish signals from the Fed- that it was done raising interest rates and will look at rate cuts in 2024- drove stellar gains in Asian stocks over the past week.

Japanese stocks surge as BOJ maintains ultra-dovish course

The Nikkei 225 surged 1.2%, buoyed chiefly by industrial and technology stocks after the BOJ kept short-term rates at negative levels and said it will continue with its yield curve control measures.

Markets were wary of any signals from the bank on when it plans to begin tightening policy in 2024. But the BOJ offered scant cues on any such plans, and said it will maintain its stimulus measures amid persistent risks to the Japanese economy.

Pressure still remains on the bank to consider tightening policy, with Japanese inflation trending well above the BOJ’s 2% annual target for nearly two years. The BOJ said that inflation will likely remain sticky in the coming months, although its pace of growth is expected to moderate.

The BOJ’s ultra-dovish stance was a key boost for Japanese stocks this year, with Nikkei trading just shy of 33-year peaks touched last month. The BOJ was an outlier among major global central banks, in that it maintained ultra-low interest rates even as its peers began sharply tightening monetary conditions to combat rising inflation.

Focus is now on a BOJ press conference at 16:00 JST (08:30 GMT).

Among individual Japanese stocks, Nippon Steel Corp (TYO:5401) fell 3.3% after it agreed to buy U.S. Steel Corporation (NYSE:X) for $14.9 billion in cash.

Broader Asian stocks were largely muted, although they projected a somewhat positive bias after the BOJ rate decision.

Australia’s ASX 200 was an outlier among its peers, rising 0.9% after the minutes of the Reserve Bank’s December meeting showed that while it had considered another interest rate hike, it had decided against the move in anticipation of more cues on the Australian economy.

South Korea’s KOSPI fell 0.1%, while China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes moved in a tight range. Hong Kong’s Hang Seng shed 0.5%, pressured by losses in heavyweight real estate stocks.

Focus this week is also on a loan prime rate decision by the People’s Bank of China, although it is widely expected to leave rates unchanged.

Futures for India’s Nifty 50 index pointed to a flat open, with the benchmark trading close to record highs amid increased optimism over the Indian economy. The country is the fastest-growing major economy over the past year.

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