Asian shares edged higher on Wednesday as stability returned after a choppy start to the week, although Tokyo saw more big swings and the yen fell further as analysts warned more turmoil could follow.
After Monday’s collapse saw trillions of dollars wiped off global valuations, traders returned to take chances on Tuesday, with Japan’s Nikkei recovering from a 12.4% loss and enjoying a gain of more than 10%.
The rally continued on Wall Street, with some observers saying the sell-off may have been a little overdone.
And Asia extended the rally, with Bank of Japan Deputy Governor Shinichi Uchida easing tensions in a tepid speech in which he said officials would maintain overly loose policies amid market turmoil.
βOn the future conduct of monetary policy, in short, I believe the Bank should maintain monetary easing at the current policy rate for now, with financial and capital market developments at home and abroad extremely volatile. ” Uchida said in a speech.
Asian shares recover from declines as the Fed faces calls to cut interest rates early
He added that the yen has in recent days “appreciated significantly against the US dollar as long positions built up in a weaker yen fail.”
“Furthermore, due in part to the correction of the yen’s depreciation, stock prices in Japan have fallen more than other economies.”
Investors had jumped after data released on Friday showed the US economy added far fewer jobs than expected in July, fueling fears of a recession.
That came shortly after the Federal Reserve hinted at cutting interest rates in September, hours after the Bank of Japan raised them for the second time in 17 years — sending shivers through financial markets.
Uchida’s comments were widely welcomed by investors.
Tokyo closed the morning more than two percent higher, having fallen more than two percent immediately after the open, while Hong Kong, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta was also in positive territory.
The Fed is under pressure to cut interest rates as market turmoil continues
The yen also fell further to more than 146 per dollar, having touched less than 142 on Monday, its strongest in six months.
The stronger Japanese currency had put a wrench in a joint trade strategy of borrowing at low interest rates in Japan and investing in high-yielding assets elsewhere, such as US technology stocks.
With Fed and BoJ interest rates moving in different directions, this so-called yen trade saw many investors dump assets to cover their positions, magnifying the disaster.
While there is relative calm on the trading boards at the moment, observers have warned investors to remain cautious.
“The recovery on Tuesday really lived up to its name with the dramatic rise in Japanese shares,” analyst Stephen Innes said, adding that the previous two days had been “a real economic rollercoaster”.
“This volatility is indicative of more prolonged and chaotic market declines, which could prompt investors to adopt a cautious stance, hold tight and keep antacids ready,” he told Dark Side Of The Boom’s newsletter .
Asian shares fall after US data fans recession fears
“Prepare for some quick swings in either direction — the market could soon look like a jitter on a caffeine high.”
And Asset Management One said in a comment: βIt is important to note that the current situation may continue for some time, as it did during the recovery from Black Monday 1987.
“Increased market volatility should not be ignored.”
Keys around 03:00 GMT
Tokyo – Nikkei 225: UP 2.3 percent at 35,464.61 (break)
Hong Kong – Hang Seng Index: UP 1.3 percent at 16,858.87
Shanghai – Composite: UP 0.2 percent to 2,873.16
Dollar/yen: UP to 146.50 yen from 144.68 yen on Tuesday
EUR/USD: DOWN to $1.0917 from $1.0933
GBP/USD: UP at $1.2708 from $1.2691
Euro/pound: DOWN to 85.91 pence from 86.12 pence
West Texas Intermediate: DOWN 0.2% to $73.06 a barrel
North Sea Brent crude: UP 0.1% to $76.41 a barrel
New York – Dow: UP 0.8 percent at 38,997.66 (close)
Tokyo tanks as Asian markets watch Wall St under recession fears
London – FTSE 100: UP 0.2 per cent at 8,026.69 (close)
Source: AFP