HONG KONG, RAW – Japanese shares have led gains in Asian stocks as the Bank of Japan defends its ultra-easy stance, while oil has slipped on fears of lower demand from China as Shanghai applied a ‘zero-COVID’ strategy by locking down despite a relatively modest caseload.
Japan’s Nikkei gained 0.91 per cent in early trade, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.64 per cent.
The BOJ vowed to keep monetary policy ultra-loose, offering to buy unlimited government bonds for the first four days of this week, to prevent yields in Japan from rising as they are doing elsewhere following the US Federal Reserve’s moves to hike interest rates in the face of mounting inflationary pressures.
Japan’s 10-year government bond yields hovered near the 0.25 per cent upper limit of the Bank of Japan’s yield target even after the central bank made a rare move to step into the market for a second day.
Trading remained choppy however.
Investors will favour markets that are lagging behind the Fed’s rate hike, trading on “a day to day trading mentality” and market noises and short-term development, Chi Lo, senior market strategist APAC at BNP Paribas Asset Management said.
“There is not really even medium-term direction that the market is following,” he added.
The BOJ’s action left the yen fighting for footing on Tuesday, following its worst session in 16 months.
The Japanese currency weakened by as much as 2.4 per cent to 125.10 to the US dollar overnight, its lowest since August 2015, before recovering to 124.24 in volatile morning trade in Tokyo.
Meanwhile, oil further weakened on Tuesday as the market expects China to suffer from a slowed economy while it fights against a renewed outbreak of COVID-19.
US crude fell 1.04 per cent to $US104.86 per barrel and Brent was at $US111.09, down 1.24 per cent on the day.
China’s financial hub of Shanghai reported a record 4477 COVID-19 infections for March 28 – a caseload that remains modest by global standards.
“Certainly commodity markets will not be comfortable in the short term with China shutting down,” Lo said, adding many observers estimate less than five per cent growth this year for the economy, which he said is “too pessimistic” against the expectation of stronger stimulus.
The country’s stock benchmark CSI300 fell 0.52 per cent, while in the offshore market, Hong Kong’s Hang Seng index advanced 0.54 per cent.
Australia S&P/ASX 200 slid 0.8 per cent in early trading, despite stronger than expected retail sales data.
Yields on US benchmark 10-year treasury notes were steady at 2.4696 per cent, little changed on the day due to a pause in the sharp sell-off seen in recent days.
The US Treasury yield curve, as measured by the gap between five and 30-year yields, inverted on Monday for the first time since early 2006.
“That is a macro economic signal that there is an economic recession risk down the road, which the Fed also acknowledges,” BNP’s Lo said.
“But at this point, recession is not in everybody’s mind. It is on the radar.”
Spot gold added 0.2 per cent to $US1,926.52 an ounce.