Asian markets drop ahead of central bank decisions

by Jonathan Adams
Stock markets drop

With traders still uncertain, Asian equities slid on Tuesday, after a healthy run-up the day before

Asian markets dropped on Tuesday as investors await a slew of central bank decisions, key economic data and earnings from tech companies this week.

While last week’s US inflation report further stoked optimism that the Fed will reduce interest rates at least once this year, traders became more cautious after Monday’s rally.

The US central bank is expected to stay put on monetary policy on Wednesday, but its post-meeting statement will be pored over in hopes of confirmation it will reduce borrowing costs in September.

The Fed gathering concludes hours after the BoJ makes a much-anticipated decision, with speculation swirling over whether it will raise rates again, having lifted them for the first time in 17 years back in March.

BoJ chief Kazu Ueda has been tight-lipped about what decision-makers will say, though he is expected to lay out a plan for winding down the bank’s bond-buying, which has helped keep borrowing costs ultra-low for years.

But Katsutoshi Inadome, senior strategist at SuMi TRUST, said an interest rate move was unlikely just yet.

A rate hike this month, along with detailed plans to scale back Japanese Government Bond (JGB) purchases, would excessively disrupt the market, and cause yen appreciation which would hurt domestic equities, he warned in a commentary.

The only situation in which a rate hike would appear the wisest course is if the yen weakens excessively, he added.

The reduction (in JGB purchases) is expected to occur in stages, considering the economic impact as well as the market’s reaction, he said.

Inadome added that he did not expect a clear outlook for interest rate hikes as the bank continues to assess the impact of bond purchase reduction but expect an additional increase by October.

Bets on a Fed cut and BoJ cut have helped push the yen up against the dollar in recent weeks, having reached an almost four-decade low close to 162 per dollar at the start of July.

With traders still uncertain, Asian equities slid on Tuesday, after a healthy run-up the day before.

Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Singapore, Taipei, Jakarta and Manila were all down, though Wellington gained.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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