Wednesday 05:05 BST. Japanese stocks swung back into positive territory as the yen trimmed early gains, while other stock markets were proving unable to follow the lead from Wall Street’s 11-month closing high and firmer oil prices.
Japan’s broad Topix was up 0.4 per cent and the Nikkei 225 gained 0.5 per cent, with both having been down as much as 0.6 per cent initially. The turnaround came as the yen surrendered some of its early strength following an upgrade to national growth.
The Japanese currency was 0.2 per cent stronger at ¥107.17 per US dollar, paring an earlier gain of as much as 0.6 per cent. Some of the weakness was spurred by Chinese trade data showing that while exports shrank in May, as expected, the pace of decline in imports improved from April.
Japan’s economy grew at a 1.9 per cent annualised pace in the first three months of this year, in line with economists’ expectations but revised higher from the initial estimate of 1.7 per cent.
Other data showed Japan logged narrower current account and trade surpluses in April than forecast.
Economists had been concerned that the Kyushu earthquake in April could weigh on gross domestic product for the June quarter, but as Capital Economics highlighted, the first indications for the second quarter — namely industrial production data — look promising, and the government’s recent decision to postpone the April 2017 sales tax increase should also help.
Marcel Thieliant at Capital Economics said that spare capacity in the Japanese economy should gradually shrink in coming quarters.
“It will take at least three more years before price pressures are strong enough to reach the Bank of Japan’s 2 per cent inflation target on a sustainable basis. We therefore still expect the Bank of Japan to step up the pace of asset purchases and lower the interest rate on excess reserves at the July meeting,” he added.
Analysts at DBS reckon that although the GDP revisions would have little impact on the BoJ’s monetary policy stance, further easing might not be a wise move at this time.
“Given the backdrop that the dollar is weakening broadly amid falling expectations for Fed rate hikes, it may not be a good timing for the BoJ to push for monetary easing as the impact on the USD/JPY rate would be discounted. In fact, the episode of one-way yen depreciation might be over even if monetary policy between the BoJ and the Fed were to continue to diverge,” they said.
Other stock markets in the Asia-Pacific region were also fighting back, with Australia’s S&P/ASX 200 down 0.1 per cent and Hong Kong’s Hang Seng off 0.3 per cent. On the Chinese mainland, the Shanghai Composite was down 0.4 per cent and the technology-focused Shenzhen Composite slipped 0.5 per cent.
Fresh data showed the value of Chinese exports shrank 4.1 per cent year-on-year in dollar terms in May, from a 1.8 per cent contraction in April. However, imports in dollar terms fell 0.4 per cent year-on-year last month, a considerable improvement from the previous month’s 10.9 per cent tumble.
That saw the Australian dollar, which tends to be sensitive to direction of the Chinese economy, rebound from losses early in the session, before easing slightly to be down 0.1 per cent lower at US$ 0.745.
Global financial markets have calmed since the release of data on Friday that showed the US economy added fewer jobs than expected in May, which prompted investors to scale back expectations that the Federal Reserve could raise interest rates after its June 14-15 meeting.
Janet Yellen, Fed chair, on Monday voiced concerns over the jobs data and other uncertainties including the UK’s upcoming referendum on membership in the EU, making a June rate rise unlikely. However, she left open the door to tightening monetary policy later this year.
This has all seen the US dollar weaken, with US dollar index that measures the currency against a basket of global peers down 0.1 per cent at 93.784 on Wednesday, on pace for its first four-day losing streak in a month.
But the prospect of US monetary policy remaining accommodative for a little bit longer helped push Wall Street higher. The S&P 500 edged up 0.1 per cent to its highest closing level since July 2015.
Gold, which is sensitive to US interest rate expectations, was up 0.3 per cent at $ 1,247.46 an ounce on Wednesday.
Oil prices built on solid gains overnight with Brent crude, the international benchmark, adding 0.2 per cent in Asia to $ 51.53 a barrel while West Texas Intermediate, the US marker, gained 0.4 per cent to $ 50.54. Both closed above $ 50 a barrel on Tuesday for the first time since July 21 last year.
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