SYDNEY- Asian share markets extended their rally on Wednesday, led by another bounce in the Nikkei, as the Bank of Japan unexpectedly turned cautious on rate hikes amidst market volatility, which led to a sharp fall in the yen.
The Nikkei’s 2.3 percent rise followed Tuesday’s 10 percent rally, suggesting investors were finding their footing after the recent market rout. The index slumped 13 percent on Monday.
Sentiment had looked a little shaky early in Asia, but Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said in a speech to business leaders the central bank won’t raise interest rates when financial markets are unstable, boosting risk sentiment.
The dollar jumped 1.9 percent to 147.03 yen and away from the 141.675 trough hit on Monday, though it remains far below its July peak of 161.96.
Hamilton Reiner, head of US Derivatives at JPMorgan Asset Management, believes Japanese stocks would recover from Monday’s 13 percent slump given the corporate reforms being undertaken by companies represented in the Nikkei.
“When you have an environment, the environment of macro and micro doesn’t really change much, and you see this price action, it’s really about an opportunity than fear.”
Analysts at JPMorgan said the sell-off in Japanese stocks may almost be over, while there is also a view emerging that the unwinding of yen carry trades may be nearing completion.
The unravelling of the yen carry trade – where investors borrow yen at low rates to buy higher yielding assets – was a driving force in the market rout, but again seemed to be stabilizing.
MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.4 percent . South Korean stocks added 2.5 percent while Taiwan surged 3.4 percent .
China’s blue chip index rose 0.2 percent while Hong Kong’s Hang Seng index gained 1 percent , after data showed that Chinese imports in July rose 7.2 percent from a year earlier, beating forecasts, in a positive sign for domestic demand, although growth in exports slowed.
