Stocks in Asia down as Japan continues with ultra-low interest rate

Stocks in Asia-Pacific region were down on Tuesday with Nikkei being the worst performer as the Bank of Japan (BOJ) modified its yield curve control tolerance range while also holding the ultra-low benchmark interest rates steady.

It is BOJ’s decision to widen its cap on 10-year Japanese government bond yields, which sparked a sell-off in bonds and stocks around the world.

As a result, the Nikkei 225 and the Topix fell 2.46 percent to 26,568.03 and 1.54 percent to 1,905.59 respectively. However, the Japanese yen strengthened by more than 3 percent against the US dollar to 132.56, marking its strongest levels in over three months.

In South Korea, the Kospi fell 0.8 percent to 2,333.29 and the S&P/ASX 200 in Australia also traded 1.54 percent lower to close at 7,024.3.

Hong Kong’s Hang Seng index fell 1.3 percent in its final hour of trade and the Shenzhen Component was down 1.58 percent to 10,949.12 followed by the Shanghai Composite with a 1.07 percent slump to 3,073.77.

The visible fall in the Chinese markets may be attributed to the news coming out of World Bank as it slashed its China growth forecast as the pandemic and weaknesses in the property sector hit the world’s second largest economy.

In a statement, the institution slashed the forecast to 2.7 percent from 4.3 percent predicted in June for the year and also revised the forecast for next year from 8.1 percent down to 4.3 percent.

Both figures are well below Beijing’s stated GDP growth target for this year of around 5.5 percent, a figure many analysts believe is now unattainable.

After three years of sudden lockdowns, mass testing, long quarantines and travel restrictions, China this month abruptly abandoned its zero-Covid policy. But disruption to businesses has continued as cases surge and some restrictions remain in place.

The slowdown in China comes as the global economy is battered by surging interest rates aimed at fighting runaway inflation that has been triggered by Russia’s war in Ukraine as well as global supply chain snarls.

Beijing has sought to mitigate low growth with a series of easing measures to provide support, slashing key interest rates and pumping cash into the banking system.

As far as Japan is concerned, some experts believe the BOJ has taken the era of financial engineering into an entirely new dimension.

As investors still struggle to grasp concepts such as quantitative easing and negative interest rates, it now has introduced “yield curve control” in an effort to boost its moribund economy.

The policy will entail keeping its 10-year government bond yield at zero. Generally, it’s thought that central banks can control only short-term interest rates, but the BOJ believes that its own form of quantitative easing will help control the 10-year and steepen the yield curve — that is, increase the difference between the yields of short-term bonds — which are negative in Japan — and long-term bonds.

Earlier, the US Stocks fell Monday as recession fears mounted, making the fourth consecutive day of losses for all three averages.

The Dow Jones Industrial Average shed 162.92 points, or 0.49 percent, to close at 32,757.54. The S&P 500 fell 0.90 percent to 3,817.66, and the Nasdaq Composite shed 1.49 percent to 10,546.03, weighed down by shares of Amazon, which slipped 3.35 percent.

The moves followed another down week for stocks after the Federal Reserve delivered a 50 basis point short-term interest rate hike and signaled higher-for-longer rates. Fears that the central bank will push the US economy into a recession increased as policymakers upped their forecast for future hikes above previous expectations, saying they now expect to increase rates to 5.1 percent.

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