Japan’s stock market traded sharply higher on February 1 as investors continued to cheer January 29 surprise move by the central bank to cut its rates.
Tokyo’s Nikkei 225 closed up 1.98% to 17,865.23 – its highest close since early January.
The benchmark closed up almost 3% on January 29 after the BoJ cut its rates to -0.1%.
The move is designed to spur inflation, investment and spending. Analysts said it was a turning point for the bank.
Elsewhere, manufacturing activity in China, the world’s second biggest economy, shrank more than expected in January from a month earlier, which dented confidence among investors.
Hong Kong’s Hang Seng index closed 0.5% lower at 19,595 in afternoon trade, while the Shanghai Composite was down 1.8% at 2,688.
China’s official Purchasing Managers’ Index (PMI) came in at 49.4 for the month compared to December’s reading of 49.7. The data marks the sixth month of contraction in the sector.
Expectations were for a reading of 49.6 for the month. A reading of above 50 indicates activity has grown, while a reading of below 50 indicates activity has contracted.
In South Korea, the Kospi index closed up 0.67% to 1,924.82, reversing earlier losses.
Disappointing trade numbers released on February 1 showed exports contracted 18.5% in January from a year earlier. It marks the 13th month in a row the nation’s exports have shrunk and is the worst result for exports since mid 2009.
Imports also contracted for the period by 20.1%.
In Australia, the ASX 200 finished the day up 0.76% at 5,043.60 following gains in the US.
The Bank of Japan (BoJ) has adopted a negative interest rate in a surprise move.
The benchmark rate of (-0.1%) means that commercial banks will be charged by the central bank for some deposits.
The BoJ hopes this will be a disincentive to banks to save and prompt them to lend in another attempt to counter the continuing economic slump in the world’s third-largest economy.
The eurozone also has negative interest rates, but this is a first for Japan.
It is a move that has been on the cards for Japan’s stagnating economy for well over 10 years.
The decision to go negative came after a narrow 5-4 vote at the Bank of Japan’s first meeting of the year on January 29.
“The BoJ will cut interest rates further into negative territory if judged as necessary,” the Bank of Japan said, adding it would continue as long as needed to achieve an inflation target of 2%.
Some analysts have cast doubt over how effective the rate cut will be.
In a press conference, the BoJ’s governor Haruhiko Kuroda said the weakening growth rate of the global economy was the main factor behind the move: “Japan’s economy continues to recover moderately and the underlying price trend is improving steadily… further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people’s deflationary mindset.”
Earlier in the day, fresh economic data had again highlighted concerns over economic growth. The December core inflation rate was shown to be at 0.1% – far below the central bank’s target.
Asian shares jumped and the yen fell across the board in reaction to the announcement. Japanese banks though saw their shares drop on the news as lenders are likely to see their margins squeezed even more.
The decision comes in addition to the BoJ’s massive asset-buying program, which over the past years has failed to boost growth.
Japanese shares rose to a two-month high on Friday, October 30, after Bank of Japan decided to keep its monetary easing policy steady.
The benchmark Nikkei 225 initially fell on the decision by more than 0.4%.
The index recovered to close up 0.78% at 19,083.1 points.
BoJ’s 2% inflation target was also pushed back by about six months.
While forecasts for economic growth for the year to March 2016 were also lowered to 1.2% from 1.7%.
Japan’s central bank governor Haruhiko Kuroda told reporters on October 30 the inflation target timing had been delayed “largely due to the effect of energy price falls”.
The BoJ’s current stimulus package is designed to give a boost to the world’s third-largest economy.
Private consumption makes up some 60% of Japan’s economic activity, but the country has struggled with deflation, or falling prices, for more than 15 years. Lower prices for goods in Japan have seen consumers hold on to their money in the hope of even lower prices later on.
The stimulus package is designed to encourage lending, which in turn should see consumers spending more.
Earlier on Friday, a string of domestic data showed Japan’s core consumer inflation number had fallen 0.1% in September from a year ago, household spending had fallen 0.4% year-on-year while unemployment had remained steady at 3.4% compared to August.
The data fuelled some speculation the BoJ would make a move. But eight out of nine board members voted in favor of the decision.
On December 2, Japan’s Nikkei 225 index closed at a fresh seven-year high as investor sentiment was buoyed by talk of the Bank of Japan (BoJ) buying stocks.
The benchmark Nikkei 225 closed up 0.4% at 17,663.22 points.
Earlier, the index had fallen after Moody’s Investment Service cut Japan’s credit rating by one notch to A1 from Aa3.
Moody’s move underlined concerns over Japan’s economy after an increase in the national sales tax was delayed.
However, analysts said the weaker yen, together with the possible move by the BoJ, was continuing to support investor sentiment.
China shares rallied on speculation that the country’s central bank was preparing to reduce bank reserve requirement ratios sooner than expected on recent economic data showing a much weaker economy.
In Hong Kong, the Hang Seng index closed up 1.2% at 23,654.30, while the Shanghai Composite rose 3.1%, to 2,763.54 – its best daily rise since September 2013.
Australia’s benchmark S&P/ASX 200 index closed up 1.4% at 5,281.30 points.
The upward movement in Australia followed the biggest fall since October 10 on December 1 amid a sell-off in mining and energy related shares.
Ahead of economic growth figures due out on December 3, the Australian Bureau of Statistics (ABS) reported on December 2 that net exports had added 0.8 percentage points to gross domestic product (GDP) in Q3.
The quarterly rise in exports for the three months to September is a sign that GDP data due out on December 3 will be positive.
As expected, Australia’s central bank maintained its record low official interest rates at its monthly meeting on December 2.
The bank’s interest rate has been at 2.5% since August last year.
In South Korea, the benchmark Kospi was little-changed, closing up just 0.03% at 1,965.83 points.
Japan’s economy contracted in the third quarter of 2012, as a global economic slowdown and anti-Japan protests in China hurt its exports, while domestic consumption remained subdued.
Japan’s gross domestic product (GDP) contracted 3.5% from a year earlier.
Compared with the previous three months, the economy contracted 0.9%.
The weak data is likely to put pressure on the government to boost stimulus measures to spur growth.
“There are risks from both domestic and external factors,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“As such, the Bank of Japan [BOJ] will stand ready to ease monetary policy again, and it would not surprise me if the BOJ eased again by the end of this year.”
Japan’s economy, the world’s third-largest, has been trying to recover from last year’s earthquake and tsunami, which caused widespread destruction in the country.
However, its recovery has been hampered by a combination of factors.
A slowdown in key markets, such as the US and eurozone has hurt demand for its exports, one of the biggest drivers of Japanese growth.
Slowing growth and anti-Japan protests in China – Japan’s biggest trading partner – have further impacted its export sector.
To add to its woes, the debt crisis in the eurozone and weak recovery in the US have seen many investors flock to safe-haven assets such as the yen, resulting in the Japanese currency strengthening against the US dollar and the euro.
The yen has risen 5% against the US dollar since March this year and 8.5% against the euro during that period.
That makes Japanese goods more expensive for American and European consumers, hurting the earnings of the country’s exporters.
To make matters worse, attempts by policymakers to boost domestic demand have had little effect. Private consumption fell 0.5% in the July to September quarter, from the previous three months.
Analysts said that given these factors the economy was likely to shrink further in the current quarter and enter a technical recession.
“The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
“Economic data deteriorated sharply from September, and this means Japan is already in recession,” he added.
Faced with slowing external and domestic demand, Japan’s central bank has taken various steps to try and spur growth.
Earlier this month, the BOJ extended its asset purchase programme by 11 trillion yen ($138 billion). Under the programme, the central bank buys bonds to keep long-term borrowing costs down.
It also said that it will offer unlimited loans to banks to encourage lending in an effort to boost domestic consumption.
However, analysts said the measures were unlikely to have a major effect, not least because firms were holding back expansion plans in the wake of an uncertain economic environment.
“There is very little demand for credit. In fact Japanese firms are holding back on capital expenditure,” said Junko Nishioka, the chief economist of RBS Securities in Tokyo.
Junko Nishioka added that policymakers instead needed to focus on measures that will help weaken the yen, as the uncertain global economic environment was likely to see the Japanese currency, which is seen by some as a safe-haven asset in such times, remain strong.