By Wayne Cole and Stella Chiu
SYDNEY (Reuters) – Asian stock markets extended gains on Wednesday, led by a rebound in the U.S. dollar after the Bank of Japan unexpectedly signaled it was unwilling to raise interest rates again amid volatile markets, sending the yen sharply lower.
The Nikkei rose 2% after surging 10% on Tuesday, fueling investor optimism that investors were finding their footing after the recent market crash. The index had fallen 13% on Monday.
The Bank of Japan will not raise interest rates when financial markets are unstable, Deputy Governor Shinichi Uchida said on Wednesday.
The dollar rose 1.6 percent to 146.65 yen, pulling away from a low of 141.675 hit on Monday, though it remains well below its July peak of 161.96.
“The sell-off in Japanese stocks may be almost over. Non-resident and retail investors have adjusted their net buying since the start of the year,” analysts at JPMorgan said in a note.
“If the market stays at its current level, the Government Pension Fund could become a net buyer by the end of September, and there is also a view that the liquidation of yen carry trades is almost over.”
The GPIF is a large fund with significant market power and its investment decisions are highly influential.
The unwinding of the yen carry trade – where investors borrow yen at low interest rates to buy higher-yielding assets – was the driving force behind the market’s decline, but once again it appeared to be stabilizing.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3%, while Korean stocks rose 2.7%. China’s blue-chip index rose 0.4%, while Hong Kong’s index rose 1.3%.
After Wall Street rebounded overnight, Nasdaq futures rose 0.6% despite a 12% drop in artificial intelligence darling Supermicro Computer (NASDAQ: ) after it missed earnings estimates.
Euro Stoxx 50 futures rose 0.8%. Futures added 1%.
As safe-haven demand eased, U.S. Treasury yields rose for a second session. The 10-year Treasury yield rose to 3.9165%, well below Monday’s low of 3.667%.
Yields on two-year notes rose to 4.0163%, from a low of 3.654%, as markets trimmed bets on an emergency rate cut by the Federal Reserve at the meeting.
Futures now point to 105 basis points of easing this year, compared with 125 basis points at one point during Monday’s turmoil, while a 50 basis point cut in September was seen as a 73% chance.
Fears of an impending recession in the US economy have also faded somewhat, as a series of economic data pointed to strong economic growth in the current quarter.
The widely watched Atlanta Federal Reserve estimates that GDP is growing at an annual rate of 2.9%.
In commodity markets, gold prices fell 0.2% to $2,383.77 per ounce, below last week’s high of $2,477.
Oil prices remained volatile as concerns mounted about falling global demand and the risk of supply disruptions in the Middle East. (O/R)
The price of a barrel of Brent crude oil fell 0.3% to $76.23, while it fell 0.4% to $72.87.