Asian equities sluggish as Fed optimism fades

Tuesday saw most Asian equities stay within narrow ranges as it seemed that the recent post-Federal Reserve rally was cooling, while Japanese markets surged on the Bank of Japan's decision to stick with its extremely dovish policy.

The robust Wall Street session overnight did not yield many encouraging signals for regional markets, as U.S. stock indices finished around all-time highs. Since inflation was still high, several Fed officials tried to play down speculation that the Fed was fully reversing its hawkish outlook.

The markets were still skewed towards a rate drop in March 2024, but the remarks made by Fed members did nothing to allay expectations that the central bank was going to gradually lower interest rates.

However, Asian equities saw phenomenal increases over the previous week due to dovish signals from the Fed, which stated that it was done increasing interest rates and would consider rate cuts in 2024.

Following the BOJ's announcement that it will maintain its yield curve management measures and maintain short-term rates at negative levels, industrial and technology companies led the 1.2% increase in the Nikkei 225.

The markets were cautious about any indications from the bank on the timing of its 2024 policy tightening. However, the BOJ gave little indications about any such intentions and declared that it would keep up its stimulus programmes despite ongoing threats to the Japanese economy.

The Bank of Japan has been under pressure to contemplate tightening policy as Japanese inflation has been consistently rising over the BOJ's 2% annual goal for over two years. The Bank of Japan stated that although inflation is predicted to develop at a slower rate, it would probably stay sticky in the upcoming months.

(Sources: investing.com, reuters.com)