Asian Stocks Climb on Optimism for China; Japan’s Markets Dip Amid BOJ Rate Hike

Asian stock markets saw gains on Friday, buoyed by record highs on Wall Street and hopes for increased policy support from China. However, Japanese stocks pared some of their earlier advances following a hawkish rate hike by the Bank of Japan (BOJ).

Wall Street Leads Positive Sentiment

Asian markets followed a strong lead from Wall Street, where the S&P 500 reached an all-time high after former U.S. President Donald Trump signalled a push for lower interest rates from the Federal Reserve. U.S. stock futures held steady during Asian trading hours as investors shifted focus to the upcoming Federal Reserve meeting, with expectations of no changes to interest rates.

China’s Policy Moves Support Regional Sentiment

Investor confidence in Asian markets was further bolstered by China’s latest measures to support its struggling equity markets. Chinese authorities announced plans to deploy more capital into local equities via state-owned insurers and financial institutions. This move aimed to counteract the negative impact of escalating trade tensions with the U.S., particularly after Trump floated the possibility of a new Sino-U.S. trade deal, just days after threatening additional tariffs.

China’s Shanghai Shenzhen CSI 300 index rose 0.7%, while the Shanghai Composite index added 0.4%, extending gains from earlier in the week. Hong Kong’s Hang Seng index outperformed its regional peers, surging 1.7%, led by strong performances from chipmaking stocks. Investors speculated that U.S. export controls could boost domestic demand for the semiconductor sector.

Japan’s Markets React to BOJ Policy Shift

Japan’s Nikkei 225 and TOPIX indexes climbed 0.4% and 0.6%, respectively, earlier in the day, but trimmed gains following the BOJ’s decision to raise interest rates by 25 basis points. The central bank also signalled the potential for further rate hikes, citing higher inflation expectations and slower economic growth in the years ahead.

While higher rates typically weigh on Japanese equities, the move reflected increased confidence in the nation’s economic resilience. Key sectors tied to domestic growth were poised to benefit from the improved outlook.

Earlier in the day, robust consumer price index (CPI) inflation data strengthened expectations for the BOJ’s rate hike. However, mixed signals emerged from Japan’s purchasing managers’ index (PMI), which revealed a continued contraction in the manufacturing sector for the seventh consecutive month, offset by robust growth in services.

China Prepares for Lunar New Year Holiday

Chinese markets will close next week for the Lunar New Year celebrations, but investors are awaiting key January PMI data set to release on Monday. Analysts expect continued volatility in the markets, with both the CSI 300 and Shanghai Composite indexes posting weekly gains of 3% to 5% as investors priced in the BOJ’s policy actions.

Outlook for Asian Markets

Asian stock markets are finding support in a mix of global and regional factors, including Wall Street optimism, China’s policy measures, and a cautious approach from central banks. While the BOJ’s hawkish stance presents challenges for Japanese equities, it also underscores a growing confidence in economic fundamentals. As China continues to grapple with trade tensions, its policy-driven market interventions are helping maintain investor sentiment ahead of a crucial week for global markets.

(Sources: investing.com, reuters.com, ChatGPT)