Most Asian equities witnessed a downturn within the flat-to-lower range on Friday, reflecting ongoing concerns regarding escalating interest rates. Japan’s Nikkei index experienced a notable decline as uncertainty loomed ahead of a Bank of Japan (BOJ) meeting.
The region’s financial markets continued to grapple with the more hawkish stance adopted by the Federal Reserve earlier in the week. The central bank signaled that interest rates would remain elevated for an extended period, sending ripples across global markets. Similar cautionary statements from the European Central Bank and the Bank of England weighed on risk-driven assets worldwide, as heightened interest rates constrained the inflow of foreign capital into Asia, thereby painting a subdued picture for local equities.
BOJ at the Helm as Inflation Rises
The Nikkei 225 index bore the brunt of these concerns, plummeting by as much as 1%, while the TOPIX recorded a decline of 0.8% as market participants anxiously awaited the outcome of the BOJ meeting scheduled for Friday.
While the central bank is widely expected to maintain its negative interest rate policy for the time being, all eyes are on any indications of a potential shift away from these negative rates. BOJ Governor Kazuo Ueda’s comments have fueled speculation, suggesting that such a policy change is under consideration.
Ueda pointed out that wage growth and inflation levels were approaching the BOJ’s comfort zone, raising the likelihood of a pivot by the central bank. On Friday, data revealed that Japanese consumer price index inflation had slightly exceeded expectations in August, with core readings remaining at over four-decade highs. A shift in policy by the BOJ would signify the end of nearly a decade of accommodating monetary policies, which have benefited Japanese equities, and it could send reverberations through broader financial markets.
Preliminary data released on Friday also indicated a further slowdown in Japan’s manufacturing sector for September.
Other Asian Markets Respond
Elsewhere in Asia, Australia’s ASX 200 dipped by 0.8%, driven by losses in mining stocks as commodity prices retreated. The ASX endured a particularly tough week, shedding 3.7% of its value.
South Korea’s KOSPI declined by 0.3%, while futures for India’s Nifty 50 index pointed towards a positive opening after the index plummeted from record highs earlier in the week. Sentiment towards the Nifty had also been impacted by an escalating diplomatic dispute between India and Canada, centered around the alleged killing of a Sikh secessionist leader.
Chinese stocks emerged as outliers for the day, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes gaining 0.6% and 0.4%, respectively. Hong Kong’s Hang Seng also posted a 0.6% increase, as heavyweight technology stocks rebounded from earlier losses during the week.
Nonetheless, Chinese markets still registered declines for the week, plagued by growing impatience over further stimulus measures from Beijing. As expected, the People’s Bank of China maintained its loan prime rates earlier in the week.
In Southeast Asian markets, Philippine and Indonesian stocks edged higher following the respective central banks’ decisions to keep interest rates steady on Thursday, in line with expectations.
