HONG KONG – Asian stocks climbed to fresh near one-year highs and the Japanese yen weakened on Wednesday as awaited central bank meetings this week that could see fresh stimulus in Japan and provide clues on U.S. interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, climbing to its highest since Aug. 11 2015. It is up 10 percent in a month.
Japan’s Nikkei gained 1.1 percent, leading the region.
There is a near-consensus among traders that the Bank of Japan will ease on Friday, most likely by ramping up its already massive purchases of government bonds and riskier assets.
Cutting interest rates into negative territory has proved unpopular with the public and the government, so deepening those cuts is a less likely option, sources familiar with central bank thinking say.
But some market watchers say a BOJ move may be too close to call, and many central bank policymakers may prefer to hold off on action as they expect an anticipated fiscal stimulus package and a delay in next year’s sales tax hike to boost growth.
Japanese Prime Minister Shinzo Abe will announce details of a long-awaited 27 trillion yen ($254.2 billion) fiscal stimulus package later on Wednesday, Fuji TV reported. That would be more than expected earlier, but critics will be watching to see how much is actually new spending.
Hong Kong stocks rose 0.4 percent as mainland Chinese investors continued to snap up shares through a stock market connection scheme.
“Pockets of the world where yield and growth are present will continue to be rewarded by investors,” said Daniel Morris, a senior investment strategist at BNP Paribas Investment Partners citing India, Indonesia and China consumer-focused plays among his top picks.
“Still, we are cautious on the second half and we don’t think central banks will rush into tightening policy with the global growth outlook bleak and uncertain,” he said.
Since the global financial crisis, major central banks have inflated their balance sheets and injected trillions of dollars to reflate their economies. On a monthly basis, they are adding about $180 billion into the world’s financial system led by the ECB and the BOJ, according to Deutsche Bank.
On Tuesday, U.S. equity markets closed mixed while stocks in Europe traded slightly higher with all eyes were on the Fed, which concludes its two-day policy meeting later on Wednesday.
The U.S. central bank is widely expected to stand pat on monetary policy and the markets will sift through its statements – a post-meeting news conference will not be held – for any hints of the timing on future interest rate hikes. Expectations of a September increase are clouded ahead of the U.S. presidential election in November, but markets see a roughly 50-50 chance of a rise in December.
In currency markets, price action was messy, triggered by Australian price data where core inflation stayed at a record trough, though major pairs clung to well worn trading ranges.
The Australian dollar was flat at 0.75 after rising to as high as 0.7568 after the data. Investors slightly reduced the odds of a cut next week to 50 percent, from 60 percent before the data.
The dollar was up slightly against a basket of currencies on a trade weighted basis nearing five-month high it hit last week.
Against the yen, it was up 0.5 percent at 105.20 after tanking more than 1 percent overnight.
“There are still expectations the Bank of Japan will ease on Friday. The market is still wary of any surprises from (Governor Haruhiko) Kuroda,” said Kyosuke Suzuki, director of forex at Societe Generale.
The euro stood steady at $1.0995 after edging up 0.3 percent overnight thanks to the greenback’s broad retreat versus the yen.
The pound edged up 0.1 percent to $1.3114 after touching a two-week low of $1.3057 overnight following dovish statements from Bank of England policymaker Martin Weale.
In commodity markets, crude oil extended losses after suffering big hits overnight on renewed concerns about oversupply. U.S. crude was down 0.05 percent at $42.88 a barrel. The contracts had touched $42.36 on Tuesday, their lowest in three months.
Trade group American Petroleum Institute (API) said Tuesday that U.S. crude stockpiles fell by 827,000 barrels last week, much less than analysts’ expectations for a drawdown of 2.3 million barrels.