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Asian markets traded lower on December 4, following a global trend, as investors reacted negatively to the European Central Bank’s (ECB) policy-easing moves.
The ECB cut its deposit rate by 0.1 percentage point to -0.3%.
The bank also extended its asset purchase program, but did not increase its monthly government bond purchases.
Investors were expecting a bigger cut in the rates, analysts said.
Japan’s Nikkei 225 index closed down 2.2% to 19,504.48, leading losses across the region.
The six-month extension of its stimulus program was seen as the bare minimum. Traders were looking for a one-year extension of the plan – or even an open-ended option.
China’s stock market fell after four consecutive days of gains, with Shanghai Composite index closing down 1.67% at 3,524.99.
Hong Kong’s Hang Seng index closed down 0.81% at 22,235.89, in line with global markets.
Australia’s S&P/ASX 200 index closed down 1.5% at 5,151.60 despite retail sales rising 0.5% in October from the month before.
It was the third month of solid growth as shoppers spent big on household goods and at department stores.
South Korea’s Kospi index finished lower, falling by 1% to 1,974.4.
On December 2, Japan’s Nikkei 225 index closed at a fresh seven-year high as investor sentiment was buoyed by talk of the Bank of Japan (BoJ) buying stocks.
The benchmark Nikkei 225 closed up 0.4% at 17,663.22 points.
Earlier, the index had fallen after Moody’s Investment Service cut Japan’s credit rating by one notch to A1 from Aa3.
Moody’s move underlined concerns over Japan’s economy after an increase in the national sales tax was delayed.
However, analysts said the weaker yen, together with the possible move by the BoJ, was continuing to support investor sentiment.
China shares rallied on speculation that the country’s central bank was preparing to reduce bank reserve requirement ratios sooner than expected on recent economic data showing a much weaker economy.
In Hong Kong, the Hang Seng index closed up 1.2% at 23,654.30, while the Shanghai Composite rose 3.1%, to 2,763.54 – its best daily rise since September 2013.
Australia’s benchmark S&P/ASX 200 index closed up 1.4% at 5,281.30 points.
The upward movement in Australia followed the biggest fall since October 10 on December 1 amid a sell-off in mining and energy related shares.
Ahead of economic growth figures due out on December 3, the Australian Bureau of Statistics (ABS) reported on December 2 that net exports had added 0.8 percentage points to gross domestic product (GDP) in Q3.
The quarterly rise in exports for the three months to September is a sign that GDP data due out on December 3 will be positive.
As expected, Australia’s central bank maintained its record low official interest rates at its monthly meeting on December 2.
The bank’s interest rate has been at 2.5% since August last year.
In South Korea, the benchmark Kospi was little-changed, closing up just 0.03% at 1,965.83 points.
The Indian rupee has hit a new all-time record low against the US dollar, amid concerns the Federal Reserve will soon scale back its stimulus measures.
It dropped to 64.13 against the US dollar in early trade on Tuesday.
Foreign investors have been pulling money out of India, as the economy has slowed and the cost of borrowing in dollars has risen.
The Reserve Bank of India (RBI) is rumored to have intervened to stem the slide in the currency.
The Indian rupee has declined by nearly 16% against the US dollar since May and is Asia’s worst performing currency so far this year.
Its further decline on Tuesday was mirrored by falls in markets across other developing markets, particularly in Asia.
On Tuesday, Japan’s Nikkei 225 index fell by 2.6%, Hong Kong’s Hang Seng was down 2.2% and South Korea’s Kospi dropped by 1.6%.
The Indonesian stock market fell 4.9% on Tuesday, pushing it into a formal bear market – meaning it has fallen by more than 20% since its last peak.
Minutes from the Federal Reserve’s latest meeting are due to be published on Wednesday, and may set out more details about the rollback of its “quantitative easing” stimulus programme.
The Indian rupee has hit a new all-time record low against the US dollar, amid concerns the Fed will soon scale back its stimulus measures
The Fed is expected to start slowing the rate of its purchases of government debts with newly-created money from next month.
Another source of concern in India is the country’s widening current account deficit.
The current account deficit is a broader measure than the trade deficit, and includes cross-border income flows on investments.
As well as weakening the currency, the deficit can also act as a drain on the central bank’s foreign currency reserves, and suggests that the Indian economy as a whole needs to borrow more money from abroad.
Meanwhile, the Indian government has been attempting to stem the tide of investor money leaving the country by imposing capital controls.
The combination of all these factors has sparked comparisons to the financial crisis that India faced in 1991. In July that year, the rupee eventually fell by more than 32% against the US dollar after foreign exchange reserves were depleted.
On that occasion, the country had to be rescued by the International Monetary Fund (IMF).
“Weakness concentrated in the Brazilian real and Indian rupee makes sense, as these are current account deficit economies with limited ability to defend their currencies,” said Bank of Singapore’s chief economist Richard Jerram.
“India is in worse shape than Brazil, with few viable policy responses.
“Capital controls in India are not likely to have much impact and there is the risk that a [credit] ratings agency downgrade leads to further currency weakness.”
Over the weekend, Indian PM Manmohan Singh tried to calm fears that India was facing another currency crisis.
Manmohan Singh said that back in 1991, the country only had enough foreign currency reserves to cover the country’s borrowing needs for 15 days, while currently it has reserves equivalent to six to seven months.
“So there is no comparison. And no question of going back to [the] 1991 crisis,” Manmohan Singh told the Press Trust of India.
International investors have withdrawn $11.58 billion in shares and debt from India’s markets since the beginning of June, according to official data.
India, which is Asia’s third-largest economy, grew at an annual rate of 5% in the 2012-13 financial year, the slowest pace in 10 years.
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Asian markets have dropped in early trading after two explosions hit the Boston Marathon finishing line killing three people and injuring dozens more.
Stock indexes fell by as much as 2% in Japan. South Korea and Australia also dropped, as did oil and gold prices.
Earlier on Monday, US markets closed lower after the blasts accelerated a sell-off started by weak economic data.
Analysts said that investors would be more risk averse in coming sessions and would focus on Asia’s problem areas.
“This is a kind of unknown-unknown event and a stark reminder that the world continues to remain unsafe,” said Vishnu Varathan of Japanese bank Mizhuo.
“While it has happened far away from Asia, it is likely to trigger concerns and fears over Asia’s known-unknowns.
“You have the Korean peninsula tensions, the territorial dispute between China and Japan, and other issues in the China Sea which all pose risks if they flare up,” he added.
Asian markets have dropped in early trading after two explosions hit the Boston Marathon finishing line killing three people and injuring dozens more
Faced with these problems, investors reacted to the news of the blasts by trying to cut risks, not least because in recent weeks stock markets in Asia have seen strong gains.
Japan’s Nikkei 225 index was recently trading 1% lower, while South Korea’s Kospi was down 0.9% and Australia’s ASX 200 shed 0.8%.
In the US, all three of the country’s main stock indexes closed lower on Monday. The Dow Jones ended the day down 1.8%, while the S&P shut 2.3% lower and the Nasdaq shed 2.4%.
Oil prices dropped in Asia, with US light crude down by 1.9%, and Brent crude sliding 1.6%. Gold continued to fall, extending Monday’s 10% fall and continuing to hit its lowest levels in two years.
By contrast, the Japanese yen gained against the US dollar because many investors see it as a less risky asset.
“The developments in Boston are likely to trigger an initial reaction of caution,” said Michael McCarthy, chief market analyst at CMC Markets.
The Japanese currency rose as much as 2.5% to 96.61 yen against the US dollar in New York on Monday. It also gained nearly 3% against the euro, rising as high as 125.98 yen against the single European currency.
Analysts said that many large Japanese banks or pension funds tended to sell riskier assets during times of uncertainty, bringing the money back into the country, resulting in an appreciation in the yen’s value.
Knowing this, other global investors also buy the yen, or yen-denominated assets, to benefit from this gain. However, once the risks recede, then investors tended to sell their yen and use the proceeds to again invest in riskier assets.
Analysts said the blasts had further dented investor morale in both Asia and elsewhere, which had already been shaken by weaker-than-expected Chinese and US data.
They also pointed to a number of potential Asian flashpoints that caused investors to be cautious, such as the heightened tensions on the Korean peninsula.
North Korea has recently conducted a nuclear test, and in recent weeks it has also threatened to attack South Korea, Japan and US bases in the region.
Meanwhile, the spat between China and Japan over a set of disputed islands in the East China Sea has flared up. The issue is yet to be resolved and continues to remain a bone of contention between Asia’s two biggest economies.
Analysts have often have warned that an escalation of any of these issues was likely to hurt the region’s economic growth.
“Asia is increasingly relying on intra-regional trade to sustain its economic growth,” said Vishnu Varathan of Mizhuo.
“Any full-blown conflict between Asian nations will hurt trade and could adversely impact economic growth.”
Asian markets and the euro have risen after EU officials agreed a bailout deal for Cyprus, easing fears that the country’s banking system problems may spread.
Cyprus will now get a 10-billion euro ($13 billion) cash injection to keep its banking system running and prevent it from crashing out of the eurozone.
Investors had feared that its exit from the bloc may escalate the region’s debt crisis and derail a global recovery.
Shares in Japan, South Korea, Hong Kong and Australia rose on the news.
“The news was what markets were waiting for, some kind of an agreement,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Japan’s Nikkei 225 index rose 1.7%, South Korea’s Kospi gained 1.5%, Hong Kong’s Hang Seng added 0.6% and Australia’s ASX200 was up 0.5%.
A failure to reach a deal may have seen the European Central Bank (ECB) cut emergency funding to Cyprus’s two biggest banks, leading to an effective bankruptcy of Cyprus’s government.
The fears were that such a move may prompt the country’s exit from the bloc.
Many analysts had been concerned that Cyprus’s exit may cause a loss of confidence across the eurozone and prompt investors to withdraw from other troubled economies of the bloc, such as Greece.
These concerns had seen investors ditch the euro over the past few days in favor of other assets, such as the Japanese yen and US dollar, seen as comparatively safer.
Asian markets have risen after EU officials agreed a bailout deal for Cyprus
However, news of the Cyprus deal boosted the euro.
The single currency gained 0.8% against the US dollar. It was trading at $1.3044 in early Asian trade.
It rose 1.3% against the Japanese yen to trade at 123.81 yen.
“This will likely limit the euro’s downside, with those who shorted the euro covering their positions, and improve general risk sentiment,” said Hiroshi Maeba, head of foreign exchange trading for UBS in Tokyo.
Ben le Brun, an analyst at OptionsXpress in Sydney, added that the deal was likely to have a positive impact on the oil markets as well.
“We should see some positive sentiment reverberate through energy markets overall for at least the next 24 to 48 hours,” he said.
Brent Crude rose 0.3% to $108.34 per barrel in Asian trade, while US Light Crude gained 0.4% to $94.1 per barrel.
Cyprus had agreed a bailout deal with the EU and the IMF last week.
However, the EU and IMF had asked Cyprus to raise 5.8 billion euros in order to secure the funds.
They had proposed that Cyprus impose a one-off levy on bank deposits in order to raise the cash, a move that triggered protests in Cyprus and resulted in savers rushing to ATM machines to withdraw their money – a move that brought fears of a run on the banks.
The Cyprus parliament rejected the proposal last week, delaying an agreement to secure the bailout funds.
According to the latest deal, all deposits under 100,000 euros will be “fully guaranteed”.
However, Laiki (Popular) Bank, the country’s second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses.
The levy on accounts in Laiki Bank could be as high as 40%, correspondents say.
Large deposits in the Bank of Cyprus, the country’s biggest bank, will also face a levy.
Jeroen Dijsselbloem, president of the Eurogroup of eurozone finance ministers, told a press conference in Brussels that the percentage to be levied on large deposits in the Bank of Cyprus will be decided in the coming weeks.
Analysts said that while the draft deal had helped ease market jitters, uncertainties surrounding its implementation were likely to hurt sentiment in the coming days.
Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness.
The yen has dipped nearly 15% against the US dollar since November amid Japan’s efforts to stoke inflation.
There were concerns that a criticism from G20 may prompt Japan to alter its aggressive stance. The fears were that it would result in the yen rising again and hurt Japan’s plans to spur growth.
Japan’s Nikkei 225 index rose 2%.
Meanwhile, the Japanese currency continued to weaken. It fell 0.6% to 94.12 yen against the US dollar.
It also dipped 0.5% to 125.50 yen against the euro in early Asian trade.
“At the G20 meeting, there wasn’t as much criticism from emerging countries about the recent yen’s weakness as feared. That spurred yen selling,” said Kyoya Okazawa, head of global equities at BNP Paribas.
Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness
Analysts say the G20 communiqué at the end of its meeting in Moscow on Saturday was an endorsement for Japan’s recent monetary moves.
The policies have seen Japan’s central bank, the Bank of Japan, double its inflation target to 2% in attempt to spur domestic consumption.
The central bank has also expanded a key stimulus measure aimed at keeping long term interest rates low.
Analysts say that as Japan continues to pursue these policies, the yen is likely to weaken further.
“With Japan, as yet, using various measures to ease monetary conditions domestically, we do not expect a large international backlash against its efforts and look for the Japanese yen to continue to decline gradually as the easier monetary conditions feed through,” Barclays Capital said in a note.
A weak yen bodes well for the Japanese exporters and its economy on various fronts.
To begin with, it makes their goods more affordable to foreign buyers. It also helps boost the exporters’ profits when they repatriate their foreign earnings back home.
And as firms see their profits rise, they are likely to have a bigger cash pile to invest in research and development or expansion of their facilities.
Investment in research helps the firms become more competitive as they develop new products. Meanwhile, increased capital investment helps boost Japan’s overall economic growth.
Asian markets have had a mixed reaction to the nuclear test carried out by North Korea, its third since 2006.
South Korea’s Kospi index dipped 0.3%. Analysts said the test was widely anticipated and was unlikely to have a major impact on investor sentiment.
Meanwhile, Japan’s Nikkei 225 index held on its earlier gains of nearly 2%
Japanese shares were boosted after the yen continued to dip, raising hopes of a profit boost for the country’s leading exporters.
“This is kind of a known – unknown event,” Jasper Kim, said founder of Seoul-based Asia-Pacific Global Research Group.
“Everyone knew that North Korea would conduct a nuclear test, the only questions were when, and how successful it would be.”
“The markets have already factored in the test,” he added.
Markets in China, Hong Kong, Singapore, Malaysia and Taiwan were closed for Lunar New Year holidays.
The yen fell after a US official voiced support for Japan’s recent policy moves to try and spur economic growth.
The moves have seen the yen slide more than 15% since November, leading to concerns that some countries may oppose Japan’s aggressive stance.
Asian markets have had a mixed reaction to the nuclear test carried out by North Korea
The fear was that such criticism might prompt Japan to tone down its policy and the currency could rise again.
Analysts said that the support from US Treasury Under Secretary Lael Brainard, especially ahead of the meeting of the G20 group of nations later this week, had helped allay those fears.
The finance ministers and central bank officials from the G20 nations are scheduled to meet in Moscow and currency policies are expected to be a key topic of discussion.
“Investors were worried that finance ministers would criticize the recent weakness in the yen,” said Hiroichi Nishi of SMBC Nikko Securities.
“While currency moves have been sensitive to officials’ comments in general, people thought any comment from the G20 would trigger yen buying.
“But such worries are receding as she [Lael Brainard] said she supports Japan’s efforts to end deflation,” he added.
The Japanese currency fell nearly 2% to 94.25 yen against the US dollar and to 126.4 yen versus the euro in early Asian trade on Tuesday.
A weak yen bodes well for Japan’s exporters as it not only makes their goods less expensive to foreign buyers but also boosts profits when they repatriate their foreign earnings back home.
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Japan’s government has approved a fresh 10.3 trillion yen ($116 billion) stimulus package in an attempt to spur a revival in its economy.
The package will include infrastructure spending, as well as incentives for businesses to boost investment.
Tokyo estimates that the stimulus will boost Japan’s economy by 2% and create 600,000 jobs.
Japan’s economy has been hurt by a dip in exports amid slowing global demand and subdued domestic consumption.
The world’s third-largest economy is currently in a recession, having contracted for two quarters in a row.
“Unfortunately, the previous administration failed to work out how to boost growth and expand the economic pie,” Prime Minister Shinzo Abe said.
“It is vital that we have an economic strategy that can create jobs and raise incomes to sustain growth.”
Included in the spending package are plans to rebuild areas devastated by the earthquake and tsunami of 2011, support for regional economies, and more investment in education and social security.
Shinzo Abe, who took office in December, has promised to take aggressive measures to help put the economy back on a growth track.
Among those has been a pledge to take measures to weaken the yen.
Japan’s government has approved a fresh $116 bn stimulus package in an attempt to spur a revival in its economy
A weaker Japanese currency bodes well for the country’s exporters as it makes their goods less expensive to foreign buyers and also helps boost their profits when they repatriate their foreign earnings back home.
The yen has weakened nearly 12% against the US dollar since November last year on hopes of such moves. It was trading close to 88.97 yen against the US dollar in Asian trade on Friday.
The government said that it would continue to keep a watch on the currency’s movements and “respond as appropriate”.
Japanese shares rose on the news of the stimulus with the Nikkei 225 index gaining 1.4%.
The Japanese government also hopes the latest stimulus spending will help to tackle deflation. Japan has been fighting deflation, or falling prices, for many years. It has been a big hurdle in policymakers’ attempts to boost domestic demand because consumers tend to put off purchases in the hope of a better deal in the future.
However, some analysts said the stimulus was only a short-term solution to Japan’s economic issues.
They said that while such an big amount of money being injected into the economy was likely to help spur growth, further steps were needed to sustain it in the long run including measures to help exporters and reforms aimed at boosting domestic consumption.
“So far what we have seen is measures to kick-start the economy,” said Martin Schulz of Fujitsu Research Institute.
“But once the stimulus boost is over, the coffers will be empty again and Japan will have no more money to spend.”
Japan’s exports have been hurt by a slowdown in demand from key markets such as the US, eurozone and China.
While sales to the US and eurozone have been hit by economic issues in those markets, those to China have been affected by a territorial dispute between the two countries.
China is Japan’s biggest trading partner and is also among the fastest growing consumer markets.
Martin Schulz said Japan needed to improve its relations with China to help its exporters’ sales in the country, not least because demand from the US and eurozone is likely to remain subdued in the near term.
On the domestic front, Japan needs to ease regulations in key sectors such as construction, healthcare, retail and agriculture to make them more attractive for investors, Martin Schulz added.
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