Asian stock markets displayed mixed performance on Thursday following the U.S. Federal Reserve's decision to maintain steady interest rates while signaling potential rate cuts in the future.
China's benchmark Shanghai Composite experienced a 0.3 percent decline, while Japan's Nikkei 225 dropped by 0.7 percent. In contrast, Hong Kong's Hang Seng surged by 1.1 percent, driven by gains in energy and property stocks. In the currency market, the yen strengthened against the dollar to 141.32, up from around 145 before the Fed's decision.
"The Fed's dovish turn last night continues to trigger an unwind in yen short positions as USD/JPY falls further," ING analysts wrote in a research note. "Next Tuesday's Bank of Japan policy meeting is eagerly awaited. Even though we do not look for any material adjustment in BoJ policy next week, USD/JPY may still drop to 140 beforehand."
Prior to the Fed's decision, the Asian markets also had a mixed performance earlier on Monday and Wednesday. The market fluctuation, driven by factors such as expectations of U.S. inflation data and Fed decisions at the time, resulted in both gains and losses. The fluctuation has further underscored investor uncertainty and caution.
Currency and market trends
Despite general Wall Street bullishness, Asian traders faced challenges sustaining the momentum due to unsettling figures indicating China's deepening deflation last month amid efforts to revive the sluggish economy.
Data revealed a significant decline in consumer prices, marking the steepest drop in three years. This has prompted renewed calls for the government to introduce additional economic support measures.
Citigroup economists highlighted the compounding factors of domestic food prices, international oil price corrections and weak domestic demand contributing to China's escalating deflation.
Shanghai, Tokyo, Sydney, Seoul, Taipei and Mumbai saw positive movements. In the latest market updates, Tokyo's Nikkei 225 recorded a 1.5 percent increase, closing at 32,791.80. Shanghai's Composite Index showed a 0.7 percent rise, closing at 2,991.44.
In contrast, Hong Kong, Singapore, Wellington, Manila and Jakarta experienced a retreat. Hong Kong's Hang Seng Index saw a 1.1 percent decline, settling at 16,156.22. In the currency market, the pound weakened against the dollar, dropping to $1.2545 from $1.2550.
The dollar also advanced against the yen after a notable decline to a four-month low last week, driven by speculations that the Bank of Japan is poised to shift away from its ultra-loose monetary policy.
Market sentiment analysis
Before the Fed's decision on December 13, Tony Sycamore of top CFD and Forex provider IG Australia mentioned that the data preceding non-farm payroll data on Friday had generally shown a softer trend. Equity markets, Sycamore observed, seemed inclined to consider the non-farm payrolls as an outlier.
"However, the equity market is unlikely to be so forgiving if it gets another fright this week from either CPI, the (policy) meeting, or retail sales," Sycamore said.
Meanwhile, Stephen Innes at SPI Asset Management expressed the view that the Fed was delicately navigating a situation. Innes noted a concern that there might be a risk of the Fed moving too cautiously in implementing policy easing.
This cautious approach could potentially result in an economic downturn, exacerbated by higher interest rates, consequently causing substantial job losses for millions of people.
"On the other hand, there's the fear of easing too early, which could result in inflation settling above three percent," Innes said. "Hopefully, by the week's end, investors will have some clarity on the Federal Reserve 2024 playbook."