China Holds Rates Steady, Yen Weakness Persists Despite BoJ Hiking Rates

Arjun Pandit
20 Mar, 2024
Mumbai

Asian markets lacked momentum, and investors reacted to domestic corporate and economic news. 

China held steady its one-year and five-year rates as widely expected, but investor confidence remained weak amid a lack of new catalysts and a protracted property market downturn. 

The yen in Asian trading drifted lower for the second day in a row after the Bank of Japan ended its negative interest rate regime after eight years, but the central bank stressed it will continue to provide liquidity to the Japanese government bond market. 

 

Yen Hovers Near a 25-year Low

Financial markets in Tokyo were closed on Wednesday for the Vernal Equinox holiday, and investors shifted their focus to trading in yen in Asia. 

Benchmark indexes in Japan rebounded in Tuesday's trading after the Bank of Japan announced a sweeping overhaul of monetary policy. 

The yen continued to drift for the second day in a row on Wednesday and traded near a 4-month low of 151.35 against the U.S. dollar despite the central bank ending its negative rates and abandoning its yield curve policy.

The yen is also trading near a 25-year low, as the central bank supported weakening currency to support goods exports and drive tourism activities. 

In a historic move, the central bank lifted rates for the first time in 17 years and ended negative rates after 8 years, but policymakers stressed that an that an accommodative stance is expected to continue. 

The Japanese economy has struggled despite decades of stimulus from the central bank, largely because private sector companies have been investing in foreign markets and higher corporate profits over the last two decades did not lead to higher wages at home. 

Stock indexes edged higher and the Nikkei scaled near record highs as investors shifted their focus to corporate earnings. 

The central bank's ending of negative rates is expected to lift bank earnings in the quarters ahead and strengthen the yen, which in turn is likely to increase repatriation of corporate profit from overseas subsidiaries. 

In Tuesday's trading, the Nikkei 225 Stock Average increased 0.7% to 40,003.60, and the Topix index advanced 1.% to 2,750.97. 

Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Group traded down between 0.3% and 0.6%. 

Vehicle makers advanced on the weakness in the yen, and Toyota Motor gained 2.5%, Honda Motor added 1.3%, and Nissan Motor edged higher by 0.1%. 

 

China Indexes Struggle to Hold Gains After Li Ning and China Unicom Results

Benchmark indexes in Shanghai and Hong Kong erased morning gains, and investors turned cautious after the People's Bank of China held rates as expected. 

Stocks traded higher in the morning session after Li Ning and China Unicom reported strong earnings, but market sentiment turned cautions on the lack of catalysts after the central bank held rates steady and offered no new concessions. 

The CSI 300 index increased 0.2% to 3,584.88, and the Hang Seng index advanced 0.2% to 16,559.77. 

Li Ning jumped 6.4% to $21.60 after the sportswear maker reported better-than-expected annual earnings. 

Revenue in 2023 increased by 7% to 27.6 billion yuan, and net income attributable to shareholders decreased to 3.2 billion yuan from 4.0 billion yuan a year ago. 

The retailer said inventories by the year's end declined by mid-single-digit compared to a year ago, and total retail sales, including online and offline channels, increased in the "low teens."

The company's board declared a final dividend of 18.54 cents, increasing the total dividend to 54.74 cents and the total payout ratio to 45%. 

Anta Sports jumped 3% to HK$80.0 following the results of Li Ning. 

China Unicom gained 2.2% to HK$5.69 after the communication equipment company reported record earnings in 2023, driven by higher equipment demand for cloud computing, 5G networks, and connected devices. 

China Vanke jumped 0.5% to HK$5.39 after the troubled real estate developer finalized a 1.4 billion yuan or $194 million loan from the state-controlled Industrial Bank for 14 years secured by its subsidiaries Shanghai Vanke and Shanghai Central District.

Last week, Moody's downgraded the real estate developer's debt to Ba1, or junk rating, from the lowest investment grade rating of Baa3. 

 

China held rates steady.

The central bank held a steady 5-year loan prime rate of 3.95%, the reference rate used for mortgage loans, and a 1-year loan prime rate of 3.45%, the reference rate for household and corporate loans. 

The move was widely anticipated by investors, and the central bank also drained liquidity from the financial system, dashing all hopes of stimulus to stabilize financial markets. 

Both loan prime rates are at record lows as policymakers eased monetary conditions to revive flagging consumer confidence and spur housing demand amid a protracted downturn in the property sector. 

Earlier in the week, the central bank held steady its one-year medium-term loan rate at 2.5%.

Policymakers lowered the 5-year loan prime rate by 25 basis points, a record rate cut, in February to support consumer spending and housing activities. 

 

India Indexes Climb Higher Amid Inflation and Valuation Worries 

Stocks in Mumbai struggled as investors debated future interest rate paths and inflationary trends. 

The Sensex and the Nifty indexes in the early hours of the session diverged but traded in a tight range ahead of the monetary policy decisions from the U.S. later in the day and the Bank of England on Thursday. 

Investors also reviewed the latest economic update from the Reserve Bank of India, citing elevated inflation risks in the economy. 

Investment-led economic growth in the December quarter was supported by robust consumer demand, higher tax collection, and rising personal incomes, as policymakers highlighted in the State of the Economy report released by the RBI. 

Economic growth in the current fiscal year is likely to surpass the 7.6% projected by the statistical agency and may be closer to 8%. 

In addition, the central bank cited elevated inflation risks because of persistent food price shocks driven in part by inclement weather conditions in several regions of the country. 

Overall inflation is expected to stay at 5.4% in the current fiscal year before declining to 4.4% in the next fiscal year ending in March 2025. 

The Sensex index increased 0.3% to 72,215.90, and the Nifty index edged up 0.2% to 21,873.45. 

The yield on the 10-year Indian government bonds increased to 7.09%, and the Indian rupee edged lower to ₹83.01 against the U.S. dollar.