Nikkei 225 Shaken by the BOJ and the Fed
Asian markets experienced a session of high volatility, impacted by the monetary policy decisions of the Federal Reserve (Fed) and the Bank of Japan (BOJ), along with the growing political uncertainty derived from Donald Trump's presidential campaign. The declines were led by technology sectors, while Japanese stock markets managed to trim some of their initial losses.
Fed Cools Expectations
The Fed met expectations by cutting rates by 25 basis points, but generated surprise by projecting a slower pace of cuts by 2025. This triggered a massive sell-off in risk assets, with the Nasdaq Composite leading the losses (-3.6%), its worst day in five months. This implied tightening hit the Asian technology sector in particular, which is sensitive to interest rate changes.
The Bank of Japan and the Yen
In Japan, the Nikkei 225 and the TOPIX started the session with declines of more than -1%, but closed with more moderate declines of -0.5%. The partial recovery came after the BOJ decided to keep interest rates unchanged.
The BOJ reiterated its caution regarding the economic outlook and indicated that inflation could pick up in 2025, remaining close to its 2% target. Although some investors had expected a rate hike in December, the decision to keep policy steady boosted export sectors, driven by the depreciation of the yen following the announcement.
Trump Adds Uncertainty
Nervousness was also fueled by political tensions in the U.S., as Donald Trump doubled down on his protectionist rhetoric and his election campaign continues to generate uncertainty about global trade relations.
Effects on Other Asian Markets
- South Korea: The KOSPI retreated 1.7%, with declines in technology giants such as SK Hynix and Samsung Electronics.
- China: The CSI 300 (-0.4%) and the Shanghai Composite (-0.7%) moderated losses on optimism about higher fiscal spending in 2025.
- Australia: The ASX 200 led regional decliners with a decline of 1.8%.
Perspective Overview.
The combination of a tighter Fed and a cautious BOJ has added to uncertainty in Asian markets. While the stronger dollar and tightening global financial conditions are pressuring markets in the region, the weaker yen could provide some relief to Japanese exports in the near term.
Attention now turns to the future decisions of major central banks, especially in the context of an increasingly fragile global economy.
Ion Jauregui - ActivTrades Analyst
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The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
Fed Cools Expectations
The Fed met expectations by cutting rates by 25 basis points, but generated surprise by projecting a slower pace of cuts by 2025. This triggered a massive sell-off in risk assets, with the Nasdaq Composite leading the losses (-3.6%), its worst day in five months. This implied tightening hit the Asian technology sector in particular, which is sensitive to interest rate changes.
The Bank of Japan and the Yen
In Japan, the Nikkei 225 and the TOPIX started the session with declines of more than -1%, but closed with more moderate declines of -0.5%. The partial recovery came after the BOJ decided to keep interest rates unchanged.
The BOJ reiterated its caution regarding the economic outlook and indicated that inflation could pick up in 2025, remaining close to its 2% target. Although some investors had expected a rate hike in December, the decision to keep policy steady boosted export sectors, driven by the depreciation of the yen following the announcement.
Trump Adds Uncertainty
Nervousness was also fueled by political tensions in the U.S., as Donald Trump doubled down on his protectionist rhetoric and his election campaign continues to generate uncertainty about global trade relations.
Effects on Other Asian Markets
- South Korea: The KOSPI retreated 1.7%, with declines in technology giants such as SK Hynix and Samsung Electronics.
- China: The CSI 300 (-0.4%) and the Shanghai Composite (-0.7%) moderated losses on optimism about higher fiscal spending in 2025.
- Australia: The ASX 200 led regional decliners with a decline of 1.8%.
Perspective Overview.
The combination of a tighter Fed and a cautious BOJ has added to uncertainty in Asian markets. While the stronger dollar and tightening global financial conditions are pressuring markets in the region, the weaker yen could provide some relief to Japanese exports in the near term.
Attention now turns to the future decisions of major central banks, especially in the context of an increasingly fragile global economy.
Ion Jauregui - ActivTrades Analyst
*******************************************************************************************
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
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