Asian stocks fell broadly on Monday amid lingering worries over a possible recession and uncertainty over China’s economic reopening as the country battles a wave of Covid infections.
China’s top leaders pledged to stimulate domestic consumption and the real estate market, helping limit regional losses to some extent. China’s central bank, meanwhile, is likely to keep benchmark lending rates unchanged for a fourth straight month on Tuesday, although expectations for monetary easing are rising.
China’s Shanghai Composite Index tumbled 1.9 percent to 3,107.12, as a surge in new virus cases hit urban centers from north to south. Hong Kong’s Hang Seng Index dropped half a percent to 19,352.81.
A survey showed Chinese business confidence fell to its lowest level in nearly a decade, highlighting deepening cracks in the country’s economy.
Japanese shares suffered heavy losses as the yen strengthened on speculation that the Bank of Japan could tighten its ultra-loose monetary policy amid rising inflationary pressures.
The Nikkei average fell 1.1 percent to 27,237.64 ahead of the BoJ monetary policy statement due Tuesday. No change in monetary policy is expected, but traders will parse the statement carefully for any changes in the language. The broader Topix closed 0.8 percent lower at 1,935.41.
Seoul stocks extended losses for a third day running amid worries that further policy tightening by the Fed could result in a global recession next year. The Kospi average dropped 0.3 percent to 2,352.17.
Australian markets fell for a third straight session as financials and utilities dragged, offsetting gains in the mining sector. The benchmark S&P/ASX 200 Index slipped 0.2 percent to 7,133.90, while the broader All Ordinaries Index closed 0.2 percent lower at 7,321.
The Bank of Japan delivers the last G7 central bank policy decision of the year on Tuesday, and those hoping that a traditional dose of BOJ dovishness will ease the selling pressure currently slamming world markets may be disappointed.
To be sure, the BOJ will almost certainly keep its key interest rate at an ultra-loose -0.10% and maintain its ‘yield curve control’ policy, but the winds of change are starting to blow.
Inflation has exceeded the BOJ’s 2% target for seven straight months as of October, and November’s data later this week is expected to show annual core CPI inflation rising to a new 41-year high of 3.7%.
More significantly, the end of Governor Haruhiko Kuroda’s 10-year tenure is drawing into view. He will step aside at the end of March, and many analysts see this as the perfect time for the BOJ to charter a new course.
Sources told Reuters that the government will consider revising a joint statement it signed with the BOJ a decade ago committing the central bank to hitting a 2% inflation target as soon as possible. This would happen once Kuroda’s replacement is in situ.
Japanese stocks fell 1% on Monday to a six-week low, Japanese government bonds remained under pressure – pushing the 10-year yield above the BOJ’s 0.25% ‘YCC’ target – and the yen held its ground against a buoyant dollar.
A hawkish turn from the BOJ would put a year-end rebound even further out of reach for world stocks. With the Fed and ECB turning the screws last week, the MSCI World index has declined four days in a row and the MSCI Asia ex-Japan index has fallen three straight days, its longest losing streak in two months.
Three key developments that could provide more direction to markets on Tuesday are Japan’s policy decision, China’s policy decision and the RBA meeting minutes
