Asian stocks surged on Wednesday, while the yen experienced volatility following the Bank of Japan’s (BOJ) unexpected rate hike. This move coincided with mixed results from major tech companies Microsoft and AMD, highlighting a split in the artificial intelligence (AI) sector.
Oil prices rebounded from seven-week lows amid escalating Middle East tensions after Hamas reported the death of its leader Ismail Haniyeh in Tehran.
The BOJ’s decision to raise its overnight call rate target to 0.25% from zero marked a significant shift in policy. The central bank also outlined a quantitative tightening plan to gradually reduce monthly bond purchases to approximately 3 trillion yen ($19.6 billion) by January-March 2026.
Gary Dugan, CEO of the Global CIO Office, noted, “The BOJ will hope that the rate rise will be a confidence booster to the economy, signaling that the central bank believes it is moving toward ‘normal’ economic conditions.”
Initial market reactions were mixed already set expectations for a rate hike and bond tapering. Japan’s Nikkei index saw a slight increase of 0.10%, while yields on Japanese government bonds decreased.
The yen fluctuated, closing flat at 152.845 per dollar, but is on track for a gain of over 5% in July, its first monthly rise this year. This rebound follows a prolonged period of weakness due to the interest rate disparity between Japan and other developed nations.
“Future gains in the yen will depend on whether BOJ Governor Ueda adopts a hawkish stance and provides clear forward guidance during his press conference,” said Vasu Menon, managing director of investment strategy at OCBC. He added, “It is difficult to see Ueda adopting a fully hawkish position given recent mixed economic data from Japan.”
Governor Kazuo Ueda is expected to address the media at 0630 GMT to further explain the BOJ’s decision.
In China, stocks soared as the Politburo emphasized the need to boost consumption. Despite data showing a third consecutive month of contraction in manufacturing activity for July, there is growing anticipation that Beijing will introduce additional stimulus measures.
Chinese blue-chip stocks rose by about 2%, and Hong Kong’s Hang Seng index also climbed by 2%, driving MSCI’s broadest index of Asia-Pacific shares outside Japan up by 1%.
European markets are anticipated to open slightly higher, with Eurostoxx 50 futures up 0.12% and FTSE futures 0.39% higher.
Fed Decision Pending
Central banks remain the focal point for investors, with the Federal Reserve’s decision expected later in the day. The market anticipates that the U.S. central bank will maintain current rates but signal potential rate cuts ahead. A 25 basis point cut is widely expected in September, with approximately 68 basis points of easing projected for the year.
The dollar index, which measures the U.S. currency against six major rivals, stood at 104.46, reflecting a decline of over 1% in July. Analysts predict the Fed may remain cautious due to the ongoing tight labor market.
Investors are also concerned about the tech sector’s future, as disappointing earnings from Microsoft have led to a drop in its shares and those of other tech firms, while strong earnings from Advanced Micro Devices (AMD) boosted chip stocks. Nasdaq futures rebounded, rising by 1%.
The Australian dollar fell to a three-month low, but stocks in Australia surged more than 1% following a soft inflation report that alleviated concerns about further interest rate hikes.
In commodities, U.S. crude oil prices increased by 1.77% to $76.05 per barrel, while Brent crude rose by 1.51% to $79.82 per barrel.
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