(Bloomberg) -- Asian traders see a broadly positive day for stocks in the region, tracking gains on Wall Street, after Federal Reserve Chair Jerome Powell said officials may cut interest rates “as soon as” September.
Regional currencies may also benefit as the prospect of Fed easing weighs on the dollar. The yen surged to the strongest since March versus the greenback Wednesday after the Bank of Japan raised interest rates and announced plans to cut bond purchases. The currency breached the 150-per-dollar level, extending an advance that began earlier this month in anticipation of a hawkish decision by the central bank.
“A combination of broad US dollar weakness and equity strength led by semiconductor names should be positive for Asian markets,” said Chamath de Silva, head of fixed income at Betashares Holdings in Sydney. “Japanese equities might face some headwinds in the near term from yen strength on a Fed easing cycle, but I’m fairly constructive on Japanese stocks over the longer term.”
Here are some views from market participants:
Currency Outlook
Kristina Clifton, a senior strategist at Commonwealth Bank of Australia
Financial markets continue to fully price a September interest-rate cut by the FOMC and about three cuts by the end of the year. Lower interest rates in the US and other major economies including the Eurozone and Canada are positive for global growth and tends to support risk sensitive currencies like AUD and NZD.
Taishi Fujita, an associate in the global markets division for the Americas at MUFG Bank
As the outlook for three US interest-rate cuts by the end of the year is factored in, the dollar/yen may fall to the low 140 level. But it will take other factors, such as risk-off, to push the yen higher beyond 140.
Although Chairman Powell did not make a clear statement at his press conference, his every word reaffirmed that he considers a September rate cut as the main scenario. It will be important to see if the labor market cools further and the observation of three rate cuts by the end of the year.
Tomo Kinoshita, global market strategist at Invesco Asset Management Japan
Most of the Asian currencies are likely to gain against the US dollar in the short term. Given the volatility caused by the prospect of prolonged higher rates in the US from the start of this year, Asian markets had suffered from currency depreciation pressures, which prevented many Asian central banks from initiating rate cut moves.
Brad Bechtel, global head of FX at Jefferies LLC in New York
The yen’s rally is unlikely to extend after it failed strengthen past levels seen in Asia and Europe post the Bank of Japan’s policy meeting. If anything, USD/JPY is due for a bounce.
Reward for Stocks
Hebe Chen, an analyst at IG Markets.
It’s certainly going to be a double-reward day for the Asian market. The certainty of the September rate cut, in the most specific way ever, will dissipate any remaining concerns and instill the strongest confidence seen in months to the market participants. Additionally, the recent cloud over the tech sector is likely to clear thanks to the easing outlook, further bolstering the stocks in Japan, Taiwan and South Korea.
Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore
A somewhat dovish/more accommodative shift by the Fed appears to be risk on. So Asian assets may enjoy a lift from that rising tide. Tech seems to be the biggest beneficiary at this point, given the prospects for policy relief and less acute liquidity squeeze with the BOJ pacing out bong buying reduction.
Credit Supportive
Pauline Chrystal, a fund manager at Kapstream Capital in Sydney
Powell’s comments last night were definitely positive for risk assets as they strongly hinted at a cut in September. With the US economy still resilient and confidence that inflation is returning to target, it pushes further out the risk of a recession.
While this is supportive of risk assets, including credit, we are mindful of valuations with US corporate credit spreads trading well below long term average. Australian credit will also benefit from the positive sentiment and given the lag with which Aussie credit spreads move to US spreads, valuations remain comparatively more attractive.
--With assistance from Finbarr Flynn, Daisuke Sakai and Matthew Burgess.
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