Asian stock markets surged on January 16, buoyed by positive U.S. inflation data suggesting potential interest rate cuts by the Federal Reserve. The Nikkei index rose by 0.46%, and Chinese markets saw gains, with the Hang Seng up 0.88%. Meanwhile, the yen appreciated against the dollar ahead of a likely interest rate increase from the Bank of Japan. Oil prices also climbed, supported by improved demand forecasts amid supply concerns.
Asian stock markets experienced a notable upswing on Thursday, January 16, fueled by a renewed sense of optimism following the release of a reassuring inflation index from the United States. In addition, the yen saw significant gains, supported by rising expectations of an interest rate increase from the Bank of Japan.
Market Optimism Driven by U.S. Inflation Data
Stock exchanges across Asia rallied, reflecting a collective sigh of relief after an American index published on Wednesday indicated a deceleration in core inflation. This positive trend in inflation could signal a potential return to interest rate cuts by the U.S. Federal Reserve (Fed), which may lower credit costs and weaken the dollar—important considerations for Asian economies heavily reliant on exports.
At approximately 03:30 GMT, the Tokyo Stock Exchange’s Nikkei index climbed by 0.46%, reaching 38,623.34 points, while the broader Topix index increased by 0.10% to 2,693.31 points. Seoul’s market surged by 1.25%, and Sydney gained 0.20%.
Chinese markets also thrived, with the Hang Seng index in Hong Kong advancing by 0.88% to 19,454.91 points. The Shanghai composite index experienced a rise of 0.37%, and the Shenzhen index increased by 0.51%.
However, analysts advise caution. Stephen Innes from SPI Asset Management noted that while the relief is welcome, it may be short-lived. With the upcoming inauguration of U.S. President Donald Trump, who is expected to engage in trade disputes and inflationary policies, Innes emphasized that the underlying inflation dynamics remain challenging and that uncertainties in the budgetary and geopolitical landscape could still loom large.
Yen Appreciation Amid Dollar Weakness
The Japanese yen continued its ascent on Thursday, gaining an additional 0.41% against the dollar, trading at 155.80 yen per dollar around 03:30 GMT. This uptick follows statements from Bank of Japan (BoJ) officials indicating preparations for raising the currently low interest rates at their next meeting on January 23 and 24. After making two rate hikes in 2024, the BoJ had maintained its position in December.
Experts from Standard Chartered commented on BoJ Governor Kazuo Ueda’s positive remarks regarding wage increases in the industry, which heightens the likelihood of a rate hike soon. An increase in Japanese rates would enhance the yen’s attractiveness. Meanwhile, the dollar faced pressure from the favorable inflation data emerging from the United States.
Thomas Mathews from Capital Economics advised caution, stating that while the yen’s value remains relatively low against the dollar, significant appreciation is not anticipated. He noted that the Fed appears to be nearing the end of its easing cycle and that any expected U.S. rate cuts are already largely factored into the current market. However, he mentioned that a surprise rate hike from the BoJ could lead to a more sustained increase in the yen’s value.
The South Korean won saw a brief rise following the unexpected decision of the South Korean central bank to maintain interest rates, despite pressures from the political crisis impacting economic activity. However, this gain was short-lived as investor concerns about the economic situation persisted, with the won retreating to 1,457 wons per dollar around 03:30 GMT, down by 0.16%.
Oil prices also demonstrated strength, with a more than 2% increase on Wednesday, driven by an upward revision in demand forecasts by the International Energy Agency for the fourth quarter of 2024. This optimism regarding demand, amidst ongoing U.S. sanctions on Russia that could heighten supply tensions, supported the market in Asia on Thursday. By around 03:30 GMT, U.S. WTI crude rose by 0.45% to $80.40 per barrel, while North Sea Brent increased by 0.38% to $82.34 per barrel.