Chinese stock markets declined in early Thursday trading, while Japan’s markets showed slight recovery despite political uncertainty and Wall Street’s weak performance. The Nikkei index was up 0.09%, influenced by a depreciating yen, which benefits exporters. In contrast, the Hang Seng and Shanghai Composite indices fell. Investors remain cautious ahead of Japan’s parliamentary elections on Sunday, with concerns about the yen’s weakness and potential impacts on corporate earnings looming. Meanwhile, oil prices climbed after previous declines.
Chinese stock markets experienced a decline during early trading on Thursday, while Tokyo saw a rebound amidst political uncertainties just days ahead of Japan’s legislative elections. The yen continued its downward trend after a significant devaluation the day before. By around 02:00 GMT, the Nikkei index had risen slightly by 0.09% to 38,138.54 points, whereas the broader Topix index fell by 0.17%, reaching 2,632.71 points.
In Hong Kong, the Hang Seng index dropped 1.08% to 20,536.13 points, while the Shanghai Composite Index fell 0.59% to 3,283.16 points, and the Shenzhen Composite experienced a 0.87% decrease, settling at 1,939.55 points.
Initially, Japanese markets opened lower, mirroring Wall Street’s decline on Wednesday, triggered by a spike in US bond yields and underperforming tech stocks. However, Tokyo’s markets rallied in the morning thanks to the yen’s depreciation, which makes Japanese equities more appealing to foreign investors and enhances sales prospects for major exporters.
The Impact of a Weaker Yen
“As major corporations gear up to report their quarterly earnings, investors are keenly observing how currency fluctuations will affect their profitability,” noted analysts at Tokai Tokyo Intelligence. The yen stabilized on Thursday at three-month lows following its steep decline the previous day, greatly influenced by the dollar’s strength.
Growing concerns over escalating public deficits in the United States, amidst an active presidential campaign filled with budget promises, have bolstered the dollar significantly. This situation has driven US government bond yields higher than Japanese ones, diminishing the appeal of the yen. Compounded by the Bank of Japan’s largely accommodative monetary stance—characterized by persistently low interest rates—speculations point towards a status quo in the upcoming BoJ meeting on October 30 and 31.
As of 02:20 GMT, the exchange rate stood at 152.51 yen per dollar, slightly down from 152.65 yen the previous day at 19:15 GMT. “The yen’s vulnerability may reflect uncertainties surrounding interest rate trends in Japan,” remarked Hubert de Barochez from Capital Economics. While the BoJ has initiated a gradual increase in long-standing low rates, “the extent to which it will pursue this normalization remains uncertain.”
Crop in Voter Sentiment Ahead of Elections
Market participants are also remaining cautious ahead of the parliamentary elections set for Sunday, where the coalition led by Prime Minister Shigeru Ishiba is not expected to secure a majority.
Despite the potentially advantageous effects of a weaker yen for exporters, shares of major industrial companies are yet to see immediate gains and have instead fallen into red territory. Tokyo Metro shares, which soared by 45% during their initial public offering amid public enthusiasm, slipped from 1,749 yen at approximately 00:20 GMT to 1,710 yen by around 02:30 GMT.
In the oil market, prices showed signs of recovery during early Asian trading following a decline the day prior, driven by hopes for de-escalation and increased US crude oil reserves. By around 02:00 GMT, Brent North Sea crude was trading up 1.11% at $75.79 per barrel, while West Texas Intermediate (WTI) rose by 1.23% to $71.64.