Asian shares climb after BoJ hikes rates

Singapore — Asian stocks rose on Wednesday and the yen was volatile after the Bank of Japan raised interest rates, while investors assessed contrasting results from tech bellwether Microsoft and chipmaker Advanced Micro Devices (AMD) that suggested a divide in the artificial intelligence (AI) landscape.

Oil prices rose from seven-week lows on escalating tension in the Middle East after the Palestinian militant group Hamas said its leader Ismail Haniyeh was killed in Iran’s capital of Tehran.

The BoJ also laid out a detailed plan for quantitative tightening to pare monthly bond buying in stages, to about ¥3-trillion ($19.6bn) by January-March 2026, as it raised its overnight call rate target to 0.25% from zero to 0.1%.

Japan’s benchmark Nikkei was down 0.19% in choppy trading, while the yields on Japanese government bonds inched lower after the decision.

The yen was volatile, swinging between gains and losses. It was last flat at ¥152.81 to the dollar, but still on course for a gain of more than 5% in July.

The yen started the month rooted near 38-year lows of ¥161.96, weighed down by the wide gap between interest rates in Japan and other developed nations.

But factors such as likely official intervention, a sell-off in equities and a reassessment of popular carry trades helped the currency rebound to a 12-week high last week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.9% higher, with Chinese shares soaring on Wednesday. Blue-chip stocks were up about 2%, while Hong Kong’s Hang Seng was also 2% higher.

Data showed China’s manufacturing activity shrank for a third month in July, keeping alive the expectation that Beijing will need to launch more stimulus as a protracted property crisis and job insecurity hold back growth.

Central banks dominate investor attention on Wednesday, with a Federal Reserve decision due later in the day, with markets expecting the US central bank to stand pat on rates but indicate rate cuts are on the way.

Investors are jittery about the AI frenzy and tech valuations as results from tech bellwethers reinforced the idea that the payoff in hefty AI investments may take longer than first thought.

Disappointing earnings from Microsoft sent its shares lower, along with those of other tech firms, while strong earnings from Advanced Micro Devices spurred a rally in chip stocks. Nasdaq futures rebounded, and were last up 0.7%.

Fed meeting

While the Fed is widely expected to hold interest rates, the spotlight is squarely on whether it opens the door to a September cut.

Markets are fully pricing in a cut of 25 basis points (bps) in September, with about 68bps of easing priced in for the year.

The dollar index, which measures the US currency against six rivals, was at 104.41 and is down 1.36% for July.

However, some analysts expect the Fed to stay cautious as the labour market is still tight.

The Australian dollar sank to a three-month low, while stocks soared more than 1% as a soft inflation report squashed lingering speculation that interest rates would have to rise again.

In commodities, US crude was 1.65% higher at $75.98 a barrel and Brent was at $79.8 a barrel, up 1.49% on the day.

Reuters