Asian Shares Rally On China Stimulus Hopes, BOJ’s Hawkish Pivot

Asian stocks climbed on Wednesday, while the yen turned volatile after the Bank of Japan lifted short-term policy rates and announced plans to reduce monthly bond buying in a hawkish pivot.

Meanwhile, weak manufacturing data from China added to bets that Beijing will deploy more stimulus measures in the world’s second largest economy.

Investors also assessed mixed earnings results from Microsoft and chipmaker AMD and looked ahead to a Federal Reserve announcement for greater clarity regarding when the U.S. central bank will begin cutting interest rates.

Bond yields and the dollar were little changed in Asian trading, while gold ticked higher and oil prices rebounded from seven-week lows on escalating tension in the Middle East.

Media reports suggested that Ismail Haniyeh, the head of Hamas’s political wing, was killed in Iran.

China’s Shanghai Composite Index rallied 2.1 percent to 2,938.75 after a Politburo meeting pledged to tilt stimulus towards consumers.

Hong Kong’s Hang Seng Index surged 2.0 percent to 17,344.60, as a measure of Chinese manufacturing activity slipped to a five-month low in July, fueling expectations for more Chinese stimulus.

Japanese markets rallied after the country’s central bank hiked its key interest rate to 0.25 percent in a surprise move and laid out a detailed plan to pare monthly bond buying in stages.

The Nikkei 225 Index jumped 1.5 percent to 39,101.82, while the broader Topix Index settled 1.5 percent higher at 2,794.26.

Tokyo Electron surged 7.4 percent and Advantest climbed 4.5 percent after Reuters reported the Biden administration planned to exempt chip equipment makers from Japan, the Netherlands and South Korea from upcoming export restrictions.

In economic news, Japanese retail sales rose 3.7 percent in June from a year earlier, while factory output dropped in the month, separate reports showed today.

Seoul stocks closed higher on bets the Fed may begin its rate cutting cycle this year. The Kospi rose 1.2 percent to 2,770.69 ahead of the Fed’s policy decision.

Investors shrugged off data that showed Korean industrial output dipped for the second consecutive month in June despite strong semiconductor production.

SK Hynix gained more than 3 percent ahead of earnings results of big tech firms, such as Apple Inc. and Amazon.

Australian markets posted strong gains as a soft inflation report eased pressure on the Reserve Bank of Australia to raise interest rates again.

The benchmark S&P ASX 200 Index jumped 1.8 percent to 8,092.30, marking another record high. The broader All Ordinaries Index gained 1.8 percent to finish at 8,320.40, with buying seen across the board.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index edged up 0.1 percent to 12,405.27.

U.S. stocks ended mixed overnight, as a two-day policy meeting of the Federal Reserve got underway and tech stocks came under selling pressure on valuation concerns.

The tech-heavy Nasdaq Composite tumbled 1.3 percent to reach its lowest closing level in well over a month and the S&P 500 dipped half a percent, while the Dow gained half a percent.

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