Shares in Japan, China, Taiwan and much of the Asian region closed higher on Thursday, taking a cue from the overnight gains in U.S. equity futures. The Dow and the S&P 500 have both rallied to fresh highs this week, paring losses in the days and weeks following the Brexit vote.
The gains in Asian shares were largely attributed to investors betting that monetary policy setters in Europe will move quickly to roll out robust easing measures to avert a potential recession in the region after Brexit. The meeting of Bank of England officials today is expected to result in interest rate cuts, which should help mitigate the effect of the Brexit aftershock in the country’s economy at least temporarily after the majority of its citizens supported the vote to ditch the European Union.
An interest rate reduction in Britain is expected to be followed hot on the heels by increased bond buying by the European Central Bank despite extremely low interest rates on bonds already. That should also improve liquidity in the region and help ward off a recession stemming from Brexit. Monetary regulators in Asia are also planning their own easing policies with the hope of spurring domestic demand at a time when export businesses are feeling the heat of Brexit vote. The central banks of Japan and China have promised to rollout economic stimulus measures as well.
In Japan, the Nikkei 225 (INDEXNIKKEI:NI225) gained 0.95% to send it up to a new one-month high. Equity gains in Japan were led by gains in Food, Marine Transport and Services sector. Investor sentiment remained strong in Japan despite the government ruling out the idea of so-called helicopter money. That term is used to describe a situation whereby the Bank of Japan directly finances government spending, a very dangerously inflationary move that could hurt the country’s currency quickly.
A weaker yen also seemed to have provided an incentive for foreign investors to enter Japanese stocks. The USDJPY rose 0.94% to 105.48, while the EURJPY jumped 1.11% to 117.17.
In Taiwan, the Taiwan Weighted rose 0.10% to jump to a new 6-month high. Transport, Electricity and Iron & Steel sectors led the equity gains in Taiwan.
China’s major Shanghai Composite declined 0.4% while the smaller Hang Seng (INDEXHANGSENG:HSI) in Hong Kong bucked the trend to close up 1.12%.
Equity gains were also seen in Australia where the S&P/ASX 200 advanced 0.4%. In the currency market, AUDUSD rose 0.04% to 0.7611 at a time when the AUDJPY advanced 0.78% to 80.12.