Asian equity markets staged further gains on Wednesday, boosted by investor expectations that Japan may consider an aggressive form of policy easing to jumpstart its economy.But those gains quickly moderated after the Japanese government denied the possibility of using “helicopter money,” a measure that would involve the central bank directly financing government spending or tax cuts.
Instead, the Japanese government is planning a “bold economic stimulus” to defeat deflation, said Chief Cabinet Secretary Yoshihide Suga.
The Nikkei Stock Average was up 1%, paring earlier gains, while the yen changed tack to trade 0.6% stronger against the U.S. dollar. Earlier Wednesday, the Nikkei had recovered all its losses from before the Brexit vote when the index was up 1.6%.
Wednesday’s stock market gains were “just speculation regarding the stimulus,” said Matsuura Hisao, chief strategist at Nomura Japan. Though he expects the Japanese market to see further gains leading up to a stimulus announcement by the Bank of Japan, he expects risk-off trade post the announcement as enthusiasm moderates.
Following Mr. Suga’s comments Wednesday morning, gold reversed earlier declines to trade up 0.1% as investors took to safe haven investments, while the price of Brent crude oil was down 1% after briefly rising in U.S. trade.
Easing measures in Japan will add to the overall easing efforts by central banks globally. The Bank of England is due to meet Thursday, amid high expectations of a rate cut and more policy easing. The European Central Bank, which meets next week, is also expected to announce significant bond purchases, helping add liquidity.
Elsewhere in Asia, Australia’s S&P/ASX 200 was up 0.3% on Wednesday, Korea’s Kospi gained 0.6% and Hong Kong’s Hang Seng Index added 0.4%. China’s Shanghai Composite Index is up 0.4%. The gains follow strong performance on Wall Street overnight, with the Dow Jones Industrial Average closing 0.7% higher to a fresh record high.
Chinese shares were also up, despite an adverse ruling from an international court against the country’s claims over the South China Sea. Despite rejecting the ruling, China struck a conciliatory tone to say that it was open to talks with its neighbors. That, along with investors exiting positions, led to declines in defense-related stocks on Wednesday.
Meanwhile, China’s yuan was trading slightly weaker against the U.S. dollar ahead of data this week, ranging from second-quarter economic and credit growth figures, to June property and industrial production numbers.