Asia report: Markets mixed ahead of Bank of Japan decision

(Sharecast News) - Asia-Pacific equities delivered a mixed performance on Thursday as investors weighed the Federal Reserve's widely-expected interest rate cut, and looked ahead to the Bank of Japan's policy decision, while Japanese shares surged to fresh record highs.

Patrick Munnelly, market strategy partner at TickMill, said: "Markets are responding to the US central bank rate decision, which saw the Federal Open Market Committee implement a widely anticipated 25 basis point rate cut on Wednesday, with only new governor Stephen Miran opposing it, advocating for a larger 50 basis point cut.

"For those keeping score: the Bank of Canada reduced rates, the People's Bank of China maintained its position, the Hong Kong Monetary Authority had to align with the Fed, the Bank of England will announce later today, and the Bank of Japan will follow suit tomorrow.

"After some volatility on Wall Street, Asian markets seized the opportunity on Thursday, pushing S&P 500 e-minis up and Nasdaq futures also traded higher.

"This risk-on posture appears poised to carry over into Europe."

Markets mixed after US Fed cuts rates

Japan's benchmark Nikkei 225 rose 1.2% to close at a record 45,329.00, driven by strong gains in the real estate and technology sectors.

Resonac jumped 11.65%, Sumco added 7.39% and Mitsui Mining and Smelting advanced 5.93%.

The broader Topix index gained 0.41% to 3,158.87.

The rally came as the Bank of Japan began its two-day policy meeting, with most economists expecting it to leave interest rates unchanged.

Elsewhere, markets were subdued after the Fed cut its benchmark rate on Wednesday and signalled two more reductions by year-end, another in 2026, one in 2027 and none in 2028.

Fed chair Jerome Powell described the move as a "risk management cut" rather than a response to economic weakness.

"The Federal Reserve was widely anticipated to cut interest rates on Wednesday, with the weakening labour market providing justification for such a move," Munnelly noted.

"However, the deterioration wasn't significant enough to warrant more than a modest 25 basis-point reduction.

"Although labour market pressures had intensified - marked by a sharper drop in demand compared to the decline in supply - the Fed signalled its willingness to respond as needed.

"However, uncertainty surrounding the impact of tariffs on inflation remained a concern."

Chinese stocks retreated, with the Shanghai Composite down 1.15% at 3,831.66 and the Shenzhen Component off 1.06% at 13,075.66.

Losses were led by Shanghai DZH, down 8.83%, Wolong Real Estate Group, off 8.7%, and China Film Co, which slid 8.53%.

Hong Kong's Hang Seng Index dropped 1.35% to 26,544.85 as Xinyi Solar fell 5.87%, Geely Automobile lost 4.76% and Hong Kong Exchange and Clearing declined 3.06%.

South Korea's Kospi 100 gained 1.9% to 3,572.14, buoyed by Coway, up 8.02%, Hanmi Pharm, up 6.57%, and SK Hynix, which rose 5.85%.

In Australia, the S&P/ASX 200 shed 0.83% to 8,745.20, dragged lower by Santos, which slumped 11.9% after Abu Dhabi's ADNOC scrapped its $18.7bn takeover bid, alongside losses for Woodside Energy, down 6.26%, and Brickworks, off 4.9%.

New Zealand's S&P/NZX 50 fell 0.82% to 13,120.03, with Pacific Edge down 3.24%, Infratil off 3.12% and Oceania Healthcare down 2.9%.

In currency markets, the dollar was last up 0.2% on the yen to trade at JPY 147.28, as it gained 1.05% against the Kiwi to NZD 1.6939, while slipping 0.07% on the Aussie to change hands at AUD 1.5021.

Brent crude futures were steady on ICE at $67.95 a barrel, while the NYMEX quote for West Texas Intermediate edged 0.03% lower to $64.03.

NZ economy shrinks much more than expected, Australian unemployment steady

Regional economic headlines were dominated on Thursday by a sharper-than-expected contraction in New Zealand's economy, adding pressure on the central bank to accelerate interest rate cuts, while Australia's labour market softened and Japanese machinery orders fell.

New Zealand's gross domestic product shrank 0.9% in the June quarter, reversing a revised 0.9% rise in the first three months of the year and far worse than economists' forecast for a 0.3% decline, Statistics NZ reported.

The economy was now smaller than at the start of 2024 and remained sluggish despite 250 basis points of Reserve Bank of New Zealand rate cuts since last August.

Two-year government bond yields fell over 10 basis points to 2.8% as traders priced in a rising chance of a 50-basis-point cut at the RBNZ's October meeting.

"New Zealand's bonds traded higher, while the currency weakened amid weaker economic data that spurred expectations for a significant rate reduction to be in the offing," said Munnelly.

Westpac economists shifted their forecasts to a 50-point cut in October followed by 25 points in November.

The contraction reflected steep drops in building and factory output, with construction down 1.8% and manufacturing off 3.5%, alongside weaker exports and investment.

Household spending rose just 0.4%, slowing from 1.4% in the prior quarter, while GDP per capita slid 1.1% and the jobless rate rose to a five-year high of 5.2%.

Finance minister Nicola Willis blamed "international turmoil and uncertainty relating to US tariffs" for having "knocked the stuffing" out of the economy, while prime minister Christopher Luxon faced mounting pressure to revive growth ahead of the 2026 election.

In Australia, the unemployment rate held steady at 4.2% in August, matching forecasts, though total employment fell by 5,400 after a revised 26,500 rise in July, the Australian Bureau of Statistics said.

Full-time jobs dropped by 40,900 while part-time roles rose by 35,500.

The participation rate slipped to 66.8% from 67% and the employment-to-population ratio eased to 64%.

"Females who were employed full-time went down 30,000 people, and males in full-time employment was down by 11,000," said ABS head of labour statistics Sean Crick, noting a rise in part-time roles for both genders.

Japan's core machinery orders, a key though volatile indicator of future capital spending, fell 4.6% on the month to JPY 898bn in July, sharply missing expectations for a 1.7% drop and reversing June's 3% rise.

Orders from the non-manufacturing sector slid 3.9% to JPY 501.1bn, while manufacturing orders rose 3.9% to JPY 428.4bn.

The steepest sectoral declines came in non-ferrous metals, down 53.5%; real estate, off 44%; mining, retreating 21.2%; and finance and insurance, which tumbled 16.7%.

Year-on-year, private-sector orders rose 4.9%, slowing from June's 7.6%.

The Bank of Japan started its two-day policy meeting, with most economists expecting it to hold rates steady.

HSBC said it still expected the BoJ to lift its policy rate by 25 basis points to 0.75% at its October meeting, noting that Japan's stronger-than-expected second-quarter GDP print showed "economic resilience" and that a recently finalised trade deal with the US had eased some tariff risks for exporters, though a global slowdown remained a threat.

Reporting by Josh White for Sharecast.com.