Asia Market News: Markets React as BoJ Considers Exit, China’s Economy Weighs

A Bank of Japan Greenlight to Exit Negative Rates?

On Tuesday, inflation figures from Japan likely gave the Bank of Japan the green light to exit negative interest rates. The annual inflation rate softened from 2.6% to 2.2% in January. Economists forecast an inflation rate of 2.1%. The core inflation rate eased from 2.3% to 2.0%. Economists expected the core inflation rate to fall to 1.8%.

The inflation figures were significant. A drop below the Bank of Japan’s 2% target may have eased pressure on the Bank of Japan to exit negative rates. However, the core inflation rate of 2% could incentivize the BoJ to pivot from negative rates in April.

The USD/JPY reflected the likely influence of the inflation report on Bank of Japan plans to exit negative rates. Responding to the inflation numbers, the USD/JPY fell to a session low of 150.503. On Tuesday, the USD/JPY was down 0.11% to 150.519.

Asian Equity Markets Have a Mixed Morning Session

The inflation figures briefly sent the Nikkei into negative territory. Nevertheless, the Nikkei rebounded despite rising bets on a BoJ pivot from negative rates. Bank of Japan warnings that policy would remain accommodative after an exit from negative rates support the Nikkei at current levels. On Tuesday, the Nikkei was up 0.35% to 39,372.

Softbank (9984) was among the front-runners, rallying 2.08%. Demand for chip stocks continued, with Arm Holdings (ARM) moves in the AI space fueling a 9.64% rally on Monday, February 26.

However, it was a negative session for the broader Asian equity markets. The Hang Seng Index and the ASX 200 were down 0.44% and 0.04%, respectively.

Mining stocks were a drag on the ASX 200, on the downward trend in iron ore prices. BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) were down 0.36% and 0.98%, respectively. Fortescue Metals Group Ltd. (FMG) fell by 0.92%.

Hopes of an extended Year of the Dragon rally remained on ice. Concerns about the Chinese economy impacted the Hang Seng Index. Calls for a meaningful fiscal stimulus package are rising ahead of lawmakers meeting in Beijing next week. The lack of a fiscal stimulus package may leave the Chinese economy floundering as central banks consider delaying interest rate cuts.