Asian Markets: Nikkei Soars on US Stimulus Efforts, but Gains Limited by Coronavirus Uncertainties

James Hyerczyk

The major Asia-Pacific stock indexes had an impressive week, led by solid gains in Japan. The rally in its benchmark Nikkei 225 Index even outperformed the stellar performances in the major U.S. stock indexes. Meanwhile, stocks in Hong Kong and South Korea posted steady gains, but shares in China and Australia continued to struggle to gain traction.

Last week, Japan’s Nikkei 225 Index settled at 19389.43, up 2836.60, up 17.14%. South Korea’s KOSPI Index closed at 1717.73, up 151.58 or +9.68% and Hong Kong’s Hang Seng Index finished at 23484.28, up 679.21 or +2.98%.

China’s Shanghai Index settled at 2772.20, up 26.58 or +0.97% and Australia’s S&P/ASX 200 closed at 4842.40, up 25.80 or +0.54%.

Japan Soars on Monetary and Fiscal Stimulus

Japan’s Nikkei 225 was among the region’s major markets that saw the largest increase on Monday. It surged 7.13% after the U.S. Federal Reserve announced an open-ended asset purchase program. The central bank said the program will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

Japanese shares rose over 8.00% on Wednesday after a massive coronavirus stimulus bill was struck between the White House and Senate in Washington. Policymakers voted unanimously to approve a historic $2.2 trillion coronavirus relief package, which was passed “with strong bipartisan support,” according to House speaker Nancy Pelosi, D-California.

Japanese buyers were also driven by hopes for massive buying by the Bank of Japan (BOJ) and public pension funds. Some investors think the fact that the BOJ has been buying a considerable amount of Exchange Traded Funds in a more random manner than before makes speculative players hesitant to short Japanese stocks.

“Since the market has largely priced in the GFC (global financial crisis) level conditions, we think there is not much downside left for the Japanese stocks,” said Ryota Sakagami, chief equity strategist at J.P. Morgan Securities Japan.

“Having said, we don’t expect a sustained uptrend in share prices until the COVID-19 outbreak is confirmed to be contained.”

Japanese Gains Could Be Limited by Rising Fears over Domestic Lockdowns

Despite last week’s impressive gains, there are still some skeptics calling for renewed selling pressure on the Nikkei 225 Index after a rise in domestic coronavirus cases stoked worries of tougher domestic restrictions for social distancing.

Although the index rose nearly 18%, sentiment soured ahead of the weekend after Tokyo’s governor late on Wednesday asked residents to avoid non-essential outings until April 12, warning of the risk of an explosive rise in infections in Japan’s capital.

The Japanese government was preparing to set up a special headquarters on the coronavirus as early as Thursday afternoon, a step that could set the stage for declaring a state of emergency over the outbreak.

This article was originally posted on FX Empire