Asia-Pacific markets mixed as Powell signals slower US rate cuts; Japan's Nikkei rebounds

Asia-Pacific markets showed mixed results on Tuesday following remarks from US Federal Reserve Chair Jerome Powell.

Powell indicated that while additional rate cuts are expected, they will be less aggressive than the recent moves by the central bank.

Speaking at a Q&A session with Morgan Stanley economist Ellen Zentner, Powell clarified that the committee is not in a rush to lower rates.

“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Powell said.

Currently, the federal funds rate sits between 4.75% and 5%. If the Federal Reserve proceeds with the expected cuts, the rate will decrease to between 4.25% and 4.5% by the end of 2024.

Powell’s remarks reflect the Fed’s cautious approach to inflation and economic growth as it carefully navigates the rate adjustment process.

Asia-Pacific markets respond with mixed performance

Following Powell’s comments, stock markets across the Asia-Pacific region showed a range of reactions.

Japan’s Nikkei 225 index bounced back 1.73% after a significant 4.8% drop on Monday, as the outlook for Japan’s economy showed signs of improvement.

Similarly, the Topix index saw a 1.43% increase. Traders in Japan were paying close attention to the Bank of Japan’s (BOJ) third-quarter Tankan survey, which measures business optimism.

The survey revealed that sentiment among large Japanese manufacturers remained steady at +13, the same as in the previous quarter, aligning with analysts’ expectations.

Meanwhile, optimism among large non-manufacturers slightly improved, rising to +34 from +33, surpassing forecasts of +32. These positive readings reflect cautious optimism as Japan’s economy shows resilience despite global uncertainties.

In contrast, Australia’s S&P/ASX 200 index fell by 0.47%, retreating from recent highs.

Concerns over rising interest rates and declining demand for commodities weighed on the market.

BOJ holds rates steady as Japan’s unemployment falls

The Bank of Japan also released the September 19-20 meeting summary, which traders closely analyzed.

The BOJ decided to keep its benchmark interest rate unchanged. One board member expressed that raising rates would be “undesirable” and could suggest a shift towards a tighter monetary policy.

Another board member argued that Japan’s economy does not warrant an immediate rate hike, as the country’s financial and capital markets remain somewhat unstable.

Japan's labour market also showed signs of improvement.

The unemployment rate for August dropped to 2.5%, down from 2.7% in July, beating economists' expectations of 2.6%.

This decline provided further evidence of Japan's slow but steady economic recovery.

Global markets maintain positive momentum

Globally, US markets continued their strong performance, with the S&P 500 reaching a record close on Monday, gaining 0.42% to end at 5,762.48.

The Dow Jones Industrial Average also finished at a record high, inching up to 42,330.15, while the Nasdaq Composite advanced 0.38%.

Some major Asian markets, including South Korea, Hong Kong, and mainland China, were closed on Tuesday for public holidays.

China’s markets are expected to remain closed for the rest of the week due to the Golden Week holiday, limiting activity in the region.

Looking ahead, market participants will closely monitor central bank decisions and economic data, as the Fed’s cautious stance on rate cuts continues to influence investor sentiment.

With major Asian markets closed, attention will turn to Japan and US markets for further clues on how global economic trends will unfold in the coming weeks.