Asian stock markets mostly fell yesterday following a two-day rally and strong US data that fuelled talk of an interest rate hike, but Tokyo extended its recent gains after a better-than-forecast economic growth reading.
Japan said the world’s number three economy expanded 0.4 % in the first three months of the year, better than expected and boosted by a pick-up in consumer spending.
The country’s benchmark Nikkei stock index swung in and out of positive territory in early trade as the upbeat figure was offset by fears it could allow the Bank of Japan to hold off any fresh stimulus for the time being.
Stimulus bets “may be drying up a little”, Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management Co
in Tokyo,told Bloomberg News.
“If the...growth figure was a small increase, we might have seen more hopes for supportive policy, but with the data being better than expected the view now is the size of the policy package may not be that significant.”
However, shares ended the morning 0.6 %.
The figures come days after local media reported that Prime Minister Shinzo Abe is planning to delay a planned sales tax hike next year over concerns it could damage the already fragile economy.
A tax rise in 2014 - seen as key to helping pay down Japan’s enormous national debt - was blamed for ushering in a brief recession.
The rally in Tokyo bucked the regional trend after a sharp sell-off on Wall Street.
US traders ran for cover after news that industrial production, consumer prices and housing starts all rose in April led to speculation the Federal Reserve could lift borrowing costs as soon as next month.
The central bank earlier this year said it would not raise rates again - after December’s first hike in almost a decade - unless the world’s top economy was showing signs of being in good health.
However, talk has been brewing in recent weeks that Fed policymakers would consider tightening at its June meeting, which has jolted investor confidence.
Worries about the possibility of higher US borrowing costs, and sharp losses on Wall Street’s three main indexes, seeped into Asia, with most other stock markets falling.
Hong Kong shed 1.1 %, Sydney lost 0.2 % and Shanghai was one % off while Seoul dipped 0.5 %.
On currency markets the talk of a US rate rise lifted the dollar to 109.22 yen from 109.13 yen in New York.
However, the greenback seesawed as traders considered the Bank of Japan standing pat on monetary easing, which tends to lead to a stronger yen.
Energy firms again rode on the coattails of a crude rally, which has seen both main contracts push towards the $50 mark.
Brent was up 0.3 % at $49.44 and West Texas Intermediate also gained 0.3 % to $48.46 as wildfires in Canada forced the evacuation of workers and the closure of the operations of the country’s biggest oil company. In Tokyo, the Nikkei 225 down 0.6 % at 16,753.55 points; Shanghai - Composite down down 1.0 % at 2,815.94 points and Hong Kong - Hang Seng down 1.1 % % at 19,905.03 points at the close yesterday.