TOKYO (AP) – Asian shares advanced Thursday after the Federal Reserve raised its key interest rate by three-quarters of a point and signaled more rate hikes were on the way to fight inflation.
Wall Street rallied on Wednesday after the Fed’s biggest rate hike since 1994, as investors cheered comments from Chairman Jerome Powell suggesting future rate hikes may be more modest. The larger-than-usual rate hike had also been expected for weeks and came as no surprise.
The Bank of Japan holds a two-day policy meeting, starting Thursday. Japan’s central bank is under pressure to act due to downward pressure on the yen from US rate hikes and super-low rates in Japan.
Investors have been selling yen and buying dollars in anticipation of higher returns on dollar-denominated holdings. Japanese politicians and the head of the central bank have expressed concern about the yen’s fall, but no dramatic policy changes are expected.
Early on Thursday, the US dollar rose to 134.56 Japanese yen from 133.82 yen. It recently topped 135 yen, the highest level in 20 years. The euro was at $1.0438, down from $1.0447.
Japan’s benchmark Nikkei 225 rose 1.8% in the morning to 26,793.19. Australia’s S&P/ASX 200 gained 0.4% to 6,627.50. South Korea’s Kospi rose 1.2% to 2,476.61. Hong Kong’s Hang Seng fell 0.6% to 21,178.90, while the Shanghai Composite quickly lost earlier gains to fall 0.1% to 3,301.89.
Concerns are also growing about how Japan’s economy will hold up as wages fall and growth falters.
The finance ministry reported that Japan posted a trade deficit of nearly 2.4 trillion yen ($17.9 billion) last month, its 10th straight month in the red. Japan posted its highest imports in May since 1979 as rising energy prices and a weak yen boosted the value of imports. Resource-poor Japan imports almost all of its energy.
On Wall Street, the S&P 500 rose 1.5% to 3,789.99 after trading in a roller coaster ride immediately after the Fed’s latest move.
In the bond market, Treasury yields edged lower after Powell hinted at smaller rate hikes later this year. Earlier this week, yields had hit their highest levels in more than a decade on expectations of a more aggressive Fed.
The Fed “is not trying to induce a recession now, let’s be clear,” Powell said. He called Wednesday’s big increase “front-loading.”
The two-year Treasury yield fell to 3.21% from 3.45% late on Tuesday, with the biggest move coming after Powell said it would be unusual to raise rates by 0.75 percentage points The 10-year Treasury yield fell from 3.48% to 3.34%.
“The bond market right now is driving the broader market and that will continue,” said Jay Hatfield, managing director of Infrastructure Capital Advisors.
The Dow Jones Industrial Average swung between gains and losses before finishing 1% higher at 30,668.53. The Nasdaq composite rose 2.5% to 11,099.15.
The S&P 500 slipped into a bear market earlier this week, and Wednesday’s gain was the first in six days.
Some analysts warned that the recovery could be short-lived given how deeply and broadly high inflation has fed into the economy.
“Chairman Powell painted as rosy a picture as one could paint, and to get the picture he’s putting out, that path, a lot of things have to go right,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “It’s a tough road, and he recognized that.”
All kinds of investments, from bonds to bitcoin, have tumbled this year as high inflation forces central banks to quickly remove the supports that backed markets early in the pandemic.
Even without a recession, higher interest rates hurt the prices of investments. The hardest hit have been those who soared in the easy money era of ultra-low interest rates, including high-growth tech stocks and cryptocurrencies.
The economy is still largely afloat amid a red-hot job market, but has recently shown some signs of distress. Sales at US retailers unexpectedly fell in May from April.
Cryptocurrency prices continued to fall, with bitcoin falling to $20,087.90, nearly 71% below its record high of $68,990.90 set late last year. It was down nearly 1% at $21,770 by afternoon, according to CoinDesk.
Powell said on Wednesday that the Fed is moving “rapidly” to bring rates closer to normal levels after last week’s impressive report that showed consumer inflation unexpectedly accelerated last month. That dashed hopes on Wall Street that inflation had already peaked.
The war in Ukraine has helped boost oil prices because the region is a major energy producer. Meanwhile, COVID infections in China have caused factory closures and disrupted supply chains. All helped send the S&P 500 down more than 20% from its record high set in early January, putting Wall Street in what investors call a bear market.
Many of these concerns still exist, which will likely keep markets volatile.
In energy trading, benchmark U.S. crude rose $1.19 to $116.50 a barrel in electronic trading on the New York Mercantile Exchange. It lost $3.62 on Wednesday to $115.31 a barrel. Brent crude, the international standard, added $1.01 to $119.52 a barrel.
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AP Business Writer Stan Choe contributed.
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Yuri Kageyama is on Twitter
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