Nikkei climbs 1.7% on reports PM Abe readies $265 billion stimulus

Japanese stocks rebounded from Tuesday's sell-off as most Asian markets closed mixed on Wednesday ahead of key central bank decisions as well as major earnings reports due in Japan and South Korea.

The benchmark Nikkei 225 (Nihon Keizai Shinbun: .N225) closed up 281.78 points, or 1.72 percent, at 16,664.82, while the Topix (Exchange: .SPTPXN) was up 14.73 points, or 1.13 percent, at 1,321.67, getting an additional fillip after Reuters reported, citing Japanese media agency Jiji, that Prime Minister Shinzo Abe and his government will compile a stimulus package of more than $265 billion to prop up Japan's flagging economy.

The stimulus package, worth 28 trillion yen, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in "fiscal measures", said Reuters, citing Jiji.

Earlier, there were multiple reports from Japanese media about how much the actual stimulus package would be.

In the wake of the reports, the yen (: OSEJPY=) weakened, with the dollar/yen pair rising as high as 106.53, compared with levels near 105.12 in mid-morning trade on Wednesday and its last close at 104.64. But by 4:24 p.m. HK/SIN, the dollar/yen pair retreated to 105.50.

The retreat followed a Reuters report that Japan's Ministry of Finance denied that it was considering issuing 50-year bonds, as the Wall Street Journal earlier reported, citing people familiar with the matter. The WSJ report may have stoked speculation that the government was considering "helicopter-money light." Helicopter money is essentially printing money and distributing payouts, something that Japanese officials have denied they plan to do.

But the relatively weaker yen had already boosted stocks. Local business daily, Nikkei, reported that Bank of Japan (BOJ) officials were looking at multiple stimulus proposals ahead of the central bank's two-day policy board meeting starting Thursday.

The Nikkei reported the main options were to cut interest rates beyond the current level of negative 0.1 percent, buy more Japanese government bonds on top of the current 80 trillion yen annually, or expand purchases of other assets such as exchange-traded funds.

But with expectations for both monetary and fiscal stimulus running high, analysts warned a sell-off could loom.

"The major downside risk is of perception - since the market has set the bar extremely high for the BOJ, itchy trigger fingers are waiting," said Stephen Innes, a senior trader at OANDA.

"Should the BOJ decide to delay a policy change at the September meeting, I doubt the forward guidance will be enough to sustain current dollar/yen levels and we could quickly test 103 support," Innes said.

Across the Korean Strait, the Kospi (Korea Stock Exchange: .KS11) was down 2.29 points, or 0.11 percent, at 2,025.05. In Hong Kong, the Hang Seng index (Hong Kong Stock Exchange: .HSI) closed up 89.26 points, or 0.4 percent, at 22,218.99.

Chinese mainland markets closed lower, with the Shanghai (Shanghai Stock Exchange: .SSEC) composite down 59.04 points, or 1.94 percent, at 2,991.12, while the Shenzhen (Dow Jones Global Indexes: .DJSZ) composite lost 90.97 points, or 4.44 percent, to end at 1,953.98.

In Australia, the ASX 200 (ASX: .AXJO) closed near flat at 5,539.69, with the materials sub-index advancing 1.72 percent. Shares of major miners rose, with Rio Tinto (ASX: RIO-AU) closing up 1.89 percent, Fortescue (ASX: FMG-AU) higher by 7.04 percent and BHP Billiton (London Stock Exchange: BLT-GB) climbing 3.12 percent.

Analysts said markets are jittery ahead of the U.S. Federal Open Market Committee 's monetary policy decision due in the afternoon local time Wednesday.

"The rally in equity market has stalled, while the dollar interest rates are starting to price in risk of Fed hikes in the coming months," said analysts at DBS Bank in Singapore. "This wariness is warranted, given that U.S. economic [data] have generally proven resilient and markets have largely shrugged off Brexit worries."

The Fed was widely expected to stand pat on rates at this meeting, but analysts have previously said the wording in the policy statement could provide clues about the timing of the next hike.

In the currency market, the dollar maintained the 97 handle against a basket of currencies, with the dollar index (New York Board of Trade (Futures): =USD) trading at 97.224, compared with levels near 96.00 two weeks ago.

The Australian dollar (Exchange: AUD=) briefly strengthened on the back of mixed inflation data for the second quarter.

Data released by the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) for all groups was up 0.4 percent on quarter, in line with a Reuters poll. Weighted median CPI was up 0.4 percent on-quarter and up 1.3 percent on-year.

The data had been closely watched for clues on whether the Reserve Bank of Australia might cut interest rates ahead.

The Aussie climbed from levels near $0.7500 before the data to as high as $0.7564, before retreating to $0.7486 in the evening local time.

In company news, Fortescue released its June 2016 quarterly production results before market open. The miner reported shipments of 43.4 million tons of iron ore for the quarter, a slight uptick from the 42 million tons shipped in the previous quarter. Cash production costs for the quarter were at $14.31 per wet metric ton (mt), a 3 percent reduction compared with the previous quarter and down 35 percent on-year.

For its fiscal 2017 guidance, Fortescue said it expects shipment of 165-170 million tons and its cash production costs are expected to be around $12-$13 per wet mt.

Nintendo (Tokyo Stock Exchange: 7974.T-JP) shares closed down 5.45 percent at 22,305 yen. The Japanese game console maker reported earnings after market close , where the company posted an operating loss of 5.13 billion yen in the April-June quarter.

Nintendo shares had risen sharply since July 6, when the "Pokemon Go" app was launched in the U.S., Australia and New Zealand, with the stock at one point more than doubling in value on expectations the app would give Nintendo's business a boost.

Nintendo owns stakes in both The Pokemon Company, the creator of Pokemon characters, as well Niantic, the U.S. game developer behind the app.

But more recently, Nintendo shares have retreated and on Friday, they saw a steep sell-off after the company announced that "Pokemon Go" would have a limited impact on its earnings.

Shares of Itochu (Tokyo Stock Exchange: 8001.T-JP) tumbled 6.3 percent, after short-seller Glaucus Research Group took aim at the Japanese trading house's accounting practices. Glaucus wrote in a note that Itochu "will be embroiled in an accounting scandal as large as Toshiba."

"We believe that Itochu overstated fiscal year 2015 net profits by inappropriately reclassifying its stake in a Colombian coal mining joint venture to intentionally avoid taking a 153 billion yen impairment when the value of the investment had declined significantly," said Glaucus.

The short seller added this would have reduced Itochu's reported net income by 51 percent.

Itochu issued a statement on its website in Japanese, which Reuters reported said the trading house followed proper accounting procedures and that its views stand in stark contrast to the Glaucus report.

In the U.S., stocks closed mixed as the earnings season continued; fast food giant McDonald (NYSE: MCD)'s reported expectation-beating quarterly earnings of $1.45 a share excluding items, but net income fell to $1.25 a share.

The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) closed 19.31 points, or 0.1 percent, lower at 18,473.75. The S&P 500 (INDEX: .SPX) index finished nearly flat at 2,169.18, while the Nasdaq (NASDAQ: .IXIC) composite closed up 12.42 points, or 0.24 percent, at 5,110.05.

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