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Asian Markets Rebound; Nikkei Surges on Hopes of Aggressive BOJ Buying

James Hyerczyk

The Asia-Pacific stock indexes are trading higher early Tuesday as investors react positively to the increased stimulus measures to combat the economic impact of the global coronavirus outbreak from the U.S. Federal Reserve. Investors seemed to shrug-off the delay of the U.S. fiscal stimulus package that has stalled in Congress, or they just consider it a domestic issue.

At 04:07 GMT, Japan’s Nikkei 225 Index is trading 17778.18, up 890.40 or +5.27%. Hong Kong’s Hang Seng Index is at 22479.08, up 782.95 or +3.61% and South Korea’s KOSPI Index is at 1562.57, up 80.11 or +5.40%.

Big Gains Continue in Japan

Japan’s share benchmark Nikkei climbed nearly 7% to its highest level in 1-1/2 weeks on Tuesday, outperforming regional peers, supported by hopes of buying by the Bank of Japan (BOJ) and public pension funds.

The Nikkei average gained 6.7% to 18,026.73, its highest since March 13, by the midday break. If sustained until the close, it would be the biggest daily rise for the Nikkei since November 2016.

The Nikkei’s volatility index, a measure of investors’ volatility expectations based on option pricing and considered to be a fear gauge, slid 16.3% to 45.60, further off a nine-year peak of 60.86 hit a week ago.

Some think the fact that the BOJ has been buying a considerable amount of Exchange Traded Funds (ETFs) in a more random manner than before, makes speculative players hesitant to short Japanese stocks, Reuters said.

Today’s early strength follows a similar move on Monday that saw the Nikkei rebound strongly on optimism the Tokyo Olympics will not be cancelled after the International Olympic Committee (IOC) flagged the possibility of a postponement of the Games for the first time, according to Reuters.

The prospect of a postponement rather than cancellation of the Tokyo Games due to start in July helped Japanese shares buck the global trend.

Asian Buyers Impressed by Fed’s Endless QE

While Wall Street’s dismal performance on Monday may have indicated investors want the Fed to do more to support stock prices, investors in Asia were encouraged enough to lift E-mini futures for the S&P 500 by 3%.

In its latest unprecedented step, the Fed offered to buy unlimited amounts of assets to steady markets and expanded its mandate to corporate and muni bonds. The numbers were extraordinarily large, with analysts estimating the package could make $4 trillion or more in loans to non-financial firms.

Economic News

The latest survey from Nikkei revealed that the manufacturing sector in Japan continued to contract, and at a faster pace, with a preliminary manufacturing PMI score of 44.8. That’s down from 47.8 in February, and it moves further beneath the boom-or-bust line of 50 that separates expansion from contraction.

The services PMI from Jibun Bank was even more troubling, as it plummeted all the way down to 32.7 in March from 46.8 in February – largely reflecting the chaos wrought by the global COVID-19 pandemic. That dragged the composite PMI down to 35.8 from 47.0 a month earlier.

Japan will also see final January figures for its leading and coincident indexes as well as February numbers for supermarket and department store sales today, RTTNews reported.

This article was originally posted on FX Empire