BoJ Policy Lifts Nikkei, US Sanctions Fears Weigh on Hang Seng

Markets across Asia were pulled in both directions for a third consecutive day on Friday as an overnight rally on Wall Street lifted sentiment but looming geopolitical tensions weighed on investors.

The Nasdaq and the S&P 500 recorded their fourth consecutive record closing highs overnight and US Treasury yields touched their lowest levels since early April as investors reconciled cooler-than-expected inflation data with tempered rate-cut expectations from the Federal Reserve.

That lifted most Asian stocks in early trade, but cautious investors quickly booked profits as the dollar hovered near one-month highs and geopolitical uncertainty in France weighed on global sentiment.

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Even so, markets in Korea and Mumbai edged higher by close. Taiwan stocks were also on the front-foot, ending at fresh all-time-highs, as they continued a blistering rally backed by chipmakers.

Japan’s Nikkei share average also ended higher after the central bank opted to leave policy settings unchanged. The index finished the day 0.2% higher at 38,814.56, recovering from early losses.

The broader Topix extended morning gains to be up 0.5% at the close. The Topix banking index shed early gains to close 0.5% lower, as the BOJ’s go-slow approach suggested an even longer period of ultra-low rates, which have crushed margins for lending and trading.

Investors went into the day keen to learn the fate of the central bank’s massive 6-trillion-yen ($38.14 billion) monthly bond-buying program. But while the BOJ said it intends to trim buying “to ensure that long-term interest rates would be formed freely in financial markets,” the statement added that the change would occur at the July meeting after discussions with market participants.

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The BoJ decided to give “a sneak peek” at a bond purchase reduction due in July, rather than announcing a cut at the current meeting. That “in itself reveals the BOJ’s cautious stance,” said Norihiro Yamaguchi, a senior Japan economist at Oxford Economics.

For stocks though, “aside from the initial reaction, I think the impact will be small,” he said.

Meanwhile, clarification from BOJ that it would continue to buy government bonds at its existing pace for now helped the yen rebound from a one-month low. The currency slumped earlier as BoJ’s call to hold interest rates weighed on the currency.

Geopolitics weigh on China, Hong Kong

Meanwhile, in China and Hong Kong, investors continued to fret about more potential geopolitical tensions.

Sentiment was hurt as the United States said it was considering taking additional steps against Chinese companies that have been supplying Russia’s defense industrial sector.

The Hang Seng Index slipped 0.67% to close at 17,991.04. Chinese H-shares listed in Hong Kong fell 0.73% to 6,374.66.

Meanwhile, mainland stocks were dragged lower by shares of liquor makers and other consumption-related shares in early trade. Chinese blue chips pared most losses by close, however, to close marginally up.

The Shanghai Composite edged higher by 0.12% to close at 3,032.63 points. China’s blue-chip CSI300 index was 0.44% higher at 3,541.53.

Market participants also anxiously awaited May credit lending data and the central bank’s rollover of maturing medium-term policy loans next Monday for more clues on the broader economy. China will also release May activity data on Monday.

Data released post-market showed new bank lending in China rebounded far less than expected in May and some key money gauges hit record lows. The lending numbers, suggesting the world’s second-largest economy is still struggling to regain its footing even as the central bank seeks to bolster confidence, will likely weigh on Chinese markets on Monday.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.2%, with markets in Singapore, Bangkok, Jakarta and Manila closing in red.