Asian shares were mostly higher Thursday after the U.S. Federal Reserve indicated it may not need to pump the brakes any harder on Wall Street and the economy.
Japan’s benchmark Nikkei 225 gained 0.9% to 31,899.00. Australia’s S&P/ASX 200 jumped 1.1% to 6,910.10. South Korea’s Kospi surged 1.8% to 2,342.87.
Hong Kong’s Hang Seng added 1.2% to 17,296.34, while the Shanghai Composite edged 0.1% higher to 3,026.32.
“It’s no surprise that Asian markets are responding positively to the gains in U.S. stocks and bonds after the Federal Reserve suggested its policy tightening cycle may be reaching the end of the runway. So maybe it is time to start engineering that elusive soft landing officially,” Stephen Innes, managing partner at SPI Asset Management, said in a commentary.
In Japan, Prime Minister Fumio Kishida announced an economic stimulus package worth about $113 billion that is meant to cushion the blow to household budgets from rising inflation and timed to counter weakening public support for his government. The package includes tax breaks for individuals and companies and subsidies to reduce rising energy costs.
Longer-term Treasury yields have in turn been rising rapidly, with the 10-year Treasury yield topping 5% last month to reach its highest level since 2007.
The 10-year yield was at 4.72% early Thursday, down from 4.92% late Tuesday.
Fed Chair Jerome Powell said the central bank is unsure that its main interest rate is high enough to ensure high inflation will move down to its 2% target. That kept alive the possibility of more hikes by the Fed. He also said the Fed is not considering cuts to interest rates, which can act like steroids for financial markets.
But Powell acknowledged that a recent run higher in longer-term Treasury yields, and the tumble in stock prices that helped cause, are working on their own to slow the economy and could be starving high inflation of its fuel. If they can do that persistently, he indicated they could help the Fed whip inflation without requiring more rate hikes.
The jump in yields has already brought the average 30-year fixed mortgage rate to nearly 8%, for example, “and those higher costs are going to weigh on economic activity to the extent this tightening persists.”
The Fed has time to assess the full effects of its past rate hikes, he said.
“It takes time, we know that, and you can’t rush it,” Powell said.
