Hong Kong: Asian stocks fell about 4%, down for a fifth consecutive day, and government bond prices rose on Wednesday as fears of a looming global recession grew with no sign of a coordinated response or an end to the worsening financial meltdown.
The yen climbed as investors clung to anything resembling stability after Federal Reserve Chairman Ben Bernanke warned turmoil in markets could cause US economic activity to be subdued into 2009 and signalled a readiness to cut interest rates.
“The deteriorating outlook for the economy and the deepening financial crisis are pushing fears to their limit,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Japan.
Tokyo’s Nikkei share average dropped 4.5%, hitting a fresh 5-year low, taking losses for the past five days to 15%.
Shares of Toyota Motor Corp fell more than 5% after a report the car maker’s annual operating profit will likely fall around 40% in the year to next March.
Australia’s S&P/ASX 200 index slid 3.5%, a day after rallying on a much larger-than-expected interest rate cut by the country’s central bank.
The MSCI Asia-Pacific index of stocks outside of Japan was down 4.4% to a near 3-year low. The index has fallen a staggering 25 percent in a month and 46% so far this year, underperforming the MSCI all-country world index, which has fallen 36% year-to-date.
Hong Kong’s Hang Seng index fell 5.4% to a 27-month low after a market holiday on Tuesday.
Bernanke’s sobering and candid tone in a speech on Tuesday about the likelihood of interest rate cuts came days after European Central Bank President Jean-Claude Trichet prepared markets for easier monetary policy.
However, with the upcoming Group of Seven rich nations meeting on Friday, investors have begun to anticipate broader action to snuff out what has become a global calamity.
Not one effort by a government - including a series of bank rescues, the establishment of a $700 billion US rescue fund, emergency measures by European governments and massive injections of funds by central banks around the world - has so far been able to stop the increasing dysfunction of the financial system or keep the global economy from a potential recession.
The yen has emerged as clear favourite among investors amid soaring market volatility.
However, UBS recommended bets the US dollar would strengthen against the yen ahead of possible coordinated action among policymakers.
“The market has reasons to respond positively to efforts from officials in Europe and the US Concerted efforts may soon reach a critical level in our view, helping investor’s sentiment, rendering support to dollar/yen,” UBS strategists said in a note.
The dollar was little changed from US trade at 101.45 yen holding above a six-month low of 100.22 yen struck on trading platform EBS earlier in the week.
The euro dipped 0.1 percent to 137.85 yen holding above a three-year low of 135.05 yen also hit this week. Both the Australian and New Zealand dollars fell about 1 % against the yen.
Japanese 10-year government bond futures rallied a full point to 139.30, having risen for three of the last four days.
US Treasury debt prices ticked higher, pushing yields a bit lower. The benchmark 10-year yield slipped to 3.49% from 3.51% late in New York on Friday.
Like other developed bond markets, the difference of the 10-year yield over the 2-year yield - also called the yield curve - has been growing sharply over the last month as dealers anticipated a cut in the Federal Reserve’s target rate.
In the last month, the US yield curve has steepened by 64 basis points to the most since June 2004.