Hong Kong: The US dollar hit 2-1/2-month lows against the euro on Thursday, with investors deterred by the world’s lowest interest rates, while weak energy demand due to the global downturn kept oil prices near 4-year lows below $40 a barrel.
Expectations that deep recessions from Britain to the United States could lock their economies in a deflationary spiral of falling prices and profits kept investors reaching for longer-dated US government bonds seeking both safety and yield as a most difficult year winds down.
Japanese stocks edged up, led by bank shares as the country’s central bank kicked off a two-day meeting that many economists say could produce a rate cut to follow the US Federal Reserve’s historic cut in base rates to near zero on Tuesday.
The dollar’s uncertain prospects as the Fed engages in quantitative easing - when central banks overwhelm the financial system with money to promote lending has spooked dealers who had bets on further strength in the dollar. As a result, they have rapidly liquidated their positions.
Against the yen, the dollar climbed 0.6% to 87.75 yen after plumbing a 13-year low overnight of 87.13 yen.
The sustained drop below 90 yen, a psychologically important level for the market, has sparked concern Japanese officials could intervene to cap the yen’s gains.
Japan’s Finance Minister Shoichi Nakagawa said he would not comment on whether the ministry would enter the market. The stance was different from just a week ago when Nakagawa said flatly he was not thinking about whether Japan should intervene.
Asian stocks rose modestly, helped by property and bank shares, on hopes policymakers will follow the Fed’s lead and cut rates with abandon to spur growth.
Japan’s Nikkei average rose 0.9% as shares of big banks and brokerages rallied on growing expectations the Bank of Japan will lower rates on Friday.
Japan’s biggest bank Mitsubishi UFJ Financial Group rose 2.3%, while second-ranked Mizuho Financial Group climbed 2.8%.
The MSCI index of stocks in Asia-Pacific outside Japan climbed 0.6% to a 1-month high, as some foreign investors scooped up cheap shares.
Hong Kong’s Hang Seng index was down 0.3%, dragged lower by a 3.8% drop in HSBC on fears about dividend cuts and the potential need to raise capital to weather rough times ahead.
Fund managers’ views on China remained quite optimistic because of its capacity for more rate cuts and fiscal stimulus and the world’s fourth largest economy was the preferred choice of Asian equity investors, according to a Merrill Lynch survey.
However, the proportion of fund managers’ portfolios dedicated to emerging markets is at the lowest since 2001.