Asia stocks up; yen eases, eyes on govt, BOJ

But concern about exposure to riskier assets continued to weigh on markets after US data on Wednesday heightened fears that the world’s biggest economy may be at risk of sliding back into recession.

US new home sales slumped to the slowest pace on record in July and durable goods orders were weaker than expected, suggesting growth could slow sharply without more government or central bank support.

The latest in a growing string of weak data initially pushed major US stock indexes lower, but they bounced back later in the session, indicating investors may see further dips as a buying opportunity and lending support to Asian markets.

“There are increasing signs of a slowing global economy, and on top of that you have Japan’s situation where it really isn’t providing policy to deal with its economic issues," said Kenichi Hirano, operating officer at Tachibana Securities.

“Otherwise, why is the Nikkei performing so poorly? As corporate earnings showed, the economy itself is not doing badly enough to warrant the current weakness in shares, but the lack of clarity on the yen’s strength is not good."

The Nikkei rose 0.3%, lifted by what market players said was short-covering and buying of futures by long-term domestic investors, after hitting a 16-month closing low on Wednesday.

But gains were capped by doubts about how much policymakers could really do to turn the ailing economy around, as well as fears of longer-term policy inaction prompted by a murky political outlook.

Japan’s government will urge the Bank of Japan to ease monetary policy further as part of a package of steps to stem the yen’s rise and support the economy, the Asahi newspaper said, ratcheting up pressure on the central bank to take action before a policy meeting next month.

Japan has also not ruled out market intervention to weaken the yen, though markets largely doubt such a move or further symbolic BOJ policy easing would have much effect.

The benchmark Nikkei broke below 9,000 this week for the first time since May 2009. The 9,000 to 9,100 area had been strong support since last year, and market players say there will be few technical targets to break the benchmark’s further falls.

The MSCI index of Asia-Pacific stocks outside Japan rose 0.4%, led by sectors including consumer staples and healthcare, while those most sensitive to business cycles such as technology eked out smaller gains.

The index hit a 1-month low in the previous session and is down about 4% on the year, but has held up better than the all-country world index, which has fallen 7.2%

Asia’s strong economic growth apart from Japan has been a buffer against recent global shocks, with emerging markets continuing to attract foreign investors despite a broader aversion to riskier assets for much of the year.

YEN FOR ACTION?

News that Bank of Japan Governor Masaaki Shirakawa will attend the Kansas City Federal Reserve conference in Jackson Hole, Wyoming, this week was making some players hesitant to push the yen higher, analysts said.

The dollar rose 0.2% from late U.S. trade to 84.77 yen having risen from a 15-year trough of 83.58 yen struck on trading platform EBS on Tuesday.

“Investors are cautiously watching if Japanese authorities will do something," said Hideki Amikura, deputy general manager of the forex section at Nomura Trust and Banking.

“Shirakawa is likely to speak to (Federal Reserve Chairman Ben) Bernanke and other central bankers in Jackson Hole, and that is prompting market players to speculate about possible Japanese action."

But even if Japan’s government acted alone to try to halt yen strength, dealers have been sceptical it could reverse the growing unwillingness among investors to take risks that has been behind the yen’s 10% rise against the dollar so far this year.

The euro further recovered from a nine-year trough against the yen after data on Wednesday showed that business morale in Germany improved to its highest in more than three years in August, offsetting concerns about fiscally weak euro zone countries.

The euro climbed 0.5% on the day to ¥107.57 and inched up 0.3% against the dollar to $1.2700

Despite the day’s gains in Asian stock markets, however, a clear falling trend in government bond yields around the world reflects deep unease that the chances of another recession are growing.

The benchmark 10-year Japanese government bond yield rose 2.5 basis points to 0.925% on falls in US Treasury prices and profit-taking, but analysts said they expect yields to remain on a downtrend on lingering easing hopes.

US crude oil rose for a second day, nearing $73 a barrel, as bargain-hunting and short-covering in equities spread to the oil market.

Gold edged up to $1,239.30 an ounce, hovering near its strongest level in eight weeks hit the previous day on persistent worries the US recovery was stalling.

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