Asian markets were mixed yesterday after the US Federal Reserve said it would start cutting its stimulus program next month, in a sign of confidence in the US’ economic recovery.
Shares in emerging economies — which have been in turmoil at the prospect of an end to the bond-buying scheme — were mostly buoyed by news that the US central bank will whittle it down only slightly, while keeping interest rates at record lows.
Tokyo jumped 1.74 percent, or 271.42 points, to 15,859.22, Sydney rallied 2.08 percent, or 106.1 points, to 5,202.2 and Seoul was flat, edging up 1.02 points to 1,975.65.
Shanghai slumped 1 percent to 2,127.79, while Manila added 0.18 percent, Jakarta was up 1.17 percent and Bangkok slipped 0.10 percent.
After months of speculation, the Fed on Wednesday said it would reduce its stimulus measures by a modest US$10 billion to US$75 billion a month from next month, citing data indicating that the world’s No. 1 economy is strengthening.
“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases,” the bank’s Federal Market Open Committee said in a statement.
The Fed added that it would likely take “further measured steps at future meetings” if the economy continues to improve.
Fed policymakers also said they would keep interest rates at record lows “well past the time” that the unemployment rate declines below 6.5 percent — its previous cut-off point before tightening monetary policy.
While global markets have been falling over the past week on expectations of a taper, the relatively small reduction — coupled with the likelihood of interest rates being kept ultra-low — gave them a boost.
“By putting more conditions on its first increase in short-term interest rates, the Fed shifted market expectations for this from mid-2015 to later that year, or possibly early 2016. This should put downward pressure on long-term rates,” Ryan Sweet of Moody’s Analytics said.
On Wednesday, the Dow soared 1.84 percent and the S&P 500 jumped 1.66 percent — both new records — while the NASDAQ rose 1.15 percent.
The news was also welcomed in developing countries, which saw huge inflows of capital when the scheme was unveiled in September last year. Their markets have declined in recent months as investors repatriate cash back to the US.
“The amount of tapering is slightly less than expected. More importantly, the announcement provides more clarity to the direction of Fed monetary policy. That will be positive for financial market stability, including rupiah stability, going forward,” Bank Indonesia Deputy Governor Perry Warjiyo said.
However, Seoul vowed to cool currency fluctuations if needed.
The South Korean government will monitor market reactions to the Fed’s decision to trim its bond purchases, South Korean Minister of Finance Hyun Oh-seok said at a meeting in Seoul yesterday.
The won’s recent moves versus the yen have been “relatively fast” and are “problematic,” South Korean Vice Minister of Finance Choo Kyung-ho said by telephone.
Bangko Sentral ng Pilipinas said it will watch for any need to fine-tune policy as it foresees “some” market swings in the near term.
“This step towards normalization is welcome, as this means the US economy is growing with some traction setting in” that will benefit trade in emerging market economies, Bangko Sentral ng Pilipinas Governor Amando Tetangco said via text message yesterday. “There may be some volatility in the financial markets near term, but not in the order of what we had seen in May to June this year.”