March 3, 2021

Asian Stocks Lose Early Gains to Fall Broadly

Neither the Japanese stock market nor the yen seemed terribly impressed by either the downgrade or Japan’s new measures on Wednesday: The Nikkei 225 stock index rose in early trading, but quickly gave up those gains to end the day down 1.1 percent at 8,629.61 points.

Similarly, the yen remained persistently strong in the international currency markets, hovering at about 76.60 yen per U.S. dollar.

In fact, Moody’s decision to lower its rating of Japan by one notch came as little surprise, as Standard Poor’s had announced a similar downgrade in January and the economic and political challenges facing the country are well known.

Analysts at Nomura noted in a research commentary that some market participants had expected Moody’s to lower its rating by a larger magnitude, or accompanied its downgrade with a negative outlook.

In that context, “the financial markets may be reassured to some extent now that neither scenario has occurred. At the very least, Moody’s decision is unlikely to trigger a marked rise in long-term interest rates,” they wrote.

Moody’s move took the rating to Aa3, from Aa2, with a stable outlook. The ratings agency cited “large budget deficits and the build-up in Japanese government debt since the 2009 global recession” for its downgrade.

“Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies,” Moody’s wrote in a statement.

The March 11 earthquake and tsunami and the subsequent nuclear disaster have delayed a recovery from the 2009 global recession and have aggravated deflationary conditions, Moody’s wrote, adding that “prospects for economic growth are weak, making it more difficult for the government to achieve deficit reduction targets.”

Later on Wednesday, Japan’s government said it would create a $100 billion credit facility to encourage companies to invest overseas, in an effort to weaken the yen, whose recent strength has been worrying Japanese exporters.

Elsewhere in the Asia-Pacific region, too, the markets slipped, ignoring the firm rally in the U.S. markets during the previous day. Analysts cautioned that the lingering uncertainties about the U.S. economy and European debt woes remain in place and are likely to produce more volatility in coming months.

The key index in South Korea closed down 1.2 percent, the Taiex in Taiwan fell 0.6 percent, and the S. P./ASX 200 in Australia finished 0.1 percent lower.

In Hong Kong, the Hang Seng index was 1 percent lower by mid-afternoon, the Straits Times index in Singapore fell 0.4 percent, and in India, the Sensex was down 0.8 percent by the afternoon.

On Wall Street on Tuesday, the Dow Jones industrial average finished nearly 3 percent higher and the Standard Poor’s 500 rallied 3.4 percent, with investors apparently seeking out buying opportunities before Federal Reserve’s annual symposium in Jackson Hole, Wyoming, on Friday.

Investors also harbored hopes that the Fed chairman, Ben S. Bernanke, would announce fresh Federal Reserve support for the U.S. economy at the event.

Futures on the S. P. 500 were down 0.8 percent during the Asian afternoon, signaling that Wall Street may give up some of Tuesday’s gains when trading resumes Wednesday.

Gold, which had sagged sharply on Tuesday, climbed again on Wednesday — a reflection that the precious metal’s appeal as a relative haven amid times of uncertainty remained undiminished. Gold was trading at $1,842 an ounce by midafternoon in Asia, up from about $1,830 earlier in the day.

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