Asian Shares Rise Amid Wall Street Rally as Investors Await Fed Policy Meeting

Asian shares rose on Monday, buoyed by optimism from a rally on Wall Street last week, as investors await the upcoming Federal Reserve policy meeting.

The positive market sentiment was driven by strong earnings reports that boosted investor confidence, despite concerns over the declining Japanese yen, which reached a 34-year low against the U.S. dollar.

Major Asian stock indexes saw gains in early trading, with the S&P/ASX 200 in Sydney adding 0.6%, South Korea's Kospi surging nearly 1.0%, and Hong Kong's Hang Seng jumping 1.2%. However, trading was closed in Tokyo for a Japanese national holiday.

The Japanese yen slumped to 160.17 against the dollar, its weakest level since 1990, fueling expectations that Japanese authorities may intervene to support their currency for the first time since late 2022. The yen's decline came after a forecast-beating U.S. personal consumption expenditures (PCE) index reading, which dented expectations for Federal Reserve interest rate cuts this year.

Why this matters: The yen's weakness can benefit Japan's exporters but hurt the economy in the long run. The Federal Reserve's upcoming policy announcement will be closely watched for guidance on its plans for monetary policy, as the Bank of Japan has maintained an ultra-loose policy while other central banks have raised rates to fight inflation.

Observers are skeptical that intervention would have a sustained impact, as the macro fundamentals do not support a sudden shift to a hawkish monetary stance. Investors now expect just one rate cut from the Fed this year, down from as many as six previously priced in.

On Wall Street, the S&P 500 closed out a relatively solid week on Friday, with the index rallying 1%. Analysts expect the Federal Reserve to keep interest rates on hold, as recent data on U.S. inflation suggests that the central bank may need to maintain high rates to ensure that inflation heads down toward its 2% target.

The market mood remains cautious ahead of the Federal Reserve's policy meeting later this week. As Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, noted, "Markets are pricing in a 70% chance of the Fed hiking rates by 25 basis points in May, and a 30% chance of them standing pat."

Key Takeaways

• Asian shares rose, buoyed by Wall Street's tech rally last week.
• Japan's yen hit a 34-year low against the US dollar, fueling intervention expectations.
• The Fed's upcoming policy announcement will be closely watched for rate guidance.
• Investors expect just one Fed rate cut this year, down from six previously.
• Markets price in a 70% chance of a 25bps Fed hike in May, 30% chance of no hike.