Asian Markets Rally on Fed Rate Cut Expectations, Japan Surges to Record Highs

Asian stocks advanced on Thursday, fueled by Wall Street’s gains and mounting expectations that the Federal Reserve will reduce interest rates by September due to recent weak economic data. Japanese stocks led the charge, nearing record highs and recouping losses from the second quarter.

Wall Street’s S&P 500 and NASDAQ Composite hit record highs on holiday-shortened trade, driven by bets on a 25 basis point rate cut in September following disappointing labor data and purchasing managers index readings. However, the Fed’s June meeting minutes tempered optimism, and upcoming nonfarm payrolls data kept sentiment cautious.

Japan’s Nikkei 225 and TOPIX indexes rose, with the Nikkei approaching record highs and the TOPIX briefly hitting a new record. The gains were fueled by weak economic data and the yen’s decline, suggesting limited room for Bank of Japan policy tightening. Technology stocks also rallied, mirroring their U.S. counterparts on AI hype.

Broader Asian markets gained momentum due to growing conviction of a September Fed rate cut, with the CME Fedwatch tool indicating a nearly 66% chance of a 25 basis point reduction. South Korea’s KOSPI and Australia’s ASX 200 rose, while Indian futures pointed to a positive open after the Nifty and BSE Sensex 30 hit record highs.

China’s markets lagged behind due to concerns over a slowing economic recovery. The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell slightly, pulling down Hong Kong’s Hang Seng index. Sentiment towards China remained subdued due to weaker-than-expected services sector growth and doubts about further stimulus measures. Investors now await the Third Plenum of the Chinese Communist Party for more cues on the economy.