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Japan’s Nikkei jumps 2% as investors assess Fed decision to dial back bond buying

Employees wearing protective masks work in the trading room at the Daiwa Securities Group Inc. headquarters in Tokyo, Japan, on Thursday, Oct. 14, 2021.

Toru Hanai | Bloomberg via Getty Images

SINGAPORE — Asia-Pacific markets were mixed Thursday as investors digested the U.S. Federal Reserve’s indications that its run of ultra-easy monetary policy since the start of the pandemic is coming to a close.

Japan’s Nikkei 225 jumped 2% while the Topix index was up 1.4%. Autos advanced, as well as tech shares and retail. Nissan soared 4%, while Fast Retailing bounced nearly 3%.

In South Korea, the Kospi rose 0.3%.

Hong Kong’s Hang Seng index slipped 0.42%. Chinese mainland shares advanced: The Shanghai composite was up 0.48% while the Shenzhen component rose 0.22%.

In Australia, shares struggled for gains. The benchmark ASX 200 was down 0.43% as sectors such as energy and materials fell 1.18% and 0.28%, respectively.

The country’s central bank governor said the Reserve Bank of Australia will not increase interest rates until actual inflation is sustainably in the 2% to 3% target range — that is unlikely to happen next year.

“We are still a fair way from that point. In our central scenario, the condition for an increase in the cash rate will not be met next year,” Philip Lowe said, addressing the CPA Australia Riverina Forum on Thursday. But, the central bank is prepared to taper, or potentially cease, its bond purchases next year if the economic recovery is in line with the Reserve Bank Board’s goals, and it may happen as early as February.

“While we flagged a possible February end to [quantitative easing] earlier this month, today’s speech makes it the most likely option in our view,” ANZ Research analysts said in a note. They added that the greatest uncertainty facing Australia is the impact of the omicron Covid variant, particularly the number of people getting hospitalized due to the strain.

“The potential for government mandated shutdowns to delay the recovery and the eventual pick-up in inflation could defer the end of [quantitative easing] ,” the ANZ analysts said.

Thursday’s session in Asia followed overnight gains on Wall Street.

Stateside, the Fed said it will accelerate the reduction of its monthly bond purchases — the central bank will be buying $60 billion per month of bonds starting in January, down from December’s rate of $90 billion, and said that it will likely continue that trajectory in the months ahead.

Once that wraps up, in late winter or early spring, the central bank expects to start raising interest rates. Projections released overnight indicate that Fed officials see as many as three rate hikes coming in 2022, with two in the following year and two more in 2024.

“Markets seemingly have taken the tilt in their stride given three hikes were close to being priced into the meeting and expectations were high for an accelerated taper profile,” said Tapas Strickland, director of economics and markets at the National Australia Bank, in an early Thursday note.

“One gets the impression on that profile that the Fed could move as early as March 2022, though of course the Omicron variant is one key uncertainty as is the taper profile which plays to the view of the first rate hike being in May 2022 and which is 90% priced,” he added.

In the currency market, the U.S. dollar traded at 96.421 against a basket of its peers, dipping 0.09% from its previous close at 96.511.

The Japanese yen weakened to 114.08 against the dollar, from levels near 113.70 earlier in the week. The Australian dollar changed hands at $0.7159.

Oil prices advanced on Thursday during Asian trading hours, with U.S. crude higher by 1% at $71.58 a barrel and global benchmark Brent adding 0.81% to $74.48.

CNBC’s Jeff Cox contributed to this report.

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