Markets across Asia were holding their breath on Wednesday after early hopes that the worst of this week’s turmoil could be behind them were tempered by concern that China has not done enough to stabilise its economy.
With the trading day several hours old, the Nikkei had gained 0.4%. The broader Topix index of all First Section issues on the Tokyo Stock Exchange was up 18.81 points, or 1.3%.
China’s central bank also increased the amount of money available for lending by reducing the reserves banks are required to hold.
“There is a sense of relief for now, and stocks with attractive valuations and higher dividend yields are in focus,” said Nobuhiko Kuramochi, a strategist at Mizuho Securities.
But in China, key share indexes moved up and down as investors continued to sell in a show of apprehension about the health of the world’s second biggest economy.
“The whole market sentiment is still risk-off, which is why markets have taken the latest move from Beijing in its stride and believe more is needed to restore investor sentiment,” said Grace Tam, global markets strategist at JP Morgan asset management in Hong Kong.
Tokyo stocks had opened higher amid guarded optimism over the Chinese central bank’s decision to cut interest rates for the fifth time in nine months.
The Nikkei briefly slipped back into negative territory, however, after China’s benchmark Shanghai Composite Index – ground zero for this week’s market meltdown – faltered yet again.
Investor confidence was also hit by a last-minute plunge on Wall Street on Tuesday.
The Dow Jones industrial average ended 204.91 points, or 1.3%, lower, having been up by as much as 441 points earlier in the day.
Wall Street extended its losses for six straight days, its longest losing stretch for more than three years.
In early trading on Wednesday, the Shanghai index fell 1.8% but recovered to end the morning 0.8% up. Australian shares fell 0.5%.
Stocks in New Zealand, Taiwan and south-east Asia were mostly lower.
Some analysts said that fears of a prolonged market crisis sparked by concern over China’s economic outlook may be overblown, but they warned that the region should expect more volatility.
“Asia remains the epicenter of the current market instability,” Evan Lucas of IG said. “Market ‘stability’ will then come from this region. However the slide in China and Japan suggest sentiment is ruling price action and hyper-fear trading is still in control.”
The US dollar avoided any significant drops against the yen, bringing a little cheer to Japanese policymakers who had been worried about the Japanese currency’s surges earlier in the week.
A weaker yen is a central part of Japanese prime minister Shinzo Abe’s quest to boost profits for his country’s auto and consumer electronics manufacturers. A strong yen, however, eats into exporters’ profits once they are repatriated from overseas.
The dollar was trading in the upper 118 yen range in Tokyo on Wednesday morning after suffering another drop in New York overnight.
The US currency fetched 118.67-69 yen compared with 118.81-91 yen in New York and 119.72-75 yen in Tokyo late on Tuesday.
On Monday, the dollar had dipped to as low as 116.15 yen in New York, prompting Japan’s finance minister, Taro Aso, to warn investors not to push the yen up too far.
Investors see the yen as a “safe haven” currency when global markets are hit by the kind of turmoil witnessed in recent days.