Asia shares rally, BOJ set to ease monetary policy further

But it was still a solid number, and analysts were split on whether it was enough for the Federal Reserve to hike interest rates this month.

The second quarter growth of Japan’s economy came in less than median forecasts for between a 0.4 and a 0.7 percent expansion in the recording period, logging an annualized 0.2 percent in real terms, with the minimal growth coming on the heels of a revised 2 percent growth logged in the January-March quarter.

Japan’s Nikkei stock index surged 1.1% to three-month highs, even as the dollar slipped against the yen despite Bank of Japan (BoJ) governor Haruhiko Kuroda’s signal that the BoJ stands ready to ease monetary policy further.

“The BOJ is likely to focus on analyzing what factors caused the drop in super-long JGB yields”, said Naohiko Baba, the chief Japan economist at Goldman Sachs Group Inc. and a former BOJ official.

Bonds were in favour after US payrolls numbers on Friday had tamed Fed bulls, while emerging market stocks were gunning for their best day since July as they climbed 1.3 percent.

Nonfarm payrolls rose by 151,000 jobs last month, below the 180,000 jobs that economists had expected.

BOJ board member Makoto Sakurai told Reuters last week that policymakers will likely focus on refining current policy steps and consider ways to fix a bond yield curve that has flattened too much as a result of its negative interest rate policy.

“What matters is not whether the markets think that was a strong jobs number, but whether Fed policymakers do”, said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo, who noted that Fed Vice Chairman Stanley Fischer said late last month that the USA job market was close to full strength. It hit a one-month high of 1.3360 as data showed the United Kingdom services industry bounced back strongly from a seven-year low hit after the vote to leave the European Union.

U.S. Fed Funds futures prices indicated investors were now pricing in only around a 20 percent chance of a September hike down from over 30 percent before the jobs data.

Markets were also keeping watch on the two-day summit of leaders from G20 nations, in Hangzhou, China. USA shares were also set to drift higher with Dow futures rising 0.3 percent to 18,509.

Though Bank of Japan Governor Haruhiko Kuroda signalled his readiness to further expand an already massive stimulus programme, he did not provide the explicit hints that some had been waiting for on the chances of the BOJ aggressively easing policy at its next review on September 20-21.

But he said monetary policy has yet to reach its limit, stressing that the BOJ had room to deepen negative rates.

But the governor also said it is important to take into account the impact that the negative interest rate policy might have on the financial system.

On the Chinese economy, however, Kuroda said that for his and the bank’s part, there was no sense of pessimism regarding the world’s second-largest economy, and, unlike Japan’s own economic situation, China’s economy facing similar stagnation was highly unlikely.

Crude prices inched down, paring their robust gains in the previous session amid worry over a global oil glut.

ENERGY: U.S. benchmark crude oil lost 8 cents to $44.36 a barrel in electronic trading on the New York Mercantile Exchange.