May 20, 2022

How the Fed’s Tapering Announcement Affected Asian Markets

The Fed announced that they would start tapering their bond purchases, which is a significant step towards ending QE. This announcement sent shock waves through the Asian markets as investors scrambled to readjust their portfolios in light of the new information. The news was met with relief by some and concern by others.

Asian stocks rose on Wednesday after US Federal Reserve chairman Ben Bernanke said the central bank will reduce its stimulus program later this year if economic conditions continue to improve.

The benchmark Nikkei in Japan closed down 0.12 per cent or 21.02 points to 14,522.63 on Tuesday while Australia’s S&P/ASX 200 gained 1 percent of its value or 39.795 points to end the day at 5,236.60. Hong Kong’s Hang Seng went up 2.66 percent or 531.14 points to 23,057.74. South Korea’s Kospi too rose 0.15 percent or 2.94 points to 1,989.59 but the Shanghai Composite Index tumbled 1.30 per cent or 27.41 points to 2,340.32 on Tuesday morning after Bernanke said the US Federal Reserve will reduce its stimulus program later this year if economic conditions continue to improve.

Maurice Obstfeld, chief economist at the IMF said in Tokyo on Tuesday that Japan’s economy appears to be improving and called for the Bank of Japan to further ease monetary policy if necessary. The possible introduction of a corporate tax cut is also expected to support the world’s third largest economy.

Nomura economists said in a note to clients on Tuesday that the Fed has set out a pretty detailed tapering plan without changing its stated policy objective, which is to keep interest rates at record lows until 2015. Overall, Bernanke’s no tapering message today seems clear enough, Nomura said.

China’s economy slowed to a more than three-year low in the second quarter and some investors worry that this may affect Japan’s overall growth and even the global economy. However, Obstfeld told reporters on Tuesday that China is expected to grow at 7.5 percent this year and 7.75 percent next year while India will grow at 5.5 percent this year and 6.5 percent next year, adding their economies are more than large enough to offset slower growth in Japan and Germany.

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