Yen plunges as Japan stocks jump on Abe fiscal stimulus report

[WELLINGTON] The yen dropped and equities in Tokyo jumped in volatile trading after a report that Japan's government is preparing a stimulus package worth more than 28 trillion yen (S$360 billion).

Japan's currency was down 0.9 per cent against the dollar at 3:02 pm in Tokyo, as Kyodo News reported comments from Prime Minister Shinzo Abe on the size of the spending program.

The Nikkei 225 Stock Average soared 1.7 per cent while the yield on Japan two-year notes fell to a record. Japan's financial markets have been whipsawed this week by speculation about the amount of money the government will commit to buoying the economy, and whether any stimulus will come as a coordinated effort with the Bank of Japan. The central bank will announce its policy decision on Friday.

"Fiscal policy is now really what the markets are looking for," Lothar Mentel, chief investment officer at Tatton Investment Management, told Bloomberg TV in London.

"It seems big and it should probably do quite a bit for the Japanese economy. Whether it's big enough, we'll find out. The markets seem to be a little bit undecided whether it is or it isn't."

Global equities have been rallying this month, with the S&P 500 Index reaching an all-time high, on speculation central banks globally will act to cushion any blow from the UK's Brexit vote.

Almost 80 per cent of analysts surveyed by Bloomberg forecast Governor Haruhiko Kuroda and his board will expand the BOJ's record stimulus program Friday. The Fed reviews rates before Japan, with the US central bank projected to keep borrowing costs on hold Wednesday, despite an uptick in bets on tightening this year.

The MSCI All-Country World Index fluctuated, trading near the highest level of the year. Futures on the Euro Stoxx 50 Index climbed 0.3 per cent.

The Topix index gained 1.1 per cent, with suppliers of Apple Inc climbing after better-than-expected sales from the iPhone maker. Minebea Co, which makes backlights for liquid crystal displays, soared 14 per cent in Tokyo. Hon Hai Precision Industry Co, which assembles Apple devices, rose 1.4 per cent in Taipei.

The Shanghai Composite Index tumbled 2.5 per cent, reversing an earlier gain as small-cap stocks sank, sending the ChiNext Index tumbling almost 5 per cent. The Shanghai gauge rallied 1.1 per cent Tuesday. Hong Kong's Hang Seng Index slipped 0.1 per cent, after reaching a high for the year on Tuesday. The Hang Seng China Enterprises Index was little changed.

Futures on the S&P 500 Index increased 0.2 per cent, while contracts on the Nasdaq 100 climbed 0.7 per cent as Apple shares jumped almost 7 per cent in after-market New York trading.

Apple's boost contrasted with an 11 per cent after-market slide in Twitter Inc, which forecast third-quarter revenue that fell short of analyst estimates.

Earnings have been in focus this week, with results from Mitsubishi Motors Corp. and Nintendo Co slated for release in Tokyo on Wednesday.

After a two-day, 1.4 per cent advance, the yen weakened to 105.57 per dollar.

Mr Abe's stimulus plan will include 13 trillion yen in "fiscal measures," according to Jiji News, without specifying what that meant. There was no report of how much of the package would be new spending. Mr Abe, speaking in the southern city of Fukuoka on Wednesday, said the package would be compiled next week, Kyodo said.

Japan's Topix stock index has risen more than 9 per cent since the election victory and the yen has weakened almost 5 per cent amid anticipation over the plan. The stimulus plan comes ahead of the BOJ's policy meeting that ends Friday.

"The key is whether the BOJ will surprise us again on Friday," Alex Wong, director of asset management at Ample Capital in Hong Kong, said on Bloomberg Radio's First Word Asia program.

"The Japanese central bank has surprised the market several times in the past few years so they are a little bit unpredictable."

The Australian dollar jumped, then erased gains, after data showed inflation quickened. The currency dropped 0.3 per cent after rallying as much as 0.9 per cent. The trimmed mean gauge of consumer prices rose 0.5 per cent in the quarter ending June from the previous three months, the statistics bureau reported.

Australia's central bank, in its minutes of its July meeting, signaled it was keeping its policy options open. Policy makers, who left the benchmark cash rate unchanged at a record low of 1.75 per cent last month, make their next decision on borrowing costs on Aug. 2.

"The lift in the Australian dollar quickly faded because there is still a reasonable risk of a RBA rate cut next week," said Joseph Capurso, a senior currency strategist in Sydney at Commonwealth Bank of Australia. Commentary after the Fed meeting "is more important for the short-term Aussie outlook. The Fed risks being more optimistic than their June statement, and that could help push the Australian dollar lower into the week's end."

New Zealand's currency fell 0.2 per cent. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, added 0.1 per cent following Tuesday's 0.3 per cent drop.

West Texas Intermediate crude slipped 0.3 per cent, extending losses at its lowest price since April 25 as industry data indicated supplies at the main Cushing oil hub in the US rose to a seasonal record.

"The general driver behind the negativity seems to be the excess crude and gasoline stockpiles," Angus Nicholson, a markets analyst at IG Ltd in Melbourne, said by phone.

"The market is very much in a down trend and it doesn't look like it's going to reverse at the moment. There is some key technical support around US$40 a barrel."

Gold for immediate delivery, regarded as a haven along with the yen and government bonds, declined 0.2 per cent to US$1,325.80, falling for the third time in four days.

BLOOMBERG