Powell's "dovish" remarks ignite bullish sentiment, analysts shout that Asian stocks and currencies are set to rise

According to the Zhitong Finance APP, this week, Asian stock markets are expected to have a strong start, and Asian currencies may also gain support as a result. Wall Street analysts have pointed out that Asian stock markets and currencies are likely to strengthen further. Previously, Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole symposium indicated that the Fed may take interest rate cuts as early as the next policy meeting in September. Last Friday, U.S. stock markets surged, leading the Dow Jones Industrial Average to reach a new high for the year. Meanwhile, emerging market currencies ended a six-day decline as Powell's remarks led to a significant depreciation of the dollar.

Here are the views of analysts and strategists:

Gerald Gan, Deputy Chief Investment Officer at Reed Capital in Singapore, stated: "If the market's expectations for interest rate cuts intensify further before the September Federal Open Market Committee meeting, the overall Asian stock market will surely be boosted. As long as the appreciation of the yen is controlled, its impact on Japanese risk assets will not be too severe. Since the Bank of Japan is closely monitoring the yen's movements, I expect the volatility of the yen will not be too large in the future, which again suggests that the Japanese stock market may continue to rise next year."

Priyanka Kishore, Chief Economist at Asia Decoded, pointed out: "A weaker dollar may temporarily boost Asian currencies, as Powell indicated a possible rate cut in September. However, unless the Fed commits to a more substantial easing policy, any gains may only be temporary."

Hebe Chen, an analyst at Vantage Markets, said: "Powell's signal of 'turning wishes into reality' will help fill the cracks beneath the surface of the slightly volatile Asian markets. Although this signal does not guarantee its persistence, the uplifting effect will be most evident in sectors and markets dominated by technology stocks (such as Japan and Taiwan), where market sentiment is more fragile. For investors, this new optimism is likely to keep risk appetite high until September 17."

Jamie Halse, CEO of Senjin Capital, believes: "In the short term, this could be favorable for global markets, as it means funds will flow out of the U.S. to seek higher return opportunities in other regions, and the dollar will depreciate accordingly. If interest rates in other regions remain unchanged, lower rates typically reduce the attractiveness of dollar investments. This is why the dollar usually declines when U.S. rates fall. With U.S. rates declining and Ueda and Kuroda still holding a tough stance, this means the yen will strengthen against the dollar. This will hurt the earnings of large export companies and those with significant profit reserves overseas, but will benefit smaller domestic-focused companies that procure in dollars."

Anna Wu, cross-asset strategist at VanEck Associates, stated: "Powell's speech took a dovish stance, removing obstacles to a rate cut in September and boosting market risk sentiment. This is favorable for both the stock and short-term bond markets. In my opinion, the Japanese stock market will rise due to improved market sentiment. However, Nvidia's performance and PCE data this week will be crucial to test whether this upward trend can be sustained. The exchange rate of the yen against the dollar may appreciate slightly, as the Jackson Hole meeting has pushed up yields.

Tim Waterer, Chief Market Analyst at KCM Trade, stated: “The remarks from the Federal Reserve Chairman at the Jackson Hole meeting were relatively dovish rather than hawkish, which has been a boon for risk assets. The prospect of declining U.S. interest rates may prompt investors to seek yields elsewhere, which could be a positive signal for Asian economies.”

Marito Ueda, head of the research department at SBI Liquidity Market, wrote: “Powell's speech seems to suggest a possible rate cut in September, but he is not firmly committed to it, only indicating that it will depend on the data. The rise in the dollar-yen exchange rate was due to market expectations of a hawkish statement, so the rate subsequently fell back by the same magnitude. I believe the dollar-yen exchange rate will not break out of its trading range.”

Kazuya Fujiwara, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, pointed out: “Japanese government bond prices may remain stable due to declining U.S. interest rates, but the upside is limited as the market expects the Bank of Japan to raise rates, while concerns about fiscal expansion have also intensified. Ueda Kazuo's remarks during the panel discussion that 'pressure for wage increases will continue' are likely to be interpreted as a signal that the Bank of Japan will continue to raise interest rates.”

Yusuke Matsuo, senior market economist at Mizuho Securities, stated: “The Bank of Japan is considering raising rates, while the Federal Reserve is contemplating rate cuts, so it is highly likely that these two central banks will diverge in their policy rate directions. The foreign exchange market is expected to gradually trend towards yen appreciation and dollar depreciation, reflecting market expectations that the Bank of Japan will raise rates once more this year, while the Federal Reserve will cut rates twice.”

Steven Englander, head of global G10 foreign exchange research at Standard Chartered Bank, added: “Unless Powell is convinced that the Federal Open Market Committee is highly likely to lower rates, he would never make such remarks. It would be meaningless to first raise market expectations and then let them down. For the market, the question is what level of non-farm payrolls is needed to prevent a rate cut, and what level needs to drop to justify a 50 basis point cut.”