Asian Markets Experience Volatility Amid Leadership Changes and Economic Stimulus

Asian markets had a turbulent start to the week with Japan's Nikkei 225 falling nearly 5% following political changes, while Chinese markets surged on new economic stimulus measures. The leadership shift in Japan saw Shigeru Ishiba replacing Prime Minister Kishida, potentially altering economic policies. Chinese property-focused measures boosted local markets ahead of a week-long national holiday.

Asian markets had a wild start to the week, with Tokyo's Nikkei 225 index tumbling nearly 5 per cent while Chinese markets soared on news of fresh stimulus for the faltering economy.

Japanese shares sank after the ruling Liberal Democrats chose former Defence Minister Shigeru Ishiba to succeed Prime Minister Fumio Kishida, who is due to step down on Tuesday. Ishiba has expressed support for the Bank of Japan's moves to raise interest rates from their near-zero level. He also backs other policies, such as possibly raising corporate taxes, that are seen as less market friendly than his chief rival for the top job, Economic Security Minister Sanae Takaichi, who he beat in a run-off vote late Friday. The Nikkei was trading down 4.7 per cent at 37,956.32 by midday Monday. The dollar fell from over 146 yen to under 143 yen after the ruling party's vote ended late Friday. By mid-Monday, it was trading at 142.49 yen, up from 142.29.

Exporters' shares plunged, since a stronger yen is a disadvantage for Japanese companies that make a large share of their sales and profits overseas. Toyota Motor Corp. dropped 3.5 per cent. Honda Motor Co.'s shares fell 4.1 per cent and Nissan Motor Co.'s declined 5.8 per cent. Ishiba has said he backs Kishida's “new capitalism” policies, which ostensibly would foster more equal distribution of national wealth. But sharply rising prices have undermined progress toward encouraging consumers to spend more. Meanwhile, the Hang Seng in Hong Kong jumped 3.3 per cent to 21,321.97, with Hong Kong's Hang Seng Mainland Properties Index up 8.6 per cent. The Shanghai Composite index surged 5.7 per cent to 3,263.59.

The rallies were auspiciously timed, coming on the eve of a week-long national holiday marking 75 years of communist rule in China. Markets in mainland China will be closed Tuesday through October 7. China is moving forward with measures announced last week to support the property industry and revive languishing financial markets. The central bank announced on Sunday that it would direct banks to cut mortgage rates for existing home loans by October 31. Meanwhile, the major southern city of Guangzhou lifted all home purchase restrictions over the weekend, while both Shanghai and Shenzhen revealed plans to ease key buying curbs.

The effort to wrest the housing market out of a prolonged downturn comes as the economy shows signs of slowing further. China's manufacturing activity in September contracted for a fifth consecutive month, as the official purchasing managers' index came in at 49.8, remaining below the 50 line that separates expansion from contraction, according to data from the National Bureau of Statistics released on Monday.

Elsewhere in Asia, Australia's S&P/ASX 200 advanced 0.7 per cent to 8,273.10. South Korea's Kospi dropped 0.9 per cent to 2,627.13. On Friday, the S&P 500 edged down by 0.1 per cent from its all-time high to 5,738.17. The Dow Jones Industrial Average rose 0.3 per cent to 42,313.00, setting its own record, while the Nasdaq composite slipped 0.4 per cent to 18,119.59.

Treasury yields eased in the bond market after a report showed inflation slowed in August by a bit more than economists expected. It echoed similar numbers from earlier in the month about inflation, but Friday's report has resonance because it's the measure that officials at the Federal Reserve prefer to use.

The Fed kept its main interest rate at a two-decade high for more than a year, in hopes of slowing the economy enough to drive inflation toward its 2 per cent target. Now that inflation has eased substantially from its peak two summers ago, the Fed has begun cutting rates to ease conditions for the slowing job market and prevent a recession. The risk of a downturn remains and US employers have slowed their hiring. A inflation report on Friday showed growth in US consumer spending in August fell shy of economists' expectations. In other dealings Monday, benchmark US crude oil added 40 cents to USD 68.58 per barrel. Brent crude, the international standard, rose 45 cents at USD 71.99 per barrel.

The euro was trading at USD 1.1158, down from USD 1.1163.

(With inputs from agencies.)