Japan : Asian shares firm on stimulus hopes

TOKYO : Asian stocks held firm around a 2-1/2-month peak on Tuesday, a day after U.S. shares hit a record high thanks to a combination of upbeat U.S. data and expectations of more stimulus around the world.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose slightly to hit its highest level since late April in early trade. Japan’s Nikkei .N225 jumped 2.4 percent.

On Wall Street, the S&P 500 index .SPX on Monday broke the record high it held for more than a year, extending its gain after Friday’s bumper job figures reduced worries about slowdown in employment.

The benchmark closed at a record 2,137.16, overtaking the previous high of 2,130.82 hit on May 21, 2015.

The rally was in part driven by investors buying high-dividend and defensive shares, seeking refuge from low or negative interest rates in Europe and Japan.

Indeed, defensives were the best performing S&P 500 sector since the previous record: utilities .SPLRCU, telecoms .SPLRCL and consumer staples .SPLRCS, all with double-digit percentage gains.

“The rally is supported not so much by economic fundamentals as liquidity. The rally is likely to prove unsustainable and short-lived,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

Fanning the latest rally in share prices, Japanese Prime Minister Shinzo Abe called for a fresh round of fiscal stimulus after a victory for his ruling coalition.

While Abe did not give details on the size of the package, it is widely expected to reach 10 trillion yen ($ 97.5 billion).

A visit by former Federal Reserve Chairman Ben Bernanke to the Bank of Japan on Monday fueled talk BOJ Governor Haruhiko Kuroda might decide to provide “helicopter money”, – a term coined by economist Milton Friedman and cited by Bernanke, before he became Fed chairman, as a way to finance government budgets and fight deflation.

Bernanke plans to meet Abe on Tuesday.

Against this backdrop, the dollar rose 2.2 percent against the yen to 102.68 JPY= on Monday, marking its biggest daily gain since October 2014.

In early Asia, the dollar changed hands at 102.52 yen, down 0.25 percent from late U.S. levels.

The British pound GBP=D4 was little moved at $ 1.2980 as weeks of political turmoil appeared to ease off on news Interior minister Theresa May have cleared the path to become Britain’s prime minister on Wednesday.

Still, market players say huge uncertainty remains, including on May’s approach to negotiating Britain’s exit from the European Union and on whether she will call a general election to cement her authority.

Some traders also expect the Bank of England to cut rates this week to fend off pressure on the UK economy following the Brexit vote.

A rate cut could undermine the sterling’s dwindling yield attraction among major currencies and push it further, possibly below its 31-year low just under $ 1.28 hit on July 6.

The euro EUR= was little changed at $ 1.1059.

Oil markets failed to catch a bid on the broad improvement in risk sentiment, however, with their prices falling more than 1 percent to two-month lows on Monday.

Their recovery early this year has stalled on a barrage of factors including disappointing drawdowns in U.S. crude and gasoline, rising U.S. oil drilling rig count and cuts in bullish hedge fund bets on crude to four-month lows.

Brent crude futures LCOc1 fell 0.3 percent in early Asian trade to $ 46.11 per barrel, near Monday’s two-month low of $ 45.90.