Asian shares held firm and the euro stayed under pressure on Wednesday as investors counted on the European Central Bank to unveil a stimulus drive, while the yen was subdued ahead of the Bank of Japan’s policy announcement later in the Asian day.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 per cent to hit its highest level in six weeks.
Japan’s Nikkei bucked the trend, slipped 0.5 per cent from a two-week closing high hit on Tuesday after heavy gains the previous two sessions.
Global share prices have been supported in recent sessions by growing investor conviction that the ECB will adopt quantitative easing at its meeting on Thursday.
“The ECB is the biggest focus this week. We were initially expecting an action in March but we now expect it this week,’’ said Shuji Shirota, associate director at HSBC in Tokyo.
The FTSEurofirst 300 index of top European shares climbed to a seven-year high on Tuesday, led by German shares, which hit record highs.
The euro was soft at $1.1566, having fallen from above $1.16 touched on Tuesday to get closer to an 11-year low of $1.14595 set last week.
Still, uncertainties on exactly what the ECB will do kept many investors on guard, especially given that Germany’s Bundesbank is reluctant to see large scale money-printing.
“The market appears to be looking to quantitative easing of at least €500 billion... but there is a chance the ECB's action is less aggressive than some are hoping for," said HSBC's Shirota.
BoJ monetary base target
Before the ECB’s plan is known, the BoJ is expected to maintain its monetary base target while possibly expanding two expiring loan schemes to support bank lending when it concludes its two-day policy meeting on Wednesday.
Still, given BoJ Governor Haruhiko Kuroda's history of surprising markets, some traders are playing safe by selling the yen.
“The BoJ could well extend the loan support fund along with downward revision to its core inflation forecast," said analysts at Citi.
“It could even expand the loan support fund and extend the duration given the extremely low and flat yield curve, as it does not want to give the impression of standing idle.’’
Yen vs dollar
The Japanese currency stepped back further from a one-month high of 115.85 to the dollar hit last week. It gained slightly in Asia and stood at 118.34.
Gold at 5-month high
Gold remained at a five-month high after a 1.3 per cent rise on Tuesday, supported by expectations of ECB money-printing. It last traded at $1,295.70 per ounce, just below its Tuesday high of $1,296.85.
Commodity prices remained under pressure, however, with oil falling as much as 5 percent at one point on Tuesday after the International Monetary Fund cut its 2015 global economic forecast.
Also souring sentiment, key producer Iran hinted that prices could drop to $25 a barrel without supportive OPEC action.
Benchmark Brent crude last traded at $48.24 a barrel, slipping towards a six-year low of $45.19 hit last week.