Selena Li

HONG KONG (Reuters – Japanese shares surged on Tuesday after the Bank of Japan defended an ultra-easy stance. However, oil fell due to fears of lower China demand. Shanghai implemented a zero-COVID strategy and locked down despite a modest caseload.

Early trade saw a gain of 0.91%, and MSCI’s largest index of Asia-Pacific shares other than Japan rose by 0.64%.

BOJ pledged not to loosen monetary policy and offered to purchase unlimited government bonds during the first four days to prevent Japan’s yields rising in response to the U.S. Federal Reserve raising interest rates to combat inflationary pressures.

Japan’s 10-year yield on government bonds was close to the upper limit of Bank of Japan’s yield target of 0.25%, even after it made an unusual move to intervene in the market for the second consecutive day.

However, trading remained slow. Investors will favour markets that are lagging behind the Fed’s rate hike, trading on “a day to day trading mentality” and market noises and short term development , Chi Lo, senior market strategist APAC at BNP Paribas (OTC:) Asset Management said .

“There is not really even medium term direction that the market is following,” he added.

After its worst 16-months session, the BOJ action on Tuesday left the yen struggling to find footing.

Overnight, the Japanese currency fell by 2.4% to USD125.10, its lowest level since August 2015. However, it recovered to USD124.24 during volatile Tokyo morning trading.

On Tuesday, the oil market further declined as China is expected to experience a slowdown in its economy and a new outbreak of coronavirus.

Oil dropped 1.04%, to $104.86/barrel and was at $111.09 on March 28, down 1.24%. This is a modest caseload by international standards.

“Certainly commodity markets will not be comfortable in the short term with China shutting down,” Lo said, adding that many of the players estimate less than 5% growth this year for the economy, which he said is “too pessimistic” against the expectation of stronger stimulus.

The country’s stock benchmark CSI300 fell 0.52%, while in the offshore market, Hong Kong’s advanced 0.54%.

Australia’s early trading declined 0.8% despite better than anticipated retail sales data.

U.S. benchmark 10-year treasury note yields were unchanged at 2.4696%. The steady level was due to the pause in recent sharp sell-off.

For the first time since 2006, Monday saw the U.S. Treasury yield yield curve inverted. It is the ratio between the five- and 30-year yields.

“I think that is a macro economic signal that there is an economic recession risks down the road, which the Fed also acknowledges. At this moment, however, it is not something that everyone thinks about. It is on the radar,” BNP’s Lo said.

1.2% increase to $1,926.52 a ounce