Investors are awaiting the Bank of Japan's rate decision on December 19. On December 11, despite the Federal Reserve's rate cut, Hong Kong stocks remained directionless as the market focused on the upcoming Bank of Japan meeting. In the morning session, the Hang Seng Index rose 0.09% to 25,563 points, with turnover at HK$95.4 billion, while the Hang Seng Tech Index fell 0.65% to 5,545 points, with turnover at HK$20.8 billion.
Analysts suggest that with the Fed continuing its easing cycle, the likelihood of a Bank of Japan rate hike remains low. Even if unexpected factors emerge, the impact is expected to be less significant than the Fed's policy moves. However, some warn that a surprise rate hike by Japan could significantly affect global markets.
Early on December 11 (Beijing time), the Fed cut rates by 25 basis points to 3.50%-3.75%, marking the third consecutive reduction this year. The central bank also announced a short-term Treasury purchase program to stabilize liquidity and maintain control over its interest rate framework. The dot plot suggests only one more rate cut in 2024, unchanged from September. Fed Chair Jerome Powell stated that the current federal funds rate is near the estimated neutral range.
Yu Fenghui, an advisor at the Hong Kong Stock 100 Research Center, noted that the Fed's accommodative stance aims to support the U.S. economy amid global slowdown and trade uncertainties. For Hong Kong stocks, Fed rate cuts typically weaken the U.S. dollar, attracting capital inflows into emerging markets like Hong Kong. Lower rates also boost valuations for risk assets, particularly growth sectors such as tech stocks.
"If the Bank of Japan raises rates, the negative impact on global markets—especially Asian equities, including Hong Kong and A-shares—could outweigh the Fed's supportive measures," Yu added. While markets broadly expect no policy change on December 19, a surprise hike could trigger volatility. A rate increase might strengthen the yen, prompting capital repatriation and reducing investments in other Asian markets, posing risks to Hong Kong stocks. Still, given subdued inflation and global economic conditions, the Bank of Japan is likely to maintain its loose policy.
Wu Lixian, a strategist at Everbright Securities International, said the Fed's decision aligned with expectations, and the dot plot signaled one more cut in 2024. With markets largely pricing in the move, the immediate impact may be limited. He expects the Hang Seng Index to fluctuate around 26,000 points for the rest of the year. Regarding Japan, he sees a low near-term probability of a rate hike, as the central bank may adopt a wait-and-see approach post-Fed easing.
Li Zeming, Investment Director at Red Ant Capital, highlighted the Fed's dovish tilt, with the 25-basis-point cut and an unexpected $40 billion short-term Treasury purchase plan to inject liquidity—a positive for U.S. and Hong Kong stocks. In contrast, Japan may gradually hike rates despite global easing trends, though timing and scale remain uncertain. FX swap markets are already pricing in a potential BoJ rate increase. The yen, a key funding currency for carry trades, could see unwinding if rates rise, driving capital back to Japan.
Li warned that a BoJ hike might trigger short-term yen appreciation and liquidity withdrawal from global markets, pressuring Asian equities like Hong Kong's. However, Fed rate cuts could partly offset this, with global markets retaining upward momentum if both policies proceed, as Fed easing would likely dominate.
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