• Asian markets rallied significantly due to a substantial interest rate cut in the United States, despite China's central bank keeping its benchmark lending rates unchanged.
• The MSCI's broadest index of Asia-Pacific shares outside Japan rose by 0.7%, while Japan's Nikkei index jumped 2.1% due to a weaker yen and the Bank of Japan's decision to keep its short-term rate steady.
• Wall Street digested the Federal Reserve's first rate cut overnight, with more easing expected, and the dollar remained near one-year lows against major currencies.
• The recent rally in Asian shares highlights the global impact of decisions made by central banks in major economies like the U.S. and Japan.

Asian markets experienced a significant rally on Friday, buoyed by the ripple effects of a substantial interest rate cut in the United States while the development provided a welcome relief for investors, who have been grappling with economic uncertainties.

The yen also saw a slight increase as the Bank of Japan (BOJ) maintained its interest rates and expressed optimism about the economy's prospects.

In a surprising move, China's central bank decided to keep its benchmark lending rates unchanged, defying market expectations of a reduction. This decision had a noticeable impact on Chinese shares, particularly blue-chip stocks, which experienced a 0.3% dip. Despite this, the onshore yuan strengthened to its highest level in nearly 16 months, prompting state banks to intervene to prevent it from appreciating too rapidly.

The MSCI's broadest index of Asia-Pacific shares outside Japan rose by 0.7%, reaching its highest level in two months. This increase mirrored the overnight gains on Wall Street and set the index on track for a weekly gain of 2.5%.

BOJ Holds Rates Steady, Upgrades Consumption View

Japan's Nikkei index jumped 2.1%, partly due to a weaker yen. This surge was also fueled by investors taking profits from the recent rally, which saw the index reach 14-month highs. The Nikkei's performance for the week was impressive, with a 3.5% increase. The BOJ's decision to keep its short-term rate steady at 0.25% did not significantly impact Nikkei futures.

The BOJ's decision was widely anticipated, but the bank's upgraded view on consumption was a positive surprise. The market's attention is now focused on any hints from Governor Kazuo Ueda about the timing and pace of future rate hikes. His post-meeting press conference, scheduled for 0630 GMT, is eagerly awaited.

The dollar experienced a slight dip of 0.2% at 142.31 yen, despite gaining about 1% this week. Data released on Friday showed that Japan's core inflation accelerated for the fourth consecutive month, strengthening the argument for further policy tightening.

Wall Street Digests Fed's Rate Cut, Markets Predict More Easing

IG analyst Tony Sycamore predicts that the BOJ's next rate hike will occur in December. He suggests that if Governor Ueda emphasizes the bank's positive outlook on prices and economic activity, it could be interpreted as hawkish, potentially driving the USD/JPY back towards 140.00.

Wall Street had a chance to digest the Federal Reserve's first rate cut overnight. With more easing expected, investors are betting on continued U.S. economic growth. The better-than-expected jobless claims data reinforced the view that the labor market remains robust.

Markets are predicting a 40% chance that the Fed will cut rates by another 50 basis points in November, with 73 basis points priced in by year-end. Rates are expected to be at 2.85% by the end of 2025, which is now considered to be the Fed's estimate of neutral.

U.S. stock futures were slightly lower on Friday. However, the S&P 500 and Dow Jones Industrial Average surged to a record close on Thursday, while the Nasdaq jumped 2.5%, led by tech shares.

In the foreign exchange markets, the dollar remained near one-year lows against major currencies. The British pound held at $1.3278, having rallied 0.7% overnight to its highest level since March 2022, as the Bank of England kept rates steady. Short-dated U.S. Treasuries remained close to two-year highs, with two-year Treasury yields slipping 3 basis points on Friday but were flat for the week.

Commodities also maintained their weekly gains. Gold hovered near a record high at $2,592.17 an ounce, and oil prices are set for their second straight week of gain. Brent futures slipped 0.3% to $74.69 a barrel, but are still up 4.2% this week.