Asian stocks shot up on Thursday after the U.S. Federal Reserve announced its biggest interest rate hike since 1994.
On Wednesday, the Federal Open Market Committee decided to raise its key policy rate 75 basis points to a range of 1.50% to 1.75%, the sharpest increase in more than 27 years, as the Fed tries to squelch accelerating inflation. Jerome Powell, the Fed Chairman said that another 50 or 75 basis point increase is likely at the next meeting in July.
Evidently since the market had been predicting a significant rate increase over the past few days, the Dow Jones Industrial Average rebounded for the first time in six days, closing at 30,668, up 303 points. The S&P 500 index rose 54.51 points to 3,789.99.
Following the U.S. movements overnight, Japan's blue-chip Nikkei Stock Average on Thursday opened 1.5% higher.
Sectors sensitive to global economic conditions, such as autos and electronics, rallied on the Tokyo Stock Exchange, with Toyota Motor and Sony Group rising in the morning.
Similarly, South Korea's benchmark stock index, the KOSPI, rose 1.4% at the open on Thursday, with the country's most valuable company, Samsung Electronics, rising more than 1%.
Hong Kong's Hang Seng index, Singapore's Straits Times index and the Jakarta Composite index each gained nearly 1% each as they opened.
The Fed reeleased a chart after the monetary policy meeting which showed that the committee members expected a rate in the range of 3.25% to 3.5% by the end of the year.
For Asia's emerging economies, the Fed's accelerated rate hikes bring risk. Justin Tang, head of Asian research at United First Partners, pointed out that "the higher yields in the U.S. and a stronger dollar tends to attract capital back."
In addition, he said, "economies reliant on dollar funding will be impacted by the higher rates as will corporates that borrowed in U.S. dollars during the good times when liquidity was freely flowing."
The yen was trading around 134 against the dollar on Thursday morning, appreciating slightly from the day before, as the benchmark U.S. 10-year Treasury yield fell following the Fed announcement and the gap between U.S. and Japanese bond yields narrowed.
The U.S. bond yield has risen sharply over the past few days on expectations for faster rate hikes by the Fed. With the pace of rate increases expected by FOMC members in line with market expectations, market players bought back the bonds.
The yen rose despite Japan's Finance Ministry announcing the country's second-largest monthly trade deficit ever of 2.38 trillion yen ($17.7 billion) in May. Trade deficits are often seen by markets as a pushing the yen lower.
The Japanese currency earlier this week fell past 135 to a 24-year low against the dollar. The Bank of Japan, which has maintained an ultraloose monetary policy, will hold a policy meeting on Thursday and Friday this week.
On Wednesday, overseas players began short-selling Japanese bond futures, betting the central bank might move to scale back its accommodative monetary policy. The bond futures opened higher on Thursday.
Elsewhere in Asia, the Hong Kong Monetary Authority raised its policy rate by 75 basis points to 2% on Thursday. The Hong Kong dollar is pegged to the U.S. dollar.