Following the Federal Reserve's decision on Wednesday to implement its first rate cut since the early days of the COVID-19 pandemic, stock markets across the Asia-Pacific region saw significant gains, with Japanese stocks jumping 2% and South Korean stocks turning positive in the afternoon.

The Federal Reserve lowered the benchmark interest rate by half a percentage point in an effort to curb a slowing labor market. With both employment and inflation softening, the Federal Open Market Committee chose to reduce the key overnight borrowing rate by 50 basis points, confirming recent market expectations that had anticipated a smaller 25 basis point cut.

Many economists had expected a cut of just 0.25%, so the 0.5% reduction came as a surprise. Financial markets reacted with a drop in interest rates and a weakening dollar. The exchange rate of the yen against the dollar briefly improved from around 142 yen per dollar to about 140 yen.

While the Fed made a significant overnight rate cut of 50 basis points, Chair Jerome Powell indicated that there was no rush to implement another substantial cut.

The Asia-Pacific markets are digesting the Fed's impact on global financial markets. On Thursday, September 19, the Asia-Pacific stock markets saw broad gains, with the Japanese stock market opening strong, and the Korean market narrowing its losses and turning positive in the afternoon.

Nikkei 225

Supported by a weakening yen, Japanese stocks continued to rise significantly. As of the time of writing, the Nikkei 225 and the Topix index both rose over 2%, with Hitachi gaining over 6%, Toyota rising over 5%, and Mitsubishi Heavy Industries increasing over 1%.

KOSPI (South Korea)

The Korean market opened higher but initially declined, with the KOSPI rising 0.7% at the open but briefly dropping nearly 1% in early trading before turning positive in the afternoon. Chip stocks led the declines, with SK Hynix falling over 6% after previously dropping more than 10%, Samsung Electronics down over 1%, and Hanmi Semiconductor down over 4%.

Among other major indices, the MSCI Asia-Pacific index rose over 1%, Indonesia's Composite Index gained 0.87%, Thailand's SET Index increased by 0.71%, Vietnam's VN30 index rose by 0.33%, and Singapore's Straits Times Index approached its highest closing level since 2007.

The Hong Kong Monetary Authority announced on Thursday morning (September 19) that the base rate was lowered by 0.5 percentage points to 5.25%, effective immediately. Hong Kong’s Financial Secretary Paul Chan stated that when U.S. rates are cut, the reduction in Hong Kong’s rates will benefit local businesses and positively impact the asset market. Acting Monetary Authority Chief Executive Eddie Yue indicated that the rate cut was in line with expectations, but noted that although the Fed has started to cut rates, interest rates will remain high for the foreseeable future. CITIC Securities published a report suggesting that the Fed's rate cut may benefit the performance of mainland assets to some extent.

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