The Washington Post

In wake of debt deal, Asian markets surge

Asian and European markets surged Monday after President Obama and congressional leaders reached a deal to raise the debt ceiling, avoiding a U.S. default that threatened painful implications for the global economy.

Japan’s Nikkei 225 stock index saw its largest gains since June, making up for a steady decline last week. Traders also bought the dollar and sold the yen, bringing a mild sense of hope to Japan’s disaster-hit economy, where exporters have been handcuffed by an overly strong yen.

The Nikkei opened at 9907.04, spent most of day above the critical 10,000 mark, then fell a bit in the final hour of trading, closing at 9965.01 — still up 1.34 percent. Later in the day, Hong Kong’s Hang Seng index had risen 1.6 percent and Australia’s ASX/200 Index had jumped 1.65 percent.

European markets also jumped on the news of the U.S. debt deal, with early gains in key indexes in London, Paris and Frankfurt. But economists warned that the boost could be short-lived. The deal in Washington did nothing to relieve fundamental concerns that the U.S. economy is fragile, as evidenced in the slower-than-expected growth reported last week, and may yet tip back into recession. And Europe has yet to definitively cure its own debt crisis, with concerns lingering about the details of a major deal on Greece and fear that the massive but troubled economies of Spain and Italy could get swept deeper into the crisis.

Experts in Europe also sounded a cautionary note over signs that the continent’s economy is slowing. Across the euro zone, the manufacturing PMI for July — a key measure of economic activity — clocked in lower than expected on Monday, suggesting a significant cooling of the region’s economy.

 “It points to a marked loss of momentum in the previously healthily expanding core northern euro-zone economies, as well as deepening growth problems in the struggling southern periphery euro-zone economies and Ireland,” said Howard Archer, an economist with IHS Global Insight in London.

In Asia, markets squirmed last week as U.S. lawmakers struggled to reach a bipartisan deal; China and Japan rank as the United States’ two biggest international creditors. Yukio Edano, Japan’s chief cabinet secretary, said Japan “welcomes the announcement that an agreement was made to avoid default. . . . We expect the deal will lead to the stabilization of markets.”

But after markets closed Monday in Tokyo, analysts pointed out that Japan still has plenty of its own problems to confront — particularly with the yen valued at roughly 77.66 against the dollar, within range of the post-World War II high of 76.25.

Most of Japan’s major exporters, in predicting their annual profits, had forecast that the yen this year would sit in the low 80s against the dollar. Companies such as Toyota can lose more than $380 million for every one-yen rise against the dollar.

“The news of a settlement [in the United States] — and we’ll see if it actually goes through — is definitely a relief,” said Robert Feldman, Morgan Stanley’s chief economist for Japan. “That said, we still have the yen/dollar in the 77 or 78 range. We have clouds over the U.S. economy. So yes, there is relief. But we have all the problems we were dealing with before.”

The dollar has lost more than 11 percent against the yen during the past year, squeezing Japanese companies that have also suffered supply-chain disruptions and energy shortages in the wake of the devastating earthquake and tsunami in March.

Japan’s finance minister, Yoshihiko Noda, warned Friday that Tokyo would discuss a solo intervention in the foreign exchange market to protect its fragile economy. Noda reiterated that possibility Monday.

Correspondent Anthony Faiola in London contributed to this report.

Chico Harlan covers personal economics as part of The Post's financial team.



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