Asia stocks rallied today as the US dollar rebounded and oil fell below $134 a barrel, boosting confidence in the region's exporters, but bonds fell on expectations central banks will raise rates to fight inflation.
Oil prices declined by $1 to $133.86 a barrel after United Nations Secretary General Ban Ki-moon said Saudi Arabia, the world's largest crude exporter, had told him it will boost output to the fastest in decades.
Along with US inflation data that showed underlying price pressures rose moderately in May, and the biggest weekly rise in the US dollar in three years, the easing in crude prices improved the prospects of some of Asia's well-known exporters such as Canon in Japan and Samsung Electronics in South Korea.
"A softer yen sparked hopes for upward earnings revisions for some exporters," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.
"But we have to brace for an eventual dramatic slowdown in Japan, where the stock market and the economy depend on overseas demand, considering the recent declines in Asian shares and rising inflation worries in emerging countries."
Japan's Nikkei share average climbed 2.5 per cent with the yen falling to a four-month low against the dollar.
South Korea's KOSPI rose 1 per cent and Taiwan's TAIEX jumped 1.2 per cent, led by the technology sector.
The MSCI index of Asian equities rose 1.7 per cent, after last week posting its largest decline since the week of August 19th. Stocks in the Asia-Pacific region outside of Japan were up 1.2 per cent on the day, the biggest gain in a month.
Equity markets in emerging Asia are viewed as particularly vulnerable to high oil prices because many of the region's central banks have had pro-growth policies for so long and their exchange rate policies are tightly woven to the US dollar.
Last week Asia ex-Japan equity funds suffered the biggest redemptions of any major fund group and saw money going out the door for the eighth week in the last nine, according to EPFR Global, a Boston-based research firm that tracks $11 trillion in assets.