Asia trades mostly higher, following Yellen's remarks overnight; Japan lags

Most Asian markets advanced on Wednesday, following gains in U.S. equities overnight after Federal Reserve chair Janet Yellen struck a dovish tone in a scheduled speech but Japan's shares retreated as the yen strengthened.

Japan's Nikkei 225 closed down 224.57 points, or 1.31 percent, at 16,878.96. Across the Korean Strait, the Kospi ended up 7.23 points, or 0.36 percent, at 2,002.14. Hong Kong's Hang Seng index was higher 437.09 points, or 2.15 percent, at 20,803.39.

Chinese markets ended higher, with the Shanghai composite adding 80.47 points, or 2.76 percent, at 3,000.30 and the Shenzhen composite closed up 66.25 points, or 3.6 percent, at 1,906.76.

Australia's ASX 200 was off earlier highs, retracing gains of more than 1 percent to close up 5.75 points, or 0.11 percent, at 5,010.26.

Overnight, Yellen noted in prepared remarks to the Economic Club of New York that the Federal Reserve should proceed with caution in adjusting policy, acknowledging that economic and financial conditions are in some respects less favorable now than in December. She noted recent readings on the strength of the U.S. economy since the beginning of the year have been mixed.

On the policy front, she said research suggests that, with a funds rate at zero and increased uncertainty, the best policy is greater gradualism. Still, the Fed can hike if the economy grows faster, she said.

"Janet Yellen doubled down on dovishness, in a speech full of risks to the economic outlook," Mark Matthews, head of research for Asia at private bank Julius Baer, said in a note Wednesday. "She totally contradicted the four Fed presidents who spoke last week, and any chance of the April rate hike suggested by them is over."

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In the wake of Yellen's comments, the dollar index, which measures the strength of the dollar against a basket of currencies, retreated to the 95 handle, trading at 94.860 as of 3:45 p.m. HK/SIN, compared with levels above 96 before the remarks.

The weaker dollar helped spur the Japanese yen higher, with the dollar/yen pair trading at 112.10 in late afternoon local time, compared with levels above 113 earlier in the week.

Major exporters ended mostly lower, with Toyota off 2.5 percent, Nissan off 3.7 percent and Honda down 3.62 percent. A stronger yen is a negative for exporters as it lowers the value of their repatriated profits and makes their products less competitive overseas.

Sharp shares climbed 3.85 percent after Japan's Yomiuri newspaper reported that Foxconn, which will be acquiring the Japanese company, would be overhauling management, including replacing the CEO, Reuters reported.

Before market open, data showed Japan's industrial output fell 6.2 percent on-month in February, compared with a expectations in a Reuters poll for a 6 percent decline, following a 3.7 percent gain in January.

An investor observes stock market at an exchange hall in Haikou, Hainan Province of China.
VCG | Getty Images
An investor observes stock market at an exchange hall in Haikou, Hainan Province of China.

The Australian dollar also strengthened after Yellen's remarks, fetching $0.7684 after the ASX 200 closed Wednesday, compared with levels around $0.7530 on Tuesday prior to the speech.

Down Under, banking stocks closed mixed Wednesday, after the country's so-called Big Four banks sold off sharply on Tuesday on concerns over potential bad debt from their exposure to the resources sectors.

Shares of ANZ were down 0.39 percent, Commonwealth Bank of Australia ended up 0.26 percent, shares of NAB were nearly flat while Westpac was down 0.13 percent.

Elsewhere, Virgin Australia shares tumbled 9.33 percent after Reuters reported the airline's largest stakeholder, Air New Zealand, is considering selling its 25.9 percent stake. Air New Zealand shares added 0.35 percent.

The Chinese yuan also strengthened against the dollar, with the dollar/yuan pair trading down 0.46 percent at 6.4763 in the afternoon local time. Before the market open, the People's Bank of China set the yuan mid-point fix at 6.4841, compared with the previous close of 6.5065. China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

Oil prices were higher in Asian hours, with U.S. crude futures up 1.65 percent at $38.91 as of 3:52 p.m. HK/SIN time, after settling down $1.11 overnight. Global benchmark Brent was also up 1.2 percent at $39.61 a barrel, after settling down $1.13 in U.S. hours.

Reuters reported that the decision by Kuwait and Saudi Arabia to resume oil production at the jointly operated 300,000-barrel-per-day Khafji field at a time when production is supposed to be frozen triggered the selloff in oil overnight.

Energy plays were mixed around the region, with shares of Woodside Petroleum off 2.55 percent, Japan's Inpex down 2.9 percent and Fuji Oil off by 0.38 percent. Mainland Chinese energy plays were mostly higher, with Sinopec adding 8.23 percent and China Petroleum up by 4.19 percent.

U.S. equities closed up overnight, with the Dow Jones industrial average higher by 0.56 percent, the S&P 500 up by 0.88 percent and the Nasdaq composite adding 1.67 percent.

— Everett Rosenfeld and Reuters contributed to this report.

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