Japanese stocks rebounded from Tuesday's sell-off as most Asian markets closed mixed on Wednesday ahead of key central bank decisions as well as major earnings reports due in Japan and South Korea.
The benchmark Nikkei 225 closed up 281.78 points, or 1.72 percent, at 16,664.82, while the Topix was up 14.73 points, or 1.13 percent, at 1,321.67, getting an additional fillip after Reuters reported, citing Japanese media agency Jiji, that Prime Minister Shinzo Abe and his government will compile a stimulus package of more than $265 billion to prop up Japan's flagging economy.
The stimulus package, worth 28 trillion yen, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in "fiscal measures", said Reuters, citing Jiji.
Earlier, there were multiple reports from Japanese media about how much the actual stimulus package would be.
In the wake of the reports, the yen weakened, with the dollar/yen pair rising as high as 106.53, compared with levels near 105.12 in mid-morning trade on Wednesday and its last close at 104.64. But by 4:24 p.m. HK/SIN, the dollar/yen pair retreated to 105.50.
The retreat followed a Reuters report that Japan's Ministry of Finance denied that it was considering issuing 50-year bonds, as the Wall Street Journal earlier reported, citing people familiar with the matter. The WSJ report may have stoked speculation that the government was considering "helicopter-money light." Helicopter money is essentially printing money and distributing payouts, something that Japanese officials have denied they plan to do.
But the relatively weaker yen had already boosted stocks. Local business daily, Nikkei, reported that Bank of Japan (BOJ) officials were looking at multiple stimulus proposals ahead of the central bank's two-day policy board meeting starting Thursday.
The Nikkei reported the main options were to cut interest rates beyond the current level of negative 0.1 percent, buy more Japanese government bonds on top of the current 80 trillion yen annually, or expand purchases of other assets such as exchange-traded funds.
But with expectations for both monetary and fiscal stimulus running high, analysts warned a sell-off could loom.
"The major downside risk is of perception - since the market has set the bar extremely high for the BOJ, itchy trigger fingers are waiting," said Stephen Innes, a senior trader at OANDA.
"Should the BOJ decide to delay a policy change at the September meeting, I doubt the forward guidance will be enough to sustain current dollar/yen levels and we could quickly test 103 support," Innes said.