Asian stocks made gains on Monday, August 26, and the yen strengthened at the beginning of the week as investors positioned themselves in anticipation of the Federal Reserve cutting US interest rates next month.

Stocks in Australia and Korea rose, benefiting from Chair Jerome Powell’s remarks at Jackson Hole when he stated that the “time had come” to shift to monetary easing. 

The Fed’s more accommodative stance also boosted the yen against the dollar as Asian-based funds increased their short positions on the greenback. Japanese stocks fell, while contracts for US equities remained stable.

Haven buying in response to increasing tensions in the Middle East also contributed to currency movements. The region braces for a larger conflict after Israeli warplanes flew over southern Lebanon, destroying thousands of Hezbollah missile launchers in what was described as a preemptive strike. Oil increased by 0.7% early Monday.

The possibility of the US finally reducing borrowing costs influences trading across financial markets. During Asian trading, the yield on 10-year US Treasuries fell by two basis points to 3.79%.

Chamath De Silva, head of fixed income at Betashares Holdings in Sydney, expressed optimism. Powell has confirmed that we will soon be entering an easing cycle and that the battle against inflation is over, so he anticipates a broad rally, with both stocks and bonds performing well.

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