Japanese stocks surged almost six percent Friday, leading an Asia rally, as dealers welcomed a report that the country's central bank is planning to ramp up its stimulus programme and after Europe's top banker hinted at similar moves.
After a rout that has wiped several trillion dollars off global markets so far this year, the prospect that two of the planet's biggest central banks were ready to step in finally gave investors something to cheer about.
Oil tacked on more than four percent for a second straight day, pushing prices back above $30 for the first time since last week, while emerging market currencies benefited from a newfound confidence.
On Thursday, European Central Bank boss Mario Draghi highlighted concerns about the impact of plunging equity and oil prices on already weak inflation and pledged to reconsider its monetary policy at its March policy meeting.
"We have the power, willingness and determination to act," he told a news conference. "There are no limits how far we are willing to deploy our policy instruments."
His comments lit a fire under European stocks and also supported a Wall Street rally.
On Friday, Japan's respected Nikkei business daily reported that the Bank of Japan is weighing up its own plans to fend off the threat of deflation caused by the oil crisis.
The latest developments spread some much-needed confidence around trading floors after the worst start to a year ever.
Tokyo surged 5.9 percent, the best one-day performance since early September, with a weaker yen helping exporters. Hong Kong jumped more than three percent in the afternoon and Shanghai ended 1.3 percent higher.
Sydney added more than one percent and Seoul 2.1 percent, while there were also substantial gains in Taipei, Singapore and Manila.
- Cavalry –
"The cavalry might be coming to the rescue in terms of the central banks starting to sound more dovish," Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors, told Bloomberg TV.
"There’s a little bit of light at the end of the tunnel. We’ve probably seen the worst and by the end of the year things will be a lot brighter than they are now."
Oil prices also extended gains to climb above $30 a barrel, having soared more than four percent on Thursday on the back of Draghi's comments and a report showing US inventories rose less than expected last week.
US benchmark West Texas Intermediate added 3.9 percent and Brent was up 4.8 percent.
However, the two contracts remain around 12-year lows owing to a supply glut, weak demand, overproduction and a slowdown in the global economy. Earlier this week, WTI fell below $27 at one point and Brent went sub-$28.
The positivity also seeped into currency markets as investors shifted out of assets considered safe havens.
The dollar slipped against most emerging market units, with the South Korean won up 1.1 percent, Indonesia's rupiah gaining 0.4 percent and the oil-dependent Malaysian ringgit up 1.4 percent.
And the dollar advanced against the yen, which is the go-to currency in times of turmoil and uncertainty. The greenback edged up to 118.05 yen -- having tumbled more than two percent against the Japanese unit this year.
- Key figures around 0710 GMT –
Tokyo - Nikkei 225: UP 5.9 percent at 16,958.53 (close)
Shanghai - Composite: UP 1.3 percent at 2,916.56 (close)
Hong Kong - Hang Seng: UP 3.0 percent at 19,104.99
Euro/dollar: DOWN at $1.0835 from $1.0878 Thursday
Dollar/yen: UP at 118.05 yen from 117.66 yen
New York - Dow: UP 0.7 percent at 15,882.68 (close)
London - FTSE 100: UP 1.8 percent at 5,773.79 (close)