Japanese stocks extended their recovery from last week’s historic rout as signs of cooling inflation in the US back speculation the Federal Reserve will cut interest rates next month.

Exporters of electronics and automobiles were among the biggest contributors to the Topix’s advance on Wednesday after the S&P 500 climbed, led by gains in the world’s largest technology companies. Yield-sensitive banks rose ahead of the results of a five-year auction of Japanese government bonds later in the day.

The Nikkei 225 climbed 1.1% to 36,643.40 as of 9.05am in Tokyo, while the Topix gained 1%. Japan’s currency declined 0.2% to 147.13 yen per dollar.

“Japanese stocks are still in the rebound phase from oversold conditions,” said Mitsushige Akino, the president of Ichiyoshi Asset Management. “If there is a soft landing in the US, Japanese stocks will not fall below recent lows again.”

The Nikkei may return to the 200-day moving average near 36,900 yen by the end of this week as the yen has not appreciated sharply, according to Akino.

  - Bloomberg