Japan's exports continued to tumble in May, further evidence that the recovery in the world economy some investors have been betting on is still some distance off.
Concerns that markets might have been too aggressive in pricing in a fast and sustainable rebound from global crisis have pushed up bond yields and derailed a rally in equity and commodity prices in recent weeks.
Reflecting its worries about rising borrowing costs, the U.S. Federal Reserve is likely emphasise the fragility of U.S. economy in its policy statement later on Wednesday.
The Federal Reserve Open Market Committee is widely expected to keep interest rates on hold at a record low and keep its planned debt purchases unchanged, so the focus is on whether the central bank tweaks its wording on the rate outlook.
"Hopefully, the statement released after the FOMC meeting on Wednesday would assure investors of an extended period of low interest rates," said Marco Mak, an analyst with Taifook Securities in Hong Kong.
Stocks rose on Wednesday, with Japan's Nikkei average closing up 0.4 percent. MSCI's measure of other Asia-Pacific equities gained 1.6 percent, recovering from Tuesday's one-month low, while European stocks also opened higher.
FUNDING CONDITIONS STILL SEVERE
Bank of Japan policy board member Seiji Nakamura said financial markets were improving, but had not yet normalised.
Measures by Japan's central bank to ease credit strains are due to expire in September, but Nakamura suggested they could be extended.
"While corporate financing conditions have become much easier than in the past, they are still severe overall … When looking at current conditions, I think it's too early to end the fund-support steps," he said.
Japan relied on a recovery in foreign demand, he added, but trade data on Wednesday suggested that remained sluggish.
Japanese exports fell a larger-than-expected 40.9 percent in May from a year earlier.
Although exports are now falling less after a period of paralysis in the wake of the financial crisis, there has been little recovery in global demand for cars while consumer electronics demand also remains weak.
"The recovery in exports is still slow, and a comeback to last year's levels should not be expected immediately," said Junko Nishioka, chief economist at RBS Securities.
While weak demand and lack of financing are causing the greatest hurdles for global trade, fears about rising protectionism between countries are also an issue.
The European Union and the United States said on Tuesday they were taking a complaint to the World Trade Organization over China's export restrictions on some industrial raw materials used in steel, cars, microchips, planes and other products.
China rejected the charges, saying on Wednesday that its policies were in keeping with WTO regulations.
