By Stella Qiu
SYDNEY (Reuters) – Asian shares stuttered on Friday as the dollar recovered from a one-year low. Investors were cautious ahead of a speech by the world’s most powerful central banker while markets awaited confirmation that U.S. interest rate cuts would begin in September.
The Japanese yen rose 0.3% to 145.77 against the dollar, while bond yields rose slightly as Bank of Japan’s Kazuo Ueda addressed parliament.
Traders believe the BOJ is unlikely to raise interest rates in October after the recent sell-off. However, Ueda stuck to his script and said the central bank was ready to raise rates if the economy and prices developed in line with its forecast.
Data released early this morning showed that core inflation in Japan accelerated for the third straight month, but a slowdown in demand-led price increases suggests there is no urgency for immediate interest rate hikes.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, expects the stronger yen and the reintroduction of energy subsidies to curb inflation in the short term.
“If the data develops as expected, it could mean that the BOJ’s next rate hike could come as late as December, as fears of rapid inflation ease somewhat.”
On Friday, the MSCI index of Asia-Pacific shares outside Japan fell 0.4 percent, but was heading for a weekly gain of 0.6 percent. The Nikkei was unchanged near a three-week high.
China’s blue chips rose 0.3 percent, while the Hang Seng in Hong Kong fell 0.4 percent and the South Korean stock index fell 0.5 percent.
Wall Street fell overnight as sentiment turned cautious ahead of Federal Reserve Chairman Jerome Powell’s speech in Jackson Hole. Three Fed spokesmen on Thursday hinted at a rate cut in September and advocated a “slow and methodical” approach.
Combined with surveys showing the U.S. economy continues to grow at a healthy pace, markets have slightly lowered the probability of an outsized half-percentage-point cut in September to 24%, from 38% a day earlier. A quarter-percentage-point cut is fully priced in.
Robert Carnell, regional head of research for Asia Pacific at ING, noted that given market prices, there is still room for Powell’s speech to delight or disappoint markets, but much will depend on the data.
“Because any decision that deviates from market prices is based on as yet unknown data, it is difficult to imagine Powell being able to promise more than some kind of monetary easing in September, and even then only in the absence of any data glitches,” Carnell said.
U.S. Treasury yields edged lower on Friday after rising overnight for the first time in five sessions. Yields on 10-year notes fell 2 basis points to 3.8426% in Asia, losing 5 basis points for the week.
Yields on two-year bonds also fell 3 basis points to 3.9845%, down 8 basis points for the week.
Falling yields pushed the dollar to a one-year low, although it eased some selling pressure overnight. The euro lost its one-year high at $1.1119, with major resistance at $1.1139.
Wall Street futures rose 0.2 to 0.4 percent and commodity prices are expected to end the week lower.
Brent crude futures were unchanged at $76.04 a barrel, despite falling more than 3% for the week, as rising U.S. crude inventories and a weaker demand forecast in China fueled pessimism. (O/R)
The price of gold fell 0.7 percent to $2,488.13 an ounce during the week, after hitting a record high of $2,531.6 on Tuesday.
(Reporting by Stella Qiu; Editing by Shri Navaratnam)
