Written by Ankur Banerjee
SINGAPORE (Reuters) – Asian stocks fell and the dollar held near a two-year high on Thursday after the U.S. Federal Reserve warned it would ease the pace of interest rate cuts next year, while the Bank of Japan kept interest rates steady, expected.
The yen fell to its lowest level in a month at 155.43 yen to the dollar after the decision. The yen has fallen more than 8% this year against the dollar, and is heading for the fourth consecutive year of decline.
The Bank of Japan’s decision comes as the yen hovers around 155 to the dollar, the weaker end of the 139.58 to 161.96 range it has held this year while under pressure from a strong dollar and a broad interest rate, despite interest rate cuts by the Federal Reserve.
Investors will now focus on Bank of Japan Governor Kazuo Ueda’s comments to gauge not only the timing of the next rate hike but also the extent of the hike next year. Traders are currently pricing in 44 basis points of BOJ hikes by the end of 2025.
Ueda is expected to hold a press conference at 0630 GMT to explain the decision. Board member Naoki Tamura objected and proposed raising interest rates to 0.5% on the grounds that inflationary risks were increasing, but his proposal was voted down.
“The Fed’s hawkish overnight plan gave the Bank of Japan an option to raise interest rates, and there was a voice against raising interest rates by 25 basis points, so it looks like interest rates will rise early,” said Ben Bennett, an investment expert in Asia-Pacific. From 2025.” Strategic expert in legal and general investment management.
The Fed’s hawkish turn sent Wall Street lower and Asian stocks followed suit, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 1%. Japan’s Nikkei fell 1%, while Australian shares fell almost 2%.
The Dow Jones Industrial Average fell more than 1,000 points. (.n)
The policy decisions by the two central banks highlight the challenge facing the global economy as the largest participant, the United States, comes under the leadership of President-elect Donald Trump early in the new year.
Federal Reserve Chairman Jerome Powell said some officials are considering the impact of Trump’s plans such as higher tariffs and lower taxes on their policies, while Ueda highlighted Trump’s policies as a risk in an interview last month.
“The obvious underlying risk here, and partly left unspoken, is what the Trump administration could bring to the table in terms of inflationary pressure,” said Rob Thompson, macro rates strategist at RBC Capital Markets.
“If the market decides that the Fed is done, whether it’s because of Trump or that inflation is going to rise regardless of next year, the risk is that we might price back in the direction of higher rates later. Does that tell us anything? Yes. Maybe “The market is still a safe haven.” “We’re a bit complacent about some of these risks.”
Comments are closed, but trackbacks and pingbacks are open.