Japanese stocks rose on Friday, outperforming weaker Asian markets, and the yen slipped after the Bank of Japan said it would begin scaling back its massive bond purchases in the future, disappointing expectations among some. ‘she would start the process sooner.
Tokyo’s Nikkei reversed trend to trade 0.3% higher, while the yen slipped to 158.19 per dollar, its lowest level in more than six weeks, as the BOJ takes a step further towards the withdrawal of its massive monetary stimulus.
Investors are also questioning the outlook for U.S. rates after the Federal Reserve tempered its rate cut forecasts, even though inflation proved weaker than expected with the dollar hovering near a higher d ‘a month due to the firmness of the Federal Reserve.
The BOJ said it would continue buying government bonds at the current rate of about 6 trillion yen ($38 billion) a month, but it also pledged to lay out details of its plan. easing for the next one to two years at its July meeting.
The BOJ said on Friday it would collect views from market participants before deciding on the long-term taper plan at its next meeting. As expected, the BOJ kept its short-term policy rate within a range of 0-0.1% by a unanimous vote.
“The Bank of Japan has left markets looking for direction,” said Fred Neumann, chief Asia economist at HSBC. “By offering no details on reducing its bond purchases, the Bank of Japan signaled it was in no rush to tighten policy.
The yen, which is extremely sensitive to U.S. Treasury yields, has lost more than 10% against the dollar this year and was at 158.15 to the dollar, down more than 0.6% on the day.
The yen reached its latest level on April 29, when it fell to 160.245, its lowest level in 34 years, triggering several rounds of interventions by Japanese authorities totaling 9.79 trillion yen ($62.25 billion).
“If the BoJ wanted to stop any weakness in the yen, today’s statement was not helpful,” said Tom Kenny, senior international economist at ANZ, noting that the announcement on quantitative tightening was a bit disappointing.
“The BoJ more or less postponed the issue until the next meeting.
In Asia, stocks faltered, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 0.10%. Chinese stocks also fell, with blue chip stocks losing 0.4%.
Futures pointed to a higher open in Europe, with Eurostoxx 50 and FTSE futures up 0.3%.
Political uncertainty in Europe has kept the euro under pressure. The single currency last hit $1.0737 and was on course to lose 0.6% over the week, its biggest weekly decline since the start of April.
FED’S VIEWPOINT
Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose to a 10-month high last week, while producer prices fell unexpectedly in May.
The data follows Wednesday’s cooler-than-expected consumer inflation report and the Fed’s dot chart revision, which reduced interest rate cut expectations from three to one this year.
James McCann, deputy chief economist at abrdn, said the Fed appears to be in a patient mood as it waits for signs of sustained progress on inflation and expects the U.S. central bank to begin its campaign of monetary easing in December.
However, traders are taking inflation reports into account and are now forecasting cuts of around 50 basis points this year, with a September rate cut valued at 68%, according to the CME’s FedWatch tool.
“Rate expectations are likely to remain volatile over the coming months amid a data-driven Fed,” Mr. McCann said.
Changing expectations helped the dollar rebound this week, with the U.S. currency index, which measures its value against six other currencies, settling at 105.33, not far from a one-month peak in 105.46 which it had reached on Tuesday…
In the commodities sector, oil prices fell on Friday, but were on track for their first weekly gain in four weeks.
Brent oil futures fell 0.45% to $82.38 a barrel, while West Texas Intermediate (WTI) oil futures fell 0.57% to $78.17 . ($1 = 157.2600 yen)
