Nikkei soared 2.2%, while MSCI’s broadest index of Asia-Pacific shares outside Japan declined 1%
Japanese stocks jumped and the yen dropped on Thursday as the risk of further tightening in monetary policy this year faded, while the strong rally in Hong Kong’s share market took a breather.
The euro was nursing heavy losses as markets raised bets that the ECB will reduce rates at each of its meetings in October and December after a top policy hawk Isabel Schnabel said she expects inflation will fall back to target.
MSCI’s broadest index of Asia-Pacific shares outside Japan declined 1% while the Nikkei soared 2.2% as a softer yen boosted the outlook for Japanese exporters.
The dollar rose another 0.3% to 146.84 yen, about the highest in a month. It had already climbed 2% overnight as Japan’s newly-elected Prime Minister Shigeru Ishiba said that the country was not ready for further rate hikes, after meeting with the central bank governor Kazuo Ueda.
Ueda also said the central bank would move cautiously in deciding whether to hike rates. Dovish BoJ policymaker Asahi Noguchi also said the Bank of Japan must patiently maintain loose monetary conditions.
Put together, I guess it is a comprehensive boost for the dollar/yen because for me it has taken rate hikes off the table for 2024. More likely we’re talking about next tightening is not going to be until 2025, according to Tony Sycamore, analyst at IG.
I think dollar/yen is going to be driven by the U.S. side of the equation now. Given the fact we saw some good U.S. jobs data this week – if that turns out to be case for non-farm payrolls tomorrow – the dollar/yen can continue to ratchet up higher towards 149.40 which we saw in mid-August.
Futures imply less than a 50% chance that the BoJ could hike by 10 bps by December, while rates are only seen jumping to 0.5% by the end of next year, from the current 0.25%.
Elsewhere in Asia, China’s mainland markets are shut for a holiday, but Hong Kong’s Hang Seng declined 2.5%, having surged 6.2% a day earlier. The benchmark is still up a staggering 30% in just three weeks after China announced a flurry of stimulus measures to revive a faltering economy.
