By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares fell and the dollar hovered near a two-year high on Thursday after the U.S. Federal Reserve warned it would ease the pace of rate cuts in the coming year, while the Bank of Japan kept rates stable, while expected.
The yen weakened to a one-month low of 155.43 per dollar after the decision. The yen is down more than 8% this year against the dollar and is headed for a fourth consecutive year of decline.
The BOJ’s decision comes as the yen hovers around 155 per dollar, the weaker end of a range of 139.58 to 161.96 it has held this year while under pressure from a strong dollar and a wide rate headwind. interest rate, despite the Federal Reserve’s rate cuts.
Investors’ attention will now turn to comments from Bank of Japan Governor Kazuo Ueda to assess not only the timing of the next rate hike, but also the scope of the hikes next year. Traders are currently pricing in 44 basis points of BOJ increases by the end of 2025.
Ueda is expected to hold a press conference at 06:30 GMT to explain the decision. Board member Naoki Tamura dissented and proposed raising interest rates to 0.5% considering that inflationary risks were building, but his proposal was rejected.
“The Fed’s overnight dot plot gave the BOJ the option to raise rates, and there was a no vote in favor of a 25 basis point increase, so it looks like rates will rise to early 2025,” said Ben Bennett, Asia-Pacific chief investment officer. Legal and General Investment Management Strategist.
The Federal Reserve’s hawkish turn sent Wall Street tumbling and Asian stocks followed suit, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 1%. Japan’s Nikkei was down 1%, while Australian shares fell almost 2%.
The Dow Jones Industrial Average plummeted more than 1,000 points. [.N]
The policy decisions by the two central banks underscored the challenge facing the global economy as the biggest player, the United States, falls under the leadership of President-elect Donald Trump at the start of the new year.
Federal Reserve Chair Jerome Powell said some officials were contemplating 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 risks that are clearly inherent here, and partly unmentioned, are what the Trump administration could put on the table in terms of inflation pressure,” said Rob Thompson, macro rates strategist at RBC Capital Markets.
“If the market decides that the Fed is done, whether it’s Trump or inflation picks up anyway over the next year, the risk is that we could re-price to raise them later. Did this tell us anything? Yes. The market could still be a little complacent about some of these risks.”