Morning commuters in front of the Bank of Japan headquarters in Tokyo, Japan, on Monday, 16 January 2023. (Photo: Kiyoshi Ota/Bloomberg) The Topix dropped for a third day as Japanese banks slipped on concern the Bank of Japan will cut back on bond purchases at its two-day policy meeting. Asian shares had started Thursday higher, following a rally in their US peers as cooling inflation more than offset a somewhat hawkish Federal Reserve policy decision.
US stocks and Treasuries rose Wednesday after a report showed the core consumer price index fell to the lowest in more than three years. Later, the Fed pencilled in just one quarter point interest-rate cut this year, down from three seen in March, while upping its outlook for 2025 to four cuts.
“Given that there are clear signs that data is softening, markets will continue to expect the Fed to cut rates sooner, and that can support Asian markets,” said Charu Chanana, a strategist at Saxo Capital Markets. “The market is discounting the Fed’s cautious stance given it seems to come because of the dovish pivot earlier that proved premature.”
South Korea’s stock benchmark rose as much as 1.8%, heading for its highest close since February 2022. The government said it will consider changes to its short-selling rules on Thursday as part of ongoing discussions on when to lift the ban on the trading strategy.
Chinese electric-vehicle maker stocks mostly gained as analysts said the European Union’s preliminary announcement of tariff increases was in line with the market’s expectations.
The BOJ is forecast to keep rates on hold, but is widely seen to consider reducing bond purchases. Japanese investors sold the largest amount of foreign debt in nine years last week amid a shift in global central bank policy.
Fed outlook
The change in the Fed rate outlook showed up most in Treasuries and the dollar. Bloomberg’s dollar index rose less than 0.1% Thursday after falling 0.2% in the previous session.
Individual Fed officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four legislators saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.
“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”
Powell said the officials welcomed the latest inflation figures, adding that he hopes for more reports like that. He said Wednesday’s figures had helped build their confidence on the trajectory of inflation but not enough to warrant rate cuts at this time.
In commodities, oil edged lower after a three-day advance as investors weighed an unexpected build in US crude stockpiles and the higher-for-longer Fed rate outlook. Elsewhere, gold slipped.