SYDNEY, Oct 3 (Askume) – Japanese shares rose and the yen fell on Thursday, while gains in Hong Kong stocks briefly slowed as concerns over further monetary policy tightening this year receded.
The euro fell sharply on expectations that the European Central Bank will cut interest rates at each of its meetings in October and December, as chief policy expert Isabel Schnabel said she expects inflation to return to target levels.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1%, while the Nikkei share average (.N225) rose 2.2% as a weaker yen boosted the outlook for Japanese exporters.
The dollar rose 0.3% against the yen to 146.84 yen, its highest level in a month. Japan’s newly elected Prime Minister Shigeru Ishiba said after a meeting with central bank Governor Kazuo Ueda that Japan is not ready to raise interest rates further, and the dollar rose 2% overnight.
Ueda also said the central bank would decide cautiously on whether to raise interest rates. Dovish Bank of Japan policymaker Asahi Noguchi also said the Bank of Japan should patiently maintain loose monetary conditions.
IG analyst Tony Sycamore said, “Overall, my guess is that this is a broad-based boost for USD/JPY, which for me eliminates the possibility of a rate hike in 2024… more is possible.”
“I think USD/JPY will now be driven by the US side. Given that we have seen some good US jobs data this week – and if the same holds true for tomorrow’s NFP – then USD/JPY could continue to head towards 149.40, similar to what we saw in mid-August.
According to futures forecasts, the probability that the Bank of Japan will raise interest rates by 10 basis points before December is less than 50%, and by the end of next year, interest rates will rise from the current 0.25% to 0.5%.
Elsewhere in Asia, mainland Chinese markets were closed for a holiday, but Hong Kong’s Hang Seng index (.HSI) fell 2.5% after rising 6.2% the previous day. The benchmark index is still up 30% in just three weeks after China announced stimulus measures to revive its faltering economy.
Overnight, Wall Street was largely unchanged, although a strong private jobs report provided evidence of the health of the US labor market and US Treasury yields rose, easing the risk of a sharp decline in non-farm payrolls data on Friday.
Bonds have been supported by safe-haven funds this week as geopolitical tensions rise in the Middle East. Israel says eight soldiers were killed in fighting in southern Lebanon as Israeli forces moved into its northern neighbour to fight the Hezbollah militant group।
The two-year yield was little changed at 3.648%, while the 10-year yield was steady at 3.79%.
The market expects a 36% chance of the Federal Reserve cutting interest rates by 50 basis points in November, up from nearly 60% last week. The expectation is for interest rates to be cut by 70 basis points by the end of the year.
In currency markets, EURUSD weakened to $1.1040, just above the key $1.10 support level and not far from Wednesday’s September 12 low of $1.10325.
Oil prices rose on concerns that escalating conflict in the Middle East could threaten supplies from the world’s biggest oil-producing region. Brent crude futures rose 1.1% to $74.68 a barrel.
Gold is close to an all-time high of $2,655.90 an ounce.
