Asian stocks declined on Friday as investors assessed the Federal Reserve's cautious stance on rate cuts despite softer-than-expected inflation data. Meanwhile, the yen showed volatility ahead of the Bank of Japan's policy meeting.
The dollar hovered near a one-month peak following the Fed's more hawkish tone, while political uncertainties in Europe weighed on the euro. MSCI's broadest index of Asia-Pacific shares outside Japan edged down by 0.48%. Chinese and Hong Kong stocks also fell, with declines of 0.3% and 0.79%, respectively.
Japan's Nikkei slipped by 0.25%, accompanied by a slight weakening of the yen to 157.185 per dollar before the BOJ meeting, where interest rates are expected to remain ultra-low. Market attention focused on potential adjustments to bond purchases and hints about future tapering plans and balance sheet reductions.
A Reuters poll indicated expectations among economists for the BOJ to begin tapering its monthly bond buying, currently around 6 trillion yen ($38 billion), soon.
The yen, which has depreciated by more than 10% against the dollar this year, hit a 34-year low in April prompting significant interventions by Japanese authorities totaling 9.79 trillion yen ($62.25 billion).
Greg Hirt, Global CIO for Multi Asset at AllianzGI, suggested the BOJ might delay rate hikes until July or later, monitoring summer data closely.
"At play is the yen's recent weakness, which could fuel inflation pressures and complicate efforts for real income growth," Hirt added.
Regarding the Federal Reserve, market sentiment pivoted around speculation on the timing and extent of future rate cuts following recent economic data. Despite rising unemployment claims and unexpected producer price declines, the Fed revised its rate-cut projections downward from three cuts to one this year.
James McCann, Deputy Chief Economist at abrdn, anticipated the Fed to adopt a patient approach, possibly initiating monetary easing by December, contingent on sustained inflation progress.
Traders adjusted expectations, pricing in 50 basis points of cuts for the year, with a September cut probability of 68%, as per the CME FedWatch tool.
"Rate forecasts may fluctuate given the data-driven approach of the Fed," McCann remarked.
Amidst these developments, the dollar index, measuring its value against major peers, held steady near a one-month high at 105.25, up 0.3% for the week.
In commodities, oil prices softened on Friday despite poised for their first weekly gain in four weeks, influenced by prospects of prolonged higher U.S. rates versus strong crude and fuel demand forecasts. Brent crude futures retreated 0.62% to $82.26 per barrel, while West Texas Intermediate (WTI) eased 0.69% to $78.08.
Paraphrasing text from "Reuters" all rights reserved by the original author.
