Dollar down after Fed meeting, Tokyo leads Asia losses
Most Asian markets lower over size of BoJ’s expected stimulus
HONG KONG, July 28, (AFP): The dollar sank Thursday after the Federal Reserve indicated it would take a slow, measured approach to any interest rate hikes, while Tokyo led most Asian markets lower on worries over the size of the Bank of Japan’s expected stimulus.
After a closely watched meeting the Fed held borrowing costs but noted the world’s top economy had improved and expressed less fear about the impact of Britain’s vote to leave the European Union last month.
The meeting followed a string of positive readings — particularly on jobs growth and key consumer spending — that has fanned speculation of a tightening in monetary policy despite weakness in most other global economies.
“There is a lot of data between now and the mid-September policy meeting, so more evidence of solid growth and rising inflation could lead the Fed to act,” Richard Jerram, chief economist at Bank of Singapore, said in a note.
Caution
“However, they tend to err on the side of caution so we think it is more likely that they wait until December.”
The Dow and S&P 500 ended slightly lower, while in Asia the dollar retreated against most other currencies.
The greenback fell to 104.75 yen from 105.31 yen in New York. The euro rose to $1.1091 from $1.1062, and well up from $1.0989 seen earlier Wednesday in Asia.
Higher-yielding currencies also made inroads against the US unit, with the Australian dollar putting on 0.7 percent and South Korea’s won 0.9 percent, while the under-pressure Turkish lira climbed 0.8 percent. Malaysia’s ringgit added 0.7 percent and the Indonesian rupiah was 0.2 percent higher.
The strong yen sent Japan’s Nikkei tumbling as the country’s central bank began its own two-day policy meeting. Traders are worried the bank will not deliver Friday a big enough stimulus to kickstart the world’s number three economy.
The Japanese government’s announcement Wednesday of a 28 trillion yen stimulus — without releasing details — was unable to provide much excitement in Tokyo, where the Nikkei index ended 1.1 percent lower.
Elsewhere, Hong Kong slipped 0.2 percent by the close and Singapore was 0.9 percent off in the afternoon while Seoul ended down 0.2 percent and Manila dived 1.4 percent. Sydney, however, added 0.3 percent, while Shanghai edged up 0.1 percent after suffering a hefty loss Wednesday.
“Investors are wary that the BoJ will disappoint and it’ll lead to a bout of selling,” Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management, told Bloomberg News.
“The bar has already been raised too high for the BoJ’s policies. Unless there’s some sort of policy that crosses that line ... Japanese stocks will be sold and the yen will be bought.”
Tokyo shares fell Thursday as a Bank of Japan (BoJ) policy meeting kicked off, with markets waiting to see if policymakers unleash a fresh round of stimulus to kickstart sluggish growth.
The gathering is the BoJ’s first since Britain’s shock vote to quit the European Union hammered financial markets and sparked a rally in the safe-haven yen, which is threatening to dent Japan Inc’s bottom line.
Among the options, the BoJ could expand its mammoth asset buying plan or cut interest rates further into negative territory in a bid to stir lending and stoke the wider economy.
The rate plan has been unpopular among Japanese banks, however, as it effectively charges them to keep excess reserves in the BoJ’s vaults.
The meeting comes after Japan’s government on Wednesday announced a whopping 28 trillion yen ($266 billion) stimulus package aimed at boosting growth in the world’s number three economy, although it released few details.
Tokyo and the BoJ have come under increasing pressure as Prime Minister Shinzo Abe’s more than three-year-old policy blitz, dubbed Abenomics, shows little sign of generating consistent growth.
“Investors are wary that the BoJ will disappoint and it’ll lead to a bout of selling,” Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management, told Bloomberg News.
“The bar has already been raised too high for the BoJ’s policies. Unless there’s some sort of policy that crosses that line ... Japanese stocks will be sold and the yen will be bought.”
The benchmark Nikkei 225 index fell 1.13 percent, or 187.98 points, to close at 16,476.84, having surged on Wednesday after the government announced its stimulus.
The broader Topix index of all firstsection shares dropped 1.11 percent, or 14.67 points, to 1,307.00.
The dollar eased to 104.63 yen from 105.31 yen Wednesday in New York, after the Federal Reserve indicated it would take a slow, measured approach to any interest rate hikes.
In Tokyo share trading, Mitsubishi UFJ Financial Group was off 2.55 percent at 484.6 yen while rival Sumitomo Mitsui Financial Group fell 2.26 percent to end at 3,070 yen, after saying Wednesday net profit tumbled 31 percent in April-June.
Nintendo slumped 5.49 percent to 21,080 yen a day after the videogame giant logged a huge first quarter net loss, citing the impact of a strong yen. The loss came despite the Pokemon Go mania sweeping the globe since the smartphone game’s launch this month.
Nissan dropped 2.15 percent to 1,024 yen after reporting Wednesday a decline in net profit, blaming the yen and struggles in its home market.
Fujifilm plummeted nearly 10 percent to 3,650 yen on disappointing first-quarter earnings and Japan Airlines lost 4.28 percent to finish at 3,177 yen, after a report warned the carrier’s profits would fall.
Slid
Meanwhile, European stocks and the dollar slid Thursday after the Federal Reserve held interest rates and indicated it would take a slow, measured approach to any hikes.
Markets also digested a barrage of company results, including from Britain’s Lloyds Banking Group, Rolls-Royce and Royal Dutch Shell, as well as France’s Carrefour, BNP Paribas and Renault, and Germany’s troubled Volkswagen.
London drifted 0.3 percent lower, while in the eurozone, Frankfurt dipped 0.2 percent and Paris lost 0.3 percent in value.
Tokyo meanwhile led most Asian markets lower on worries over the size of the Bank of Japan’s expected stimulus announcement due Friday.
In early morning London foreign exchange deals, the European single currency jumped to a near two-week dollar high at $1.1119.
“The US dollar is sliding today despite some slightly hawkish shifts in the monetary policy statement last night, as the market was likely expecting more to suggest that a rate rise was imminent,” said analyst David Cheetham at London brokerage XTB.
The Federal Reserve held borrowing costs overnight, but noted the world’s top economy had improved and expressed less fear about the impact of Britain’s vote to leave the European Union last month.
The meeting followed a string of positive readings — particularly on jobs growth and key consumer spending — that has fanned speculation of a tightening in monetary policy despite weakness in most other global economies.
“Whilst rate hikes are seen by many as negative for stocks, an increase at present from the Fed would represent a show of faith in the US economy,” Cheetham told AFP.
“In raising the Fed funds rate by 25 basis points the central bank would be giving a vote of confidence to the economy and in doing so suggest that its robust enough to continue to perform well even in a higher rate environment.
“The lack of speed possibly reveals a lack
of faith that the economy and markets can withstand a rate rise,” he said, adding that this was weighing on sentiment.
In Frankfurt, Volkswagen shares went into reverse, dropping 1.9 percent to 125.30 euros after the scandal-struck German carmaker said second-quarter profits dived 57 percent to 1.15 billion euros ($1.3 billion).
Earnings were weighed down by almost 2.5 billion euros of special items, mostly related to 2015’s diesel emissions cheating scandal.
In Paris, Carrefour topped the fallers board, shedding 4.1 percent to 22.73 euros.
The French supermarket giant said half-year net profits tumbled 40 percent
to 129 million euros, hit by low fuel prices, currency fluctuations and restructuring costs.
Auto manufacturer Renault slid 2.6 percent to 77.54 euros, despite posting a record first-half net profit of 1.5 billion euros, up 7.5 percent from a year earlier on strong sales of new cars.
The group cautioned however that it was “much too early” to say what the impact of Brexit would be on the company.
London’s top faller was Lloyds Banking Group, which announced it will axe another 3,000 jobs by 2017, and partly blamed the low interest rate environment.
Lloyds saw its share price sink 4.9 percent to 53.03 pence.