Asia dips, Tokyo soars as US rate talk hits yen

HONG KONG: Japanese stocks rallied on a weaker yen but other Asian markets retreated yesterday after Federal Reserve chief Janet Yellen hinted at a US interest rate rise by the end of the year.

In a much-anticipated speech Friday Yellen said a pick-up in the world’s top economy and an improvement in the jobs market meant “the case for an increase in the federal funds rate has strengthened in recent months”.

Yellen did not give a timeframe during her speech at the annual Jackson Hole symposium of global central bankers, but Fed vice chairman Stanley Fischer later said September was a possibility.

“After a week of guessing, Dr. Yellen left little to the imagination when she stated that the case for a Fed rate hike had strengthened, but remains very much data-dependent,” Stephen Innes, senior trader at OANDA, said in a note.

“Given the proximity of the granddaddy of all Fed data, the non-farm payroll, it is without question that this week’s print will take on more importance than usual.” The labour department is due to release jobs figures on Friday. Expectations for a rate rise sent the dollar soaring in New York, and it extended its gains yesterday.

It bought 102.30 yen, up from 101.77 yen in US trade and well up from the 100.45 yen in Asia earlier Friday, while the euro was down more than a cent at $1.1192.

Higher-yielding, or riskier, currencies were also hit, with South Korea’s won losing 1% and the Indonesian rupiah off 0.5%, while Malaysia’s ringgit shed 0.7%.

“Much will depend on the US non-farm payroll data,” said Richard Jerram, chief economist at Bank of Singapore.

The weaker yen boosted Japan’s exporters, sending the Nikkei stock index 2.3% higher at the close.

But while the greenback and Japanese traders took heart from the comments, other regional markets turned negative on the prospect of a rise in borrowing costs.

Shares in Hong Kong, where monetary policy is linked to that of the United States, fell 0.4%, while Sydney closed 0.8% lower and Seoul eased 0.3%. Singapore was 0.8% lower in late trade, while Shanghai finished marginally lower.

In early European trade Frankfurt lost 0.2% and Paris was 0.4% off. London was closed for a holiday.

The stronger dollar also weighed on oil prices as it makes the commodity more expensive for those using weaker currencies.

West Texas Intermediate fell 1.5% to $46.92 and Brent shed 1.4% to $49.24.