May 12, 2022

The US and Asia: Dollar Gains Against Yen

Asian stocks tumbled with Japanese shares sliding to a two-month low on Wednesday as the yen gained, while U.S. stock futures trimmed gains after the Federal Reserve’s latest policy statement indicated it was in no hurry to raise interest rates.

The dollar climbed to a 10-day high against the yen and Canadian bond yields rose after the Fed’s statement, which also appeared to leave the door open for an interest rate hike as early as next month.

Tokyo’s Nikkei share average ended down 1.5 percent, pulling back from five straight days of gains. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.8 percent, as Chinese and South Korean stocks fell 1-1.5 percent after earlier hitting multi-year highs.

Even though there was no new big news from the Fed statement today, it continues to reflect a dovish stance on rate hikes,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo. “That’s why the dollar is falling against the yen.

The Fed left its benchmark overnight borrowing rate unchanged and said it saw signs of a strengthening U.S. economy even as it expected low inflation to rise gradually towards 2 percent..

The Fed also cut its rate of asset purchases to $25 billion from $35 billion a month, with the program now due to end in October.

On Wall Street, the tech-heavy Nasdaq Composite touched an all-time high as chipmakers such as Micron and Intel gained after strong earnings. The Dow ended up 0.27 percent and the S&P 500 added 0.24 percent after earlier trading lower.

The Fed’s statement had initially boosted U.S. bond yields, but their climb paused after the central bank said it expected inflation to remain low for some time even as it noted an improving labor market and economy which was near full employment.

Benchmark 10-year U.S. Treasuries were last up 2/32 in price, with the yield at 1.5917 percent after earlier dropping to a low of 1.5703 percent, its lowest since mid-November and well off a one-week peak of 1.6611 seen on Wednesday.

The Fed is still looking at the economy right now and saying it’s OK to be patient, said Brian Daingerfield, macro strategist for RBS Securities in Stamford, Connecticut. I think there was probably some good news in that statement for bond holders.

The dollar edged higher against its major peers as the Fed statement was mainly seen as dovish. The greenback rose 0.2 percent against a basket of currencies after gaining 0.52 percent overnight.

The euro was 0.2 percent lower against the dollar at $1.1218, while the common currency also fell to 104.27 yen, down from levels above 105 seen on Wednesday.

Earlier in Asia, Japan’s Nikkei had hit a five-month high of 18,858 points overnight on stronger than expected data which showed Japan’s economy grew 2.2 percent in the first quarter of this year, marking the fifth straight quarter expansion.

The strong economic backdrop prompted Nomura Securities to upgrade its view on Japanese shares to overweight from neutral.