Interest rate worries hound Asian markets

Equity markets were mixed Friday, with traders still occupied by long-running interest rate worries, though Tokyo rallied after Japan’s incoming central bank head made the case for keeping its ultra-loose policy.

Analysts said the realization that the Federal Reserve will further hike borrowing costs and hold them there appears to have sunk in among investors, who were betting on a cut by year’s end as 2023 began.

That has seen equities across the globe tumble this month after rallying throughout January, and observers warn this could be another bumpy year after the turmoil of 2022.

Focus now is on the release of the personal consumption expenditures price index, the US central bank’s preferred gauge of inflation. That comes after a forecast-busting jobs report and data showing still-sticky consumer and wholesale inflation.

The “core PCE inflation data will set the stage for Fed officials’ forecast updates at the March 22 meeting”, said SPI Asset Management’s Stephen Innes. “We now doubt the revisions to the Summary of Economic Projections will be in a dovish direction.”

Thursday saw the release of figures showing fewer jobless claims than expected last week, which added to the view that the labor market remains robust, further complicating the Fed’s task of bringing inflation down without hurting the economy.

All three main indexes on Wall Street ended on a positive note—with the S&P 500 snapping a four-day losing run—having swung back in the afternoon following a morning slump.

Asia struggled again after Thursday’s troubles. Hong Kong lost more than one percent and Shanghai was also down alongside Seoul, Taipei, Mumbai and Bangkok.

But Sydney, Wellington, Singapore, and Jakarta rose. London, Paris, and Frankfurt opened higher.

Tokyo was the standout, returning from a long weekend and piling on more than one percent as Prime Minister Fumio Kishida’s nominee to head the Bank of Japan said its longstanding monetary easing policies were “appropriate.”

In a statement to lawmakers, Kazuo Ueda added: “It is necessary to keep monetary easing to support the economy and create an environment where companies can raise wages.”

His comments came just after news that Japanese inflation hit a four-decade high of 4.2 percent last month, though officials insist the spike is linked to temporary distortions including the war in Ukraine.

Ueda’s comments saw the yen swing against the dollar in a narrow range.

“There have been high hopes that Ueda will bring a hawkish twist to the BoJ, but early remarks in his confirmation speech say anything but,” said City Index’s Matthew Simpson.

“Ueda blames cost-push inflation for rising prices—driven by higher raw materials and wages—and added that the BOJ responds to demand-driven inflation.” With AFP