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Asian financial markets weakened on Monday after strong US jobs data raised expectations that the US Federal Reserve would ease its stimulus measures within a few months and maybe as early as September.
The market defied expectations of a brutal early selldown on the US payrolls report released on Friday, but as the morning progressed selling gathered pace, making another bleak day for Asian currencies, stocks and bonds.
Hong Kong and Chinese equities were the first to tumble - both down more than 2% by mid-morning - with selling also driven by Beijing's plan to cut credit to force consolidation in industries where there was overcapacity.
The selling in other markets, however, was primarily driven by US non-farm payroll data that showed 195,000 jobs were created last month, better than the 165,000 expected.
Yields on benchmark 10-year US Treasuries rose 24 basis points to 2.73% on Friday night and to a high of 2.755% in Asia on Monday.
The Fed has been printing money to buy $85 billion of US Treasuries and mortgage-backed securities a month in order to drive down long-term interest rates. Those low rates over the past few years prompted investors to seek decent returns by investing in Asian emerging markets. That flow of funds is now reversing as US Treasury yields rise.
"A scenario of tapering taking place and money heading back to the United States, is starting to take shape there is likely to be selling for now, as long as the fear (of money heading back to the United States) persists," said Satoshi Okagawa, a senior global markets analyst Sumitomo Mitsui Banking Corporation in Singapore.
The US dollar hit a six-week high of 101.54 yen on Monday after gaining 1.2% on Friday in its biggest one-day rise in a month.
Against a basket of major currencies, the dollar advanced to a three-year high.
Asian currencies continued recent falls with the Indian rupee weakening to over 61 per dollar, due largely to India's record current account deficit.
The Singapore dollar hit a 13-month low and the Thai baht slid to an 11-month trough.
Foreign investors repatriating funds, after selling Asian government bonds and stocks, drove the demand for dollars, although traders said that local investors were selling Asian stocks as aggressively as foreigners.
MSCI's Asia-Pacific ex-Japan share index was down 1.7% at a a two-week low.
Indonesian equities and Philippine shares lost roughly 2.6%, while Shanghai shares slid 1.6%.
"I don't think it's negative for Japan," said a hedge fund manager, who declined to be identified, referring to higher dollar borrowing costs.
"For ASEAN countries, it is more of a concern if rates continue to go up. A lot of the funding for some of these countries is dollar-denominated."
