Asian shares turn cautious with US Fed in focus, yen up as BOJ chief speaks

Traders see very little chance that BOJ could hike rates in Oct after recent sell-off, but Ueda said the central bank stood ready to raise rates if economy and prices move in line with its forecast

Asian shares stuttered on Friday while the dollar rebounded from one-year lows as investors were cautious ahead of a speech by the world's most powerful central banker with markets looking for confirmation U.S. rate cuts would start in September.

The Japanese yen gained 0.3 per cent to 145.77 per dollar while bond yields edged up as Bank of Japan Kazuo Ueda spoke before lawmakers.

Traders see very little chance that the BOJ could hike rates in October after the recent sell-off, but Ueda stuck to the script by saying the central bank stood ready to raise rates if the economy and prices move in line with its forecast.

 

Data out early in the day showed Japan's core inflation accelerated for a third straight month, but a slowdown in demand-drive price gains suggest no urgency for any immediate rate hikes.

Krishna Bhimavarapu, APAC economist at State Street Global Advisors, expects the stronger yen and reintroduction of energy subsidies to slow inflation in the near-term.

"If the data evolves as we expect, it could mean that the next BOJ hike may not come until December as fears of rapid inflation ease to an extent."

On Friday, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 per cent but were headed for a weekly gain of 0.6 per cent. The Nikkei was flat near three-week highs.

China's blue chips gained 0.3 per cent, although Hong Kong's Hang Seng fell 0.4 per cent while South Korea dropped 0.5 per cent.

Overnight, Wall Street fell as sentiment turned cautious ahead of the Federal Reserve Chair Jerome Powell's speech in Jackson Hole. Three Fed speakers on Thursday alluded to a rate cut in September, with them voicing support for a "slow and methodical" approach.

Taken together with surveys showing the U.S. economy still growing at a healthy pace, markets slightly pared back the chance of an outsized half-point cut in September to 24 per cent, from 38 per cent a day earlier. A quarter-point reduction is fully priced in.

Robert Carnell, regional head of research, Asia-Pacific, at ING, noted there was still scope for Powell's speech to excite or disappoint markets given the market pricing, but much will depend on data.

"As any decision that deviates from market pricing will rest on as yet unknown data, it is hard to see how Powell can commit to much beyond some easing of some sort in September, and even then, only barring data accidents," said Carnell.

Treasury yields slipped a little on Friday, having gained overnight for the first time in five sessions. Ten-year yields fell 2 basis points to 3.8426 per cent in Asia and were down 5 bps for the week.

Two-year yields also dropped 3 bps to 3.9845 per cent and were down 8 bps for the week.

Declining yields pressured the dollar to one-year lows, although it did get some respite from selling pressure overnight. The euro came off its one-year high at $1.1119, with major resistance seen at $1.1139.

Wall Street futures rose between 0.2 per cent-0.4 per cent and commodities looked set to end the week lower.

Brent crude futures were flat at $76.04 a barrel, although they are down more than 3 per cent for the week as swelling U.S. crude stocks and a weakening demand outlook in China have raised pessimism. [O/R]

Gold prices are 0.7 per cent lower in the week to $2,488.13 an ounce, having hit a record high of $2,531.6 just on Tuesday.