Yen gains, Asian stocks at session lows after BOJ holds steady

Image:An investor walks past an electronic board showing stock information at a brokerage house in Shanghai, China, March 14, 2016. REUTERS/Aly Song

By Saikat Chatterjee

HONG KONG (Reuters) – The yen advanced against the dollar and Asian stocks languished near the day’s lows on Tuesday, after the Bank of Japan held policy steady as expected and offered a bleaker view of the country’s economy in the face of lingering anxiety over slowing global growth.

The BOJ also removed language from its statement that it would cut interest rates further into negative territory if needed, a little more than six weeks after it’shocked markets by adopting minus rates in stepped up efforts to revitalize growth and stoke inflation.

With the central bank offering a bleaker view of the economy than in January, attention now turns towards BOJ Governor Haruhiko Kuroda’s post-meeting press conference at 0630 GMT.

“Kuroda will face some awkward questions on why the yen is significantly stronger now than before negative rates were revealed,” Sean Callow, senior currency strategist at Westpac, said in a note.
The dollar was down about 0.3 percent to 113.46 yen after the decision while 10-year Japanese government bond yields advanced to a minus 0.017 percent from minus 0.033 percent on Monday.

Regional stock markets maintained a weak bias with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.7 percent, near the day’s lows and backing off a 2-1/2-month high on Monday.

It was dragged lower by more than a one percent drop each in China, Australia and Taiwan. Japanese stocks extended losses to be down 1.0 percent after the decision.

With the global economy slowing and many countries facing deflationary pressures, investors’ focus remained squarely on policy decisions from the world’s major central banks.

Up next on the central bank roster is the U.S. Federal Reserve on Wednesday and the Bank of England and the Swiss National Bank on Thursday.

Notwit’standing the BOJ’s decision, Steven Englander, global head of G10 FX strategy at Citibank, reckons investors are more interested in the Fed statement on Wednesday to gauge how important global vulnerabilities stack up against an upswing in domestic activity for U.S. policymakers.

The Fed is unlikely to raise rates this week but it will likely make clear that as long as U.S. inflation and jobs continue to strengthen, economic weakness overseas won’t stop rates from rising fairly soon.

A consensus in the market is that fresh forecasts from the Fed’s 17 officials released after the meeting will signal perhaps two or three rate hikes this year, a retreat from their projection in December for four or more increases in 2016.

Financial markets are much more cautious with Fed fund futures are pricing in a 50 percent probability of a rate increase by June and one full rate hike by December.

The mood in credit markets also was noticeably more subdued, with investors happy to stay in high quality government debt such as U.S. Treasuries and German Bunds rather than venturing into higher-yielding corporate paper.

The 10-year U.S. notes yield stood at 1.969 percent, off a six-week high of 1.986 percent hit on Friday.

In credit markets too, a recent rally seems to be petering out. An index of high yield credit fell after rising 9 percent over the last month.

Even oil prices, whose rebound over the last month triggered a global rally in risky assets, were running out of steam on concerns that a six-week market recovery may have gone beyond fundamentals. U.S. crude stockpiles continue to rise and Iran is seen showing little interest in joining major producers in freezing production.

U.S. crude futures last traded at $37.05 a barrel, up slightly from Monday.
On Monday, they fell 3.4 percent to $37.18 a barrel, while Brent finished down 2 percent at $39.53.

In currency markets, the euro slipped further from its three-week high hit after European Central Bank President Mario Draghi indicated he does not plan further cuts in interest rates.

The euro traded at $1.1108, off Thursday’s high of $1.1218. The Brit’sh pound changed hands at $1.4272, off Friday’s three-week high of $1.4437.

(Additional reporting by Hideyuki Sano in TOKYO; Editing by Kim Coghill & Shri Navaratnam)

Copyright 2015 Thomson Reuters. Click for Restrictions.

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