By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares fell and the dollar was near a two-year high on Thursday after the U.S. Federal Reserve warned it would moderate the pace of interest rate cuts next year, while the yen fell after the Bank of Japan kept interest rates stable.
The Fed’s aggressive shift sent Wall Street lower and Asian shares followed suit on Thursday, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.6%. Technology-heavy Taiwanese shares fell 1.2% and Australian shares fell almost 2%.
The Dow Jones Industrial Average fell more than 1,000 points on Wednesday. [.N]
The downbeat mood is likely to spill over to Europe, with Eurostoxx 50 futures down 1.5%, German DAX futures down 1.2% and FTSE futures down 1%.
The yen hit a one-month low of 155.48 per dollar after the BOJ’s decision to maintain interest rates as expected. [FRX/]
The Japanese currency traded at around $155.3 against the dollar, almost at the weaker end of its range this year, while under pressure from a strong dollar and a large interest rate disadvantage.
The yen will have fallen more than 8% against the dollar in 2024, marking its fourth year of decline in a row.
Investors’ attention will now turn to comments from BOJ Governor Kazuo Ueda to gauge not only the timing of the next rate hike, but also the size of rate hikes next year. Traders are currently pricing in 46 basis points of BOJ hikes by the end of 2025.
Ueda is expected to hold a press conference at 06:30 GMT to explain the decision. Board member Naoki Tamura disagreed and proposed raising interest rates to 0.5% because inflation risks increased, but his proposal was voted down.
“The hawkish Fed dot plot gave the BOJ the option to raise rates overnight, and there was one dissenting vote for a 25 basis point hike, so it looks like rates will rise in early 2025 ” said Ben Bennett, Asia Pacific investment manager. strategist at Legal and General Investment Management.
The policy decisions by the two central banks underlined the challenge facing the global economy as the largest participant, the United States, comes under the leadership of newly elected President Donald Trump early in the new year.
Fed Chairman Jerome Powell said some officials were considering the impact of Trump’s plans such as higher rates and lower taxes on their policies, while Ueda highlighted Trump’s policies as a risk in an interview last month.
“The risks that are clearly inherent in this and remain partially unspoken are what the Trump administration could bring to the table in terms of inflationary pressures,” said Rob Thompson, macro rates strategist at RBC Capital Markets.