TOKYO: Asian stocks turned lower on Thursday and the yen surged after the Bank of Japan refrained from taking further stimulus steps, hours after the Federal Reserve’s own review had struck a cautious note on its policy outlook.
The dollar was already under pressure after the Fed left interest rates unchanged overnight and was seen to have toned down its monetary tightening patch, while crude oil extended losses on Brexit concerns.
The BOJ kept monetary policy steady and stuck to its optimistic view of the economy on Thursday, even as renewed yen rises and slumping stock prices threaten to hurt business sentiment and derail a fragile economic recovery.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was last down 0.8 percent after briefly rising in early trade.
Japan’s Nikkei .N225 was down 1.1 percent at midday, with a 2.3 percent decline in the index futures JNMc1 pointing to further losses for Tokyo stocks trading resumes in the afternoon.
South Korea’s Kospi .KS11 lost 0.7 percent and Shanghai .SSEC edged down 0.4 percent. Australian stocks bucked the trend and added 0.3 percent .
On the whole, investors were still cautious on worries Britain may vote to leave the European Union, which saw U.S. stocks fall for a fifth straight session overnight despite the Fed’s subdued view on interest rates.
While the U.S. central bank kept policy steady as widely expected and lowered its economic projections, it did signal that it still planned to raise rates twice in 2016.
However, the Fed’s conviction appeared shakier with six of its 17 policymakers projecting just one increase this year. Only one Fed policymaker had done so when economic forecasts were last issued in March.
“Although the Fed’s projection tout two rate hikes, a rate hike in July is highly unlikely, which makes it questionable whether the Fed can raise rates twice in its three policy meetings left by the end of year,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
In currencies, the yen surged after the BOJ’s decision.
The greenback was down 1.2 percent at 104.770 yen JPY= after hitting 104.505, its lowest since September 2014.
The yen also hit its highest level since January 2013 against the euro EURJPY=R and a four-year peak versus the Australian dollar AUDJPY=R.
The euro was steady at $1.1267 EUR= after gaining 0.5 percent overnight.
The 10-year Treasury note yield US10YT=RR slipped to 1.545 percent, a four-month low.
The recent bout of global risk aversion generated by Brexit fears have boosted safe-havens like government debt, sending the German and Japanese benchmark 10-year yields to record lows this week.
The Brexit concerns also saw U.S. crude oil CLc1 fall 1 percent to $48.55 a barrel, on track for a sixth straight day of losses. Brent crude was down 0.7 percent at $48.62 a barrel. [O/R]
Spot gold XAU= touched $1,301.40 an ounce, highest since May 3, thanks to the Fed’s seemingly more cautious approach to monetary tightening. Higher interest rates tend to diminish the appeal of non-yielding gold.
