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Stock markets in Japan and elsewhere in Asia rose on Friday, while the yen weakened ahead of the Bank of Japan’s interest rate decision. The MSCI Asia-Pacific ex-Japan stock index gained 0.55%, Japan’s Nikkei rose 0.9%, and South Korea’s KOSPI added 2%.
As Channel NewsAsia reports, investor sentiment was supported by lower oil prices and overnight gains on Wall Street led by technology companies. Brent crude futures fell 1% to $103.77 per barrel amid hopes for alternative routes to supply Middle Eastern oil to markets.
Bonds and central bank policy
Bond prices stabilized after a sharp sell-off during the week. The yield on 10-year US government bonds had earlier exceeded 5%, reaching its highest level since 2007, before later standing at 4.936%.
Pepperstone head of research Chris Weston noted that volatility could return quickly if bond yields rise again. According to him, after markets reacted to the US Federal Reserve’s decision, buyers regained control, while price movements indicated weakening momentum toward risk avoidance.
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Markets are also focused on the actions of leading central banks, which are intensifying their fight against inflation. The US Federal Reserve raised rates this week for the first time in three years and signaled the possibility of further policy tightening. The Bank of England warned that it could raise rates if the war in the Middle East continues, while the European Central Bank also indicated last week that further policy tightening was needed.
Expectations for the Bank of Japan
The Japanese yen weakened to 156.23 per US dollar in morning trading. Markets expected the Bank of Japan to raise its rate by 25 basis points, to a 31-year high, and signal further steps to curb inflation risks.
MUFG currency strategist Michael Wan stressed that market participants are concerned not only with the rate increase itself, but also with Bank of Japan Governor Kazuo Ueda’s explanation of the future policy path. Commonwealth Bank of Australia strategist Sarah Hammoud believes that the increase itself, already priced in by the market, would have little effect on the yen without a convincing signal of a faster pace of subsequent steps.
The euro held near $1.148, but was heading for a weekly decline of about 1%, its largest since June. The spot price of gold rose 0.5% to $4,361 per ounce.
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