Asian stocks rose on Friday as easing oil prices and a rebound on Wall Street helped improve sentiment, although investors remained cautious ahead of an expected Bank of Japan (BOJ) rate hike.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.55%, while Japan’s Nikkei rose 0.9%. South Korea’s KOSPI outperformed, climbing 2%.
The gains followed a stronger session on Wall Street, where technology stocks led a rebound after recent losses. Investors also took some comfort from a stabilisation in bond markets after the 10-year US Treasury yield climbed above 5% earlier this week, its highest level since 2007. The yield was last at 4.936%.
Oil prices provided another boost to sentiment, with Brent crude falling 1% to US$103.77 a barrel as traders assessed alternative routes for Middle East oil supplies. Prices remained above US$100, however, amid continued concerns over the conflict involving Saudi Arabia and Yemen’s Iran-backed Houthis.
The recent rise in oil prices has kept inflation and interest rates firmly in focus across global markets. The Federal Reserve raised rates on Wednesday for the first time in three years and signalled further increases could follow, while the Bank of England warned it may need to raise rates if the Middle East conflict continues to push up inflation.
“If bonds reverse and yields push higher again, volatility could quickly return,” said Chris Weston, head of research at Pepperstone.
“For now, though, the buyers have regained some control, and the price action suggests the post-Fed risk-off move has lost momentum.”
BOJ Decision In Focus
The yen weakened to 156.23 per US dollar as investors awaited the BOJ’s policy decision later on Friday. The central bank is widely expected to raise its policy rate to a 31-year high.
The yen has strengthened sharply this month on expectations of faster BOJ tightening and signs that Japanese investors are repatriating funds. However, it has given up some gains this week following the Fed’s more hawkish stance.
“The key as such for markets is not just whether BOJ hikes, but also how it hikes and the communication by Governor Ueda on the path moving forward,” said Michael Wan, currency strategist at MUFG.
“With a 25 basis point hike fully priced, the hike alone should do little to support the yen,” said Sarah Hammoud, currency strategist at Commonwealth Bank of Australia.
“Governor Ueda will need to convince markets that the BOJ is inclined to hike rates at a faster pace. We expect the BOJ to hike rates again in December. We consider the risk is that Ueda fails to match the market’s hawkish expectations.”
The euro was steady at US$1.148 but was on course for a 1% weekly decline, its biggest drop since June.
Spot gold rose 0.5% to US$4,361 an ounce.
Reuters
