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Asian stocks slide, yen wobbles ahead of BOJ decision

Asian stocks fell on Friday as investors pondered the outlook for U.S. rates after the Federal Reserve tempered its ratecut views even as inflation was available in softer than anticipated, while the yen was unstable before the Bank of Japan's policy meeting.

The dollar was hovering near a one-month high on the back of the hawkish tone from the Fed today, while political uncertainty in Europe kept the euro under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.48% lower. Chinese stocks likewise fell, with the blue chip shares down 0.3%, while Hong Kong's Hang Seng was 0.79% lower.

Japan's Nikkei decreased 0.25%, while the yen was slightly weaker at 157.185 per dollar in early trading ahead of the BOJ meeting where the reserve bank is likely to keep interest rates ultra-low.

However the focus will be on whether the BOJ will take actions to cut its bond purchases or drop clues on its future tapering strategies and begin lowering its big balance sheet.

A poll showed nearly two-thirds of economic experts anticipate the BOJ to start tapering its regular monthly bond purchasing, now set at around 6 trillion yen ($ 38 billion), on Friday.

It is possible that the BOJ will modify its JGB buying operation with just a small reduction, however we are unsure that the BOJ will begin cutting without a grace duration, stated ING financial experts in a note.

The yen's decline to a 34-year low of 160.245 per dollar at completion of April triggered several rounds of intervention by Japanese authorities amounting to 9.79 trillion yen ($ 62.25. billion).

The yen, which is very sensitive to U.S. Treasury. yields, is down over 10% against the dollar this year.

Greg Hirt, global CIO for multi asset at AllianzGI, anticipates. the BOJ to stay patient and possibly raise rates only in July. or later on this year as more data become available over the. summer season.

The wild card is the renewed weak point of the yen over the. past 2 months. Another bout of currency-induced cost-push. inflation might be damaging to accomplishing the objective of real. earnings growth.

FED VIEW

On the macro level, markets stay concentrated on when the U.S. reserve bank will cut rates and by just how much after event-filled. week.

Data on Thursday showed the variety of Americans filing brand-new. claims for welfare increased to a 10-month high. last week, while manufacturer prices suddenly fell in May.

That followed Wednesday's cooler-than-expected consumer. inflation report and the Fed's modified dot plot, which reduced. rate-cut expectations this year from three to one.

James McCann, deputy chief economist at abrdn, stated the Fed. seems to be in a client mood as it waits for indications of sustained. development on inflation and expects the U.S. reserve bank to start. its financial alleviating project in December.

Traders however are taking their cues from the inflation. reports and are now pricing in 50 basis points of cuts this. year, with a rate cut in September priced in at 68%, CME. FedWatch tool showed.

Rate expectations are likely to remain unpredictable over coming. months versus the backdrop of a data dependent Fed, McCann. stated.

The moving expectations has seen the dollar bounce around. today, with the U.S. currency index which determines. its value against six peers, last at 105.25, not far from the. one-month high of 105.46 it touched on Tuesday. The index is up. 0.3% for the week.

In commodities, oil costs reduced on Friday however were on track. for their very first weekly gain in four weeks as markets assessed. the effect of U.S. rates staying higher for longer versus solid. outlooks for crude and fuel need this year.

Brent crude futures fell 0.62% to $82.26 a barrel. while West Texas Intermediate (WTI) U.S. crude futures. alleviated 0.69% to trade at $78.08. ($ 1 = 157.2600 yen)

(source: Reuters)