Asian stocks fall; yen rises as Ueda's comments raise rate hike expectations

Stocks dropped on Monday, after a strong November. A bout of risk-aversion gripped the markets as optimism about U.S. interest rate cuts remained unchanged. The beaten-down Japanese yen strengthened and government bond yields soared to their highest level since 2008.

In the currency market, the Japanese yen has gained strength to reach 155.55 US dollars. This is the strongest signal yet from Bank of Japan Governor Kazuo Ueda that an interest rate increase could be imminent. Ueda told business leaders in a speech that the central banks would weigh the pros and cons of increasing rates during its next policy meeting, which will be held in two weeks.

Investors shrugged off fears of an AI bubble in November. This week, traders looked for catalysts that would continue the upward trend. The focus was on economic data.

U.S. futures for stocks fell, with Nasdaq and S&P 500 down 0.7% each. European futures also fell by 0.3%. Bitcoin and ether, two crypto currencies, both fell more than 5%. This shows a cooling in risk appetite.

Hong Kong's Hang Seng rose by 0.7%, but the mood was generally gloomy.

Chaur Chanana is the chief investment strategist at Saxo. He cited several factors, including rising JGB rates and falling cryptocurrencies, as contributing to today's risk off tone.

Hong Kong stocks are outperforming the rest of the region because weak China PMIs revived hopes for stimulus.

UEDA SPURS YEN STRENGTH

Ueda’s comments strengthened yen and pushed Nikkei index down by about 2%. Japanese government bond yields reached their highest level in 17 years.

The yield on two-year JGBs, which is the most sensitive to BOJ policy rates, increased 3 basis points, to 1.02%. Meanwhile, the yield on ten-year JGBs rose by 7 bps, to 1.87%. Both yields reached their highest levels since June 2008.

Markets have been focused on the yen in recent weeks. They are uncertain about the timing of the next rate hike, and they are concerned with the fiscal policies implemented by Prime Minister Sanae Takaichi.

Tokyo officials have warned traders several times that they will intervene to stop the decline of the yen.

Fred Neumann of HSBC's chief Asia economist said Ueda’s comments indicate that the BOJ has become increasingly concerned over the negative impact of continued depreciation in the exchange rate on consumer spending.

Investors will pay close attention to the subsequent policy guidance, even if BOJ hikes rates in December. This seems more likely following Ueda’s remarks. A hawkish rate hike in December could help anchor expectations for the exchange rate and bond markets. This week, investors will focus on U.S. releases covering manufacturing and services activity, as well as consumer confidence.

Matt Simpson, senior analyst at StoneX, in Brisbane, says that if the data indicate a slowdown, but not a recession, then the sentiment will probably remain positive, even if the U.S. Dollar weakens, as it usually does during this time of the year.

The dollar index (which measures the U.S. Dollar against six rival currencies) was 99.414, which is little changed from the previous day. The index is down 8% for the year, with most of the losses occurring in the first half.

Focus on Consumer Spending

Investors are looking for clues about what the Fed is going to do at its meeting next week. They will be listening for Jerome Powell's comments later in the afternoon. After a series of dovish remarks from policymakers over the past few days, traders are pricing in a 87% chance that the Fed will cut rates.

As data from Black Friday, Cyber Monday and other retail sales events begins to trickle in, attention will be paid to holiday consumer spending.

Adobe Analytics, a company that tracks the visits made by shoppers to online retail sites, reports that U.S. consumers spent $11.8 billion on Black Friday online, a record amount. This is up 9.1% since 2024.

Oil prices increased in commodities after OPEC+ decided to maintain the same oil production levels for the first three months of 2026. The group is reducing its efforts to regain market shares amid fears of a looming glut of supply.

Brent crude futures rose 1% to $63.03 per barrel. U.S. West Texas Intermediate Crude was up 0.99% at $59.16 per barrel. Reporting by Ankur Banerjee, Singapore; Editing and proofreading by Muralikumar Anantharaman. Kate Mayberry, Lincoln Feast.

(source: Reuters)