Japan increases rates and Asia stocks rise with Wall Street

The?yen eased on Friday after the Bank of Japan increased interest rates to three-decade-high levels and left the door open for?further easing.

The decision to raise rates to 0.75 percent was widely expected and the initial reaction was to sell the yen in anticipation of a more detailed outlook at the media conference by BOJ Governor Kazuo ueda later in the day.

The markets had bet on just one rate hike in 2019, to 1.0%. Ueda, however, has said that a neutral rate range would include rates from 1.0% up to 2.5%.

Investors should be wary if he suggests that the rates may be raised more than once by 2026.

Abhijit Sundera, senior APAC economist for Capital Economics, stated that the BOJ indicated that more tightening would be likely, given that real interest rates are still negative, despite today's increase.

He added that he believed the data would more than likely surprise him to the upside, predicting rates of 1.7% by 2027.

The core CPI in Japan rose by 3.0% annually in November, the same as it was last month.

The dollar has gained 0.3% in the last few days to 156.03yen, and the euro is up 0.3% at 182.96. The yields on Japan's 10 year bonds are now at 1,975%, which is just below a 18-year high.

Japan's Nikkei gained 1.3% after following Wall Street's overnight rally. South Korea gained 0.8%, and Taiwan, a tech-heavy country, 1.3%. This was due to the stellar results of chipmaker Micron Technology.

The MSCI broadest index of Asia-Pacific shares outside Japan gained 0.7% while Chinese blue-chips gained 0.6%.

ByteDance announced that it had reached a deal with major investors in order to create a joint venture for the operation of TikTok’s U.S. App. This was done to avoid an American government ban.

ECB AND BoE OFFER DIFFERENT LEVELS of HAWKISHNESS

EUROSTOXX Futures and FTSE Futures both fell 0.3% for European bourses. DAX Futures also dropped 0.2%.

S&P futures were flat while Nasdaq Futures gained 0.2%.

The unexpected slowdown in U.S. inflation rates to 2.7% has boosted sentiment, but analysts warn that the data are clearly distorted by the government shutdown. They cannot be taken at face-value.

The Federal Reserve's pricing has only moved marginally. A rate cut was implied in January at 27%. In March, the price increased to 58%. Before the data, it had been 54%.

Bond markets welcomed the U.S. CPI figures with caution, as the 10-year Treasury yields remained at 4,126%. This is a far cry from the recent high of 4,209% for the past 3-1/2 months.

Overnight, British Bonds?had suffered a blow after the Bank of England lowered rates as anticipated but only following a 5-4 vote. The policymakers have also expressed caution over the pace of future easing. Another cut is not fully priced until June.

The European Central Bank, which held rates at 2,0 %, was even more hawkish. It?suggested a probable end to the ease cycle. The markets indicate that there is only a small chance of a reduction for the entire year 2026.

The central banks of Sweden and Norway also remained unchanged, although the Norwegians left the door open for one or more reductions.

Gold fell 0.3% on the commodity markets to $4,319 per ounce, still below its October peak at $4,381. Silver has seen a drop in price after its meteoric rise, but palladium, platinum and other metals remain in high demand.

The possibility of additional U.S. Sanctions against Russia, and the risks of a blockade on Venezuelan oil tankers, helped to support the price of crude.

Brent crude fell 0.2%, to $59.71 per barrel. U.S. crude dropped 0.3%, to $56.00 a barrel. (Reporting and editing by Sam Holmes, Jacqueline Wong, and Wayne Cole)

(source: Reuters)