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By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares fell and the dollar rose to near two-year highs on Thursday after the U.S. Federal Reserve warned it would cut interest rates next year, while the Bank of Japan kept rates steady, as expected.
The yen weakened to touch a one-month low of 155.43 per dollar after the election. The yen is down more than 8% this year against the dollar and is set for a fourth consecutive year.
The BOJ’s decision comes when the yen hovers around 155 per dollar, the weak end of the 139.58 to 161.96 range it held this year when it was under pressure from a strong dollar and high interest rates, despite the Fed’s cuts.
Business eyes will now be on comments from BOJ Governor Kazuo Ueda to determine not only the timing of rate hikes but the rate of hikes for next year. Investors are currently pricing in a 44 basis point BOJ hike by the end of 2025.
Ueda is expected to hold a press conference at 0630 GMT to explain the decision. Board member Naoki Tamura objected and proposed raising the interest rate to 0.5% based on the risk of inflation, but his proposal was voted down.
“The hawkish Fed dot plot overnight gave the BOJ an opportunity to raise rates, and there was one vote against a 25 bps hike, so it looks like rates will be rising in early 2025,” said Ben Bennett, an Asia-Pacific investor. strategist at Legal and General Investment Management.
The Fed’s hawkish move sent Wall Street lower and Asian stocks followed suit, with MSCI’s largest index of Asia-Pacific shares outside Japan down 1%. Japan’s Nikkei fell 1%, while Australian shares fell nearly 2%.
The Dow Jones Industrial Average fell more than 1,000. (N)
The policy decisions from the two central banks clearly show the problem facing the global economy as a large part of the United States, coming under the leadership chosen by President Donald Trump at the beginning of the new year.
Fed Chairman Jerome Powell said some officials are considering the effects of Trump’s plans such as higher taxes and lower taxes on their policies, while Ueda highlighted Trump’s policies as a threat in an interview last month.
“The real risk here, and it’s been understated, is what the Trump administration might bring to the table in terms of inflation,” said Rob Thompson, chief economist at RBC Capital Markets.
“If the market thinks that the Fed is done, whether it’s Trump or inflation is going up regardless of next year, the risk is that we can repeat the price going to the top later. Does this tell us anything? Yes. They are not interested in some of these risks.”
