Businessmen walk past a share prices board in Tokyo. The Nikkei ended down 2.15% yesterday.
Japanese stocks led a broad Asian stock slide yesterday as the yen advanced ahead of a key US jobs report later in the day and after the European Central Bank indicated it could expand its stimulus.
With mainland Chinese markets closed for a second day, traders focused on macro issues, chiefly the US Federal Reserve’s plans for raising interest rates.
While expectations are for a hike before the end of the year—with US growth picking up—the recent turmoil in global markets caused by China’s ongoing economic crisis has muddied the waters for the Fed’s policy committee.
And the non-farm payrolls data is seen as crucial in helping the central bank make its decision, with some experts suggesting policymakers could put off a decision until the end of the year.
“There’s nervousness in the market about growth in Asia and the implications of the Fed changing policy should payrolls be seen as clearing the way for a hike,” Sean Callow, a strategist at Westpac Banking Corp in Sydney, told Bloomberg News.
“The fact that dollar-yen in particular is looking soggy is obviously a bad sign.” Any rise in Fed borrowing rates would lead to a shift of capital back to the US as dealers look for better returns on their investments, particularly hurting emerging economy currencies such as the South Korean won and Malaysian ringgit. However, while higher rates usually benefit the dollar—it has rallied over the past year on hike speculation—the unit is struggling against the yen owing to a flight to safe investments. It bought ¥119.25 in Tokyo, compared with ¥120.01 in New York and much lower than the ¥120.40 earlier Thursday in Asia.
A stronger yen hurts Japanese exporters, whose repatriated profits are boosted by a weaker currency. The Nikkei stumbled more than 3% in the afternoon before ending down 2.15% at a seven-month low.
Among other Asian markets, Hong Kong gave up early gains to close 0.45% lower in late trade—after returning from a one-day holiday—while there were also losses of more than one% in Seoul and Singapore.
However, Sydney bounced back from early selling to end 0.25% higher. The euro softened after the ECB president Mario Draghi said the bank was ready to ramp up its vast bond-buying scheme—known as quantitative easing (QE) - if needed to kick-start the eurozone economy.
“The asset purchase programme provides sufficient flexibility in terms of adjusting the size, composition and duration of the programme,” Draghi told a news conference after the ECB kept interest rates unchanged at record lows.
The bank also cut its growth and inflation forecasts for 2015-2017, noting the downside risks from low oil prices and the economic slowdown in China.
“Mario Draghi didn’t let markets down. He obliged with not only a promise of more QE if needed but also announced the ECB can now purchase more of any one debt issue,” Lawler said.
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