Asia stocks join Wall St rally, brace for BOJ hike
Asian stock markets rebounded on Friday as a rebound in technology boosted Wall Street and investors counted down to a possible rate hike by the Bank of Japan that could send waves in currencies and bonds.
Following the shock slowdown in US consumer price inflation, confidence also increased to 2.7 percent; But analysts warned that the data was clearly corrupted to a lesser extent by the government shutdown and cannot be taken at face value.
The Federal Reserve’s pricing has moved little, with January’s rate cut implied to be only 27 percent; In March, it increased from 54 percent before the data to 58 percent.
Markets are hanging on to the outlook for further tightening, implying there is a nearly 90 percent chance the BOJ will raise interest rates by a quarter point to 0.75 percent on Friday.
Investors are just taking another step towards 1.0 percent in 2026, and any hint of more could provide much-needed support for the struggling yen but also increase pressure on government bonds.
“The policy rate is still in encouraging territory and there is a case for further normalization of BOJ policy,” analysts at CBA said in a note.
“Core inflation has remained above the BOJ’s 2.0 percent target in the last two years, and the sharp weakening of the yen in the last two months will also increase inflation.”
Figures released on Friday showed that Japan’s core CPI increased at an annual rate of 3.0 percent in November, unchanged from the previous month.
For now, markets were content to follow Wall Street’s lead, with Japan’s Nikkei index rising 0.6 percent. South Korea rose 1.2 percent, boosted by excellent results from chipmaker Micron Technology.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent.
S&P 500 futures and Nasdaq futures were flat after the overnight jump.
Bond markets welcomed the US CPI numbers cautiously; 10-year Treasury yields remained at 4.126 percent, just shy of a 3-1/2-month high of 4.209 percent.
Japan’s 10-year yield reached 1,980 percent, the highest level in the last 18 years.
British bonds took a hit overnight after the Bank of England cut interest rates as expected but only after a very tight 5-4 vote. Policymakers have also signaled caution about the pace of future expansion, pointing out that another reduction may not be fully priced in until June.
The European Central Bank took an even more hawkish stance, keeping interest rates at 2.0 percent, indicating that the easing cycle would likely end. Markets are pointing to the possibility of only a small rate cut for the whole of 2026.
Central banks in Sweden and Norway also held steady, but Norway left the door open to one or more cuts.
The hawkish returns caused short-term rises in sterling and euro, but both quickly recovered. The pound sterling remained stable at US$1.3378 (A$A2.0230), while the euro was steady at US$1.1725 (A$A1.7730).
The dollar remained little changed against the yen at 155.60, within the recent range of 154.34 to 156.96.
In commodity markets, gold remains stuck at US$4,333 (A$A6,552) an ounce, still below its October peak of US$4,381 (A$A6,625). Silver started to make a profit after its rapid rise, but demand for palladium and platinum continued.
Oil prices were supported by the possibility of further US sanctions against Russia and supply risks posed by the blockade of Venezuelan oil tankers.
Brent rose 0.2 per cent to US$62.04 (A$A93.81) per barrel, while US crude rose 0.2 per cent to US$58.35 (A$A88.23) per barrel.
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