Powell’s Speech In Focus: Markets Steady With Yen Rise

Asian markets exhibited caution on Friday, with shares fluctuating and the U.S. dollar recovering from its recent lows, as investors awaited a critical speech from Federal Reserve Chair Jerome Powell. Market participants are seeking confirmation of potential U.S. interest rate cuts in September.

The Japanese yen strengthened by 0.3%, reaching 145.77 against the dollar, as bond yields edged higher following comments from Bank of Japan (BOJ) Governor Kazuo Ueda. Ueda, addressing lawmakers, reiterated the central bank’s readiness to raise interest rates if economic conditions and inflation align with their forecasts. Despite the recent market sell-off, traders remain skeptical about a BOJ rate hike in October.

Japan’s latest data revealed a continued acceleration in core inflation for the third consecutive month. However, a slowdown in demand-driven price increases indicates no immediate urgency for rate hikes. Krishna Bhimavarapu, an APAC economist at State Street Global Advisors, expects that a stronger yen and renewed energy subsidies will temper inflation in the short term. Bhimavarapu added that the next BOJ rate hike may be delayed until December if inflation fears subside.

On Friday, MSCI’s broadest index of Asia-Pacific shares outside Japan dipped by 0.4%, though it remains on track for a weekly gain of 0.6%. Japan’s Nikkei index was steady near its three-week highs. In China, blue-chip stocks rose by 0.3%, while Hong Kong’s Hang Seng index fell by 0.4%, and South Korea’s markets declined by 0.5%.

Asian markets reached a one-month high earlier in the week, buoyed by expectations of a dovish stance from the Federal Reserve. Overnight, Wall Street saw a decline as investors grew cautious ahead of Powell’s speech at the Jackson Hole symposium. Three Fed officials indicated support for a gradual approach to rate cuts in September, which tempered market expectations for a significant half-point cut.

Robert Carnell, regional head of research for Asia-Pacific at ING, noted that Powell’s upcoming speech could either boost or disappoint markets, depending on the data. He emphasized that any deviation from current market expectations would hinge on forthcoming economic indicators.

U.S. Treasury yields saw slight declines on Friday after gaining ground for the first time in five sessions. The 10-year yield fell by 2 basis points to 3.8426% in Asia, down 5 basis points for the week. The 2-year yield dropped by 3 basis points to 3.9845%, marking an 8 basis point decline for the week.

As yields fell, the dollar faced pressure, hitting one-year lows, though it found some relief overnight. The euro retreated from its one-year high of $1.1119, with resistance expected at $1.1139.

In other markets, Wall Street futures edged higher, with gains between 0.2% and 0.4%. Commodities, however, appeared set for a weekly decline. Brent crude futures were steady at $76.04 per barrel, down more than 3% for the week amid growing U.S. crude inventories and a weakening demand outlook in China. Gold prices, which reached a record high of $2,531.60 earlier in the week, are down 0.7% to $2,488.13 per ounce.