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A look at the day ahead in Asian and global markets

By Jamie McGeever, Columnist, Global Finance & Markets

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It’s all about global interest rates for Asia on Thursday.

Three monetary policy decisions in Asia and a finely balanced call from the Bank of England will give Asian markets their steer, as investors digest the Federal Reserve’s policy decision, revised forecasts and guidance on Wednesday.

The central banks of Indonesia, the Philippines and Taiwan are all widely expected to keep key lending rates on hold at 5.75%, 6.25% and 1.88%, respectively, so investors will be looking to policy statements for clues on future moves.

U.S. Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023. REUTERS/Evelyn Hockstein

The surprise fall in UK inflation last month puts the BoE decision on a knife edge – Goldman Sachs, Deutsche and Nomura all changed their BoE calls – and the pullback in rate hike expectations contributed to the fall in global bond yields earlier on Wednesday.

But that was before the Fed.

Punchy upward revisions to U.S. policymakers’ median rate forecasts for the next couple of years tipped markets the other way – the dollar rebounded sharply, U.S. Treasury yields spiked to new multi-year highs, the yield curve flattened and stocks collapsed.

U.S. crude oil fell 1%, its biggest fall in a month – some relief for investors, who will also note that this was the first time in a month oil has fallen two days in a row.

For Asian markets, one of the most significant consequences of the Fed’s revisions is the dollar’s rise, most notably against the yen. The dollar hit an 11-month high above 148 yen, which Japanese policymakers will be paying close attention to.

Graphics are produced by Reuters.

The Bank of Japan meets on Friday, and a growing number of analysts were already expecting a signal that ultra-loose policy would soon end. A renewed slide in the exchange rate could raise those expectations even further.

What’s more, the yen sliding deeper into territory that prompted record yen-buying intervention from Japanese authorities late last year is bound to intensify speculation that a repeat is on the cards.

In that light, it is worth noting that Japan’s intervention on Sept. 22 last year was a day after the FOMC decision and revised forecasts. Will lightning strike twice?

The Asia and Pacific regional economic calendar on Thursday also includes second quarter GDP data from New Zealand – seen rebounding to +0.5% on a quarter-on-quarter basis and almost halving to 1.2% on an annual basis, according to a Reuters poll – and Hong Kong inflation for August.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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