BENGALURU: Most Asian currencies eased against the US dollar on Tuesday, while equities fell, as the focus shifts towards other global central bank meetings after the Bank of Japan (BOJ) ended eight years of negative interest rates.
The MSCI International Emerging Market Currency Index slipped 0.2% to hit its lowest since March 1, while the MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9% to its lowest since March 7.
The BOJ took the spotlight for the day after it decided to end its negative interest rate policy and abolished its yield control curve in a landmark shift from its huge stimulus programme. This was Japan’s first interest rate hike since 2007.
The Japanese yen slipped as much as 0.9% while stocks ended the session 0.7% higher.
“With wage growth peaking this year, we still expect inflation to fall below the BOJ’s target by the end of the year, so the Bank won’t feel the need to lift its policy rate any further,” said Marcel Thieliant, head of Asia-Pacific for Capital Economics.
Amongst other equities, Seoul stocks were the biggest laggards, falling 1.1%. Philippine stocks, on the other hand, advanced 0.4%.
In currencies, the South Korean won depreciated 0.5% against the greenback to a roughly one-month-low, while the Taiwanese dollar slipped 0.4% to hit its lowest since Nov. 20, 2023.
The US dollar index was up 0.2% at 103.82 ahead of the start of the US Federal Reserve’s policy meeting, arguably the most important among the slew of central bank meetings this week, including in Taiwan, Indonesia, Turkey, Russia, Brazil and Mexico.
Most central banks are expected to hold rates steady, with the market’s attention on policymakers’ commentary and updated rate projections for the rest of the year, especially at the Fed.
Traders are pricing in a 99% certainty that the Fed will stand pat at its March meeting on Wednesday and a 55.2% chance of a rate cut in June, according to the CME FedWatch tool.
Eugene Leow, a senior rates strategist at DBS, said there is room for calibrated rate cuts in the second half of the year as the Fed gets more confident with the inflation trajectory.
“This will also set the tone for better sentiment towards EM assets. EM central banks like BI (Bank Indonesia) may also feel more confident about cutting rates,”
The Malaysian ringgit depreciated 0.3% while the Indonesian rupiah slipped 0.2%. Both hit their lowest level since March 6.
Kuala Lumpur stocks slipped 0.3% while stocks in Jakarta were up 0.5%.