Asian stocks pulled back as investors took a breather after three days of gains that were driven by bets on a Federal Reserve interest-rate cut next month. The yen jumped following comments from US Treasury Secretary Scott Bessent.
The MSCI Asia Pacific Index fell 0.2% as Japanese stocks slid 1.1%. The yen gained 0.5% against the dollar after Bessent said the Bank of Japan is falling behind the curve in addressing inflation and he expected it hike rates. The dollar fell versus all its Group-of-10 peers after Bessent also pushed for the Fed to ease policy. Bitcoin reached an all-time high, while Treasuries were little changed.
“When Bessent talks, markets listen, and now he wants a stronger yen,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “At least in recent days, the market is seemingly taking more notice on Bessent’s words, with an underlying theme of pushing the dollar down.”
A benign US inflation reading earlier this week cemented expectations for a quarter-point Fed cut next month, sending stocks to record highs amid low volatility. External pressure on the Fed is also coming from President Donald Trump’s administration with Bessent making his most explicit demand yet for the central bank to execute a cycle of cuts.
Bessent — who suggested the Fed’s benchmark rate ought to be at least 1.5 percentage points lower than it is now — said officials might have cut rates if they’d been aware of the revised data on the labor market that came out a couple of days after the latest meeting.
“We could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” he said in a television interview on Bloomberg Surveillance Wednesday.
The Fed’s Open Market Committee last month led by Chair Jerome Powell kept its benchmark in a target range of 4.25% to 4.5%.
“There is scope for the FOMC to take a more dovish tone next year, particularly if Powell chooses to give up his position as governor once his stint as chair comes to an end,” Jane Foley, strategist at Rabobank in London, wrote in a note.
On Japan, Bessent said the BOJ is going to be hiking rates as the country needs to get “inflation problem under control.”
In the latest Bloomberg survey of economists watching the BOJ, around 42% of respondents said they expected a hike in October, with a third expecting a move in January. The BOJ is expected to stand pat when it next sets policy on Sept. 19.
Meanwhile, Trump, who has also criticized the Fed for not easing rates, said he may name the next Fed chair “a little bit early” and added that he was down to three or four potential candidates as he looks for a successor to Powell.
A report on producer prices due Thursday will offer insights on additional categories that feed directly into the Fed’s preferred price gauge — which is scheduled for later this month.
“As the market continues to digest the shift in the trajectory of the real economy following the combination of July’s inflation and employment data, it follows intuitively that the question has become: how large of a cut should Powell deliver?” said Ian Lyngen at BMO Capital Markets.
Elsewhere, geopolitical tensions remained on edge after the US president warned he would impose “very severe consequences” if Vladimir Putin didn’t agree to a ceasefire agreement later this week, following a call with European leaders ahead of his meeting with the Russian president.
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