The yen rose further against the dollar, while falling Treasury yields broadened an emerging-market currency rally to Asia after fresh data sustained expectations for the Federal Reserve to begin policy easing.
Stocks fluctuated in the region, with the yen’s rise to around 141 per dollar pressuring those in Japan, an export-oriented economy. Australian and South Korea shares rose, following a fourth day of gains on Wall Street. Hong Kong futures were higher.
The range-bound trading in equities suggests caution ahead of next week’s Fed policy meeting, after data showed Thursday that US producer price index picked up slightly in August after the previous month’s numbers were revised lower. Meanwhile, categories that feed into the Fed’s preferred inflation gauge were muted.
The latest figures did little to alter expectations that the Fed will trim rates when its monetary policy committee meets next week, but for some it kept alive the idea the first cut may be 50 basis points.
The 10-year Treasury yields shed three basis points in early Asian trading, weighing on the dollar as emerging Asian currencies including the Korean won carried over a rally from Latin America.
“We think PPI sustains a lingering possibility of a starter 50, which would take less risk with the soft landing,” said Krishna Guha at Evercore.
Thursday’s wholesale inflation data followed the more closely watched consumer price index, which showed underlying inflation accelerated in August. Yet policymakers have made it clear that they’re currently highly focused on softness in the labor market, which is more likely to drive policy discussions in the months ahead.
“With PPI basically repeating yesterday’s CPI reading and jobless claims in line with expectations, the decks have been cleared for the Fed to kick off a rate-cutting cycle,” said Chris Larkin at E*Trade from Morgan Stanley. “The markets are anticipating an initial 25 basis-point cut, but the discussion will soon turn to how far and fast the Fed is likely to trim rates over time.
BOJ Hike
In Japan, just over half of central bank watchers see authorities conducting their next rate hike in December, while none expects a policy move when the board meets next week, according to a Bloomberg survey.
In the past four weeks, five of nine board members have telegraphed their intention to raise rates again if the bank’s inflation outlook is realized. Market volatility in the days after the Bank of Japan’s July 31 rate hike hasn’t spooked policymakers enough to derail them from the normalization path.
“Chances are extremely low for a rate hike at this meeting,” Masamichi Adachi, chief Japan economist at UBS Securities, said. “It’s too early to discern the impact of the July rate hike and market rout.”
In Asia, data set for release includes Japan industrial production, trade balance figures for India and gross domestic product for Sri Lanka.
West Texas Intermediate, the US oil price, edged higher after rising more than 2% Thursday as storm Francine disrupted production in the Gulf of Mexico. Gold was little changed after touching an all-time high in the prior session.
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