Asia: Stocks rise ahead of Yellen speech as Japan shares advance

[SYDNEY] Asian stocks rose, with the benchmark equities index heading toward its first weekly gain in five weeks, as investors awaited comments from the head of the Federal Reserve. Japanese shares climbed amid speculation the nation will delay a sales tax increase.

The MSCI Asia Pacific Index gained 0.3 per cent to 127.76 as of 9:08 am in Tokyo. The gauge is down 2.6 per cent this month as investors' anxiety over the Fed's plans to raise interest rates as early as next month offset increasing signs of strength in the world's biggest economy. Fed chair Janet Yellen is due to speak after Asian markets close on Friday at an event in Massachusetts.

"We are still a little cautious," Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about US$7.2 billion, said by phone.

"Yellen is likely to continue with the rhetoric of wanting to hike and that's their plan. Equity markets still offer value on a medium-term basis and it's certainly the only place where you're getting any sort of yield. We'd welcome a pullback because that would give us a chance to do some buying at more reasonable prices."

Asian equities are heading for a 1.7 per cent increase this week after dropping 6.4 per cent from an April high through last week. Investors have been whipsawed this year, with the regional gauge slumping 14 per cent through a February low on concern a devaluation of the Chinese yuan would curb global growth and amid prospects for higher US borrowing costs.

It then rallied almost 20 per cent through this year's peak in April before retreating again.

Policy makers project two US rate boosts this year, and Ms Yellen could use Friday's appearance to signal that the Fed's meeting next month is in play. Data Thursday provided little clarity as to whether the world can withstand higher interest rates, with US jobless claims falling for a second week, pending home sales rising the most since 2010, and orders for business equipment unexpectedly declining for a third month.

Odds of the Fed raising benchmark interest rates at its June meeting have pulled back to 28 per cent, the same level as a week ago and down from 34 per cent on Wednesday, while the probability of a move in July remains above 50 per cent.

Japan's Topix index gained 0.4 per cent following media reports Prime Minister Shinzo Abe has decided to delay an increase in the sales tax. The premier made the decision based on the global economic slowdown and the impact of last month's Kumamoto earthquake, the Asahi newspaper said.

Japan is seeking to add a warning that the global economy is at risk of "falling into a crisis" to the final Group of Seven leaders' communique to be released Friday, according to a copy of a draft obtained by Bloomberg News.

Data on Friday showed Japan's consumer prices in April dropped for a second month as central bank governor Haruhiko Kuroda struggles to spur inflation with record asset purchases and negative interest rates. The data is the final set of inflation indicators to be released before the BOJ's board meets on June 15-16.

Australia's S&P/ASX 200 Index climbed 0.4 per cent, New Zealand's S&P/NZX 50 Index added 0.3 per cent and South Korea's Kospi index advanced 0.3 per cent.

Futures on Hong Kong's Hang Seng Index and the Hang Seng China Enterprises Index of mainland firms listed in the city both added 0.1 per cent in most recent trading.

Futures on the S&P 500 Index increased 0.1 per cent after the underlying gauge closed little changed Thursday. Equities struggled to drive higher in light trading as investors stepped back to survey a two-day advance that lifted the S&P 500 more than 2 per cent in the gauge's first back-to-back gains in two weeks.

BLOOMBERG