US dollar rises, stocks slip in Asia after Yellen comments

[HONG KONG] The dollar climbed further against emerging currencies Friday while most Asian stock markets retreated after Federal Reserve boss Janet Yellen said she expects a US interest rate hike by the year's end.

Ms Yellen's comments were the first since last Thursday when she rattled nerves by saying the Fed had held rates because of worries about the impact on the US economy of a growth crisis in China and other developing nations.

But while economists said the speech provided a little more clarity on the central bank's timetable for normalising monetary policy, the prospect of higher borrowing costs will dent investment opportunities, weighing on stocks.

The yen ticked higher despite consumer prices falling for the first time in two years and a pledge by Japanese Prime Minister Shinzo Abe for a fresh drive to boost the economy.

On Thursday, in a closely followed speech, Ms Yellen said improvements in the US economy "will likely entail an initial increase in the federal funds rate later this year".

She added the bank would continue to monitor weaker activity overseas but the impact will probably not be "large enough to have a significant effect on the path for policy".

Her remarks were aimed at soothing global markets that tumbled in reaction to Ms Yellen's statement soon after the bank's policy meeting last week, which raised questions about the US recovery.

"Prospects for the US economy generally appear solid," she said, citing monthly job gains and other upbeat data.

The increased likelihood of a rate rise sent the dollar higher as investors look to shift out of emerging markets to find better and safer return in the United States.

South Korea's won lost 0.46 per cent, the Indonesia rupiah eased 0.12 per cent and the Malaysian ringgit was down 0.40 per cent.

The resources-reliant Australian dollar - already under pressure owing to China's weakness - fell 0.36 per cent.

"Yellen's words continue to support bets for a stronger dollar," said Jeon Seung Ji, a currency analyst at Samsung Futures in Seoul, told Bloomberg News.

Regional markets also retreated, with Hong Kong down 0.33 per cent, Shanghai 0.76 per cent down and Tokyo shedding 0.06 per cent. Sydney was 0.50 per cent off and Seoul eased 0.78 per cent.

"Of course, markets are unusually twitchy at the moment and that's not going to go away any time soon. The Fed will only be raising rates when they're confident growth is on a sustainable track," Shane Oliver, a global strategist at AMP Capital Investors Ltd in Sydney, said.

However, fears that a US rise will fuel fresh turmoil on world markets increased demand for safe-haven assets, pushing the yen higher.

In morning trade the dollar eased to 120.10 yen from 129.29 yen in New York, while the euro was at 134.33 yen from 134.36 yen.

Traders seemed unmoved by Mr Abe's pledge to refocus on his "Abenomics" growth project and try to boost the economy by 20 per cent but offered no specific measures on how he would achieve that goal.

His comments come as his policy blitz of higher spending, huge monetary easing and structural reforms come into question with the economy still struggling with tepid growth.

It took another blow Friday when data showed prices slipped in August for the first time since April 2013 - highlighting the job authorities have in ending years of deflation. It will also put fresh pressure on the Bank of Japan to ramp up its already huge stimulus programme.

Marcel Thieliant from Capital Economics said in a commentary: "A sluggish economic recovery and anaemic wage growth suggest that price pressures are unlikely to strengthen much further form here on."

AFP