Asia: Markets mixed ahead of Bank of Japan decision

ASIAN markets were mixed on Tuesday ahead of a much-anticipated Bank of Japan meeting that is expected to see it shift away from years of ultra-loose monetary policy.

The gathering in Tokyo is one of several at major central banks this week that will decide on interest rates, including the United States, United Kingdom and Australia.

While the rest of the world tightened policy to fight soaring inflation over recent years, the BoJ has refused to move away from its campaign of negative rates, letting bond yields move only in a narrow range and buying up risk assets.

That was kept in place to kickstart the Japanese economy, which has wallowed for decades in a cycle of stagnation and deflation.

But with inflation holding above officials’ two per cent target for nearly two years and wage negotiations last week seeing a huge bump in pay, analysts said the bank was set to alter course with a first rate hike in 17 years.

Stefan Angrick at Moody’s Analytics said the policy board was “almost certain to drop its negative policy rate on Tuesday” after the wage talks.

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“Japan’s in the ballpark of what’s needed to sustain two percent inflation domestically,” he added. And the wage result means “the BoJ will likely throw caution to the wind and move now”.

Still, there is a concern that a hike in rates could disrupt financial markets as investors switch their cash to Japan in search of better returns as other central banks prepare to begin cutting.

Still, Yue Bamba at BlackRock told Bloomberg Television that officials would “engineer a dovish hike”.

“We expect that they’re going to be very careful in their messaging to not disrupt markets and not alarm markets, and emphasise that this is going to be a highly gradual process, that they’re not rushing into anything.”

In early trade, Tokyo stocks were lower, while the yen weakened slightly against the dollar, with observers pointing out that the decision had largely been priced in by markets.

There were also losses in Hong Kong, Seoul and Taipei but Sydney, Singapore, Manila, Jakarta and Wellington edged up. Shanghai was flat.

Investors are also gearing up for the Federal Reserve’s latest policy decision on Wednesday.

While it is forecast to keep rates on hold at a two-decade high, it will release its “dot plot” outlook for the rest of the year, with the December report pointing to three cuts.

But with recent data suggesting inflation remains sticky - including consumer and wholesale prices last week - the economy in rude health and the labour market still strong, there is talk that the new guidance could point to just two.

Investors have revised their view lower consistently over recent months, with June pencilled in as the first likely move. AFP