Asia: Stocks drop as BOJ rejecting helicopter money supports yen

[HONG KONG] Asian stocks pulled back from an eight-month high and the yen held gains as prospects for central bank stimulus cooled in Japan. Malaysia's ringgit fell to this month's low, while the yuan strengthened.

The MSCI Asia Pacific Index declined after US shares retreated from a record amid a mixed batch of US corporate earnings. Japan's Topix index dropped from a six-week high after central bank Governor Haruhiko Kuroda's opposition to so-called helicopter money became clear.

Malaysia's ringgit slipped for a fifth day as corruption probes into a state investment fund remained in the spotlight and oil traded below US$45 a barrel. The yuan rose for a fourth day as China issued 30-year sovereign bonds at the lowest cost since at least 2008.

Equity markets had been on a roll, gaining more than US$4.5 trillion in three weeks on speculation authorities in Asia and Europe will add stimulus to stoke inflation and growth, while positive surprises in US corporate results also supported the rally.

The gains drove global stock valuations to a one-year high, leaving the securities vulnerable to any disappointments on the policy and earnings fronts. Kuroda, in a BBC Radio interview recorded on June 17 and aired on Thursday, said there was no possibility of introducing helicopter money, which would involve the BOJ's direct financing of government spending.

Mr Kuroda's "comments will disappoint investors who had been selling the yen in anticipation of the Bank of Japan announcing helicopter money at its meeting next week," said Jasper Lawler, a London-based analyst at CMC Markets Plc.

"After the failure of its current quantitative easing program to boost inflation, helicopter money is one of the few remaining tools in the Bank of Japan's arsenal," he said, noting that Mr Kuroda may have changed his opinion since he made the remarks on June 17.

Preliminary gauges of this month's manufacturing activity in the euro area and the US are scheduled for release on Friday, while General Electric Co, American Airlines Group Inc and Thales SA are among companies reporting earnings. Finance chiefs from the Group of 20 nations are scheduled to hold weekend talks in China that are seen covering the weakening outlook for the global economy as well as exchange-rate policies.

The MSCI Asia Pacific Index was down 0.6 per cent as of 2:13 pm Tokyo time, trimming this week's advance to 0.4 per cent. The Topix dropped 1.3 per cent, leading declines among regional benchmarks.

Nintendo Co rose 1 per cent as Pokemon Go became available in Japan. The stock has almost doubled this month owing to the success of the game.

Futures on the S&P 500 declined 0.1 per cent after the gauge lost 0.4 per cent in the last session. So far, 115 of the benchmark's members have released quarterly results and 81 per cent of those beat analysts' profit estimates. Earnings are nonetheless falling for the fifth quarter in a row, the longest streak since 2009.

The yen rose 0.1 per cent to 105.70 per dollar, having surged 1 per cent on Thursday as Kuroda's remarks ruling out the prospect of helicopter money were broadcast. People familiar with the discussions at the central bank have indicated that an increasing number of officials are concerned about the sustainability of the current framework for massive monetary stimulus. Japan's currency is still down 0.8 per cent for the week.

The Australian and New Zealand dollars extended their weekly declines amid speculation central banks in both countries will cut interest rates from record lows. The Reserve Bank of New Zealand said Thursday further monetary easing is probably needed to boost inflation, while the Reserve Bank of Australia noted on Tuesday that the economy probably cooled last quarter and inflation is set to remain weak. The Aussie and the kiwi retreated at least 1.3 per cent this week, the biggest declines among 16 major currencies.

The Bloomberg Dollar Spot Index was poised for a third weekly gain as signs of improvement in the US economy revive expectations for interest-rate increases.

A report on Thursday showed sales of previously owned homes climbed to a nine-year high and futures traders are pricing in a 45 per cent chance the Federal Reserve will increase borrowing costs by December, up from 12 per cent at the start of the month.

Malaysia's ringgit slid 0.7 per cent, taking this week's loss to about 3 per cent. US prosecutors said they plan to seize assets after more than US$3.5 billion was misappropriated from 1Malaysia Development Berhad, a state development fund known as 1MDB that was previously headed by Prime Minister Najib Razak. Singapore and Switzerland said they confiscated assets in connection with the alleged fraud.

The yuan strengthened 0.1 per cent, headed for its first weekly gain in seven weeks amid speculation the central bank was seeking to limit losses. Chinese Premier Li Keqiang said Friday the nation's economy is growing steadily and the exchange rate will be kept stable at a reasonable level.

Oil was set for a weekly decline as the US heads toward the end of its summer-driving season with ample crude and motor fuel stockpiles. The price, which was little changed on Friday, fell 2.7 per cent this week to US$44.72 a barrel in New York.

"It's an inventory story," said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. "The summer drive-time hasn't been as strong as some had expected. There's more supply coming on and there are indications that the strength of the global economy is not there."

Copper fell 0.4 per cent in London, trimming its weekly advance to 0.8 per cent. Nickel and zinc retreated from their highest closes in at least 11 months once trading got under way on the London Metal Exchange, having been delayed owing to a technical problem. Gold fell 0.4 per cent, set for a second weekly loss.

Iron ore in China was headed for the biggest weekly loss in two months, sliding about 7 percent on concern a global supply glut will endure.

US Treasuries stabilised this week with the 10-year yield hovering around 1.55 percent. That compares with an all-time low of 1.32 per cent on July 7.

Ten-year sovereign bonds in Australia and New Zealand extended their weekly gains on Friday as prospects for monetary easing bolstered demand for the securities. Australia's yield dropped by eight basis points this week to 1.89 per cent and New Zealand's slid 14 basis points to 2.23 per cent.

China sold 30-year sovereign debt at a yield of 3.43 per cent, the lowest in Bloomberg data going back to 2008. Similar-maturity notes yield 2.27 per cent in the US and 0.26 per cent in Japan.

BLOOMBERG