Asia: Stocks swing after four weeks of losses as Fed rates loom

[SYDNEY] Asian stocks fluctuated as investors await further signs from the Federal Reserve on when the US will raise borrowing costs. Japanese shares slid amid tense talks between finance chiefs from the world's biggest advanced economies over the strength of the yen.

The MSCI Asia Pacific Index slid 0.1 per cent to 125.53 as of 9:02 am in Tokyo after earlier rising as much as 0.1 per cent. The regional benchmark equities gauge fell for a fourth week through May 20 as minutes of the Fed's April meeting indicated most policy makers thought a rate increase in June would be appropriate should the US economy continue to improve.

Stronger-than-expected American economic data also bolstered the case for tighter policy and odds of an increase in US borrowing costs next month are now at 28 per cent, up from 4 per cent a week ago.

"Expect short-term share market volatility to remain high," said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd, which oversees about US$120 billion.

"Fed worries are coming back into focus and this could mean more uncertainty around the US dollar, the yuan and commodity prices. However, beyond near-term volatility, we still see shares trending higher."

This year has been a wild ride for investors in Asia-Pacific equities. The regional index began the year with a 14 per cent slump through a February low on concern a devaluation of the Chinese yuan would curb global growth and amid prospects for a US rate increase. It then rallied almost 20 per cent through this year's peak in April before retreating again.

Fed Bank of Boston President Eric Rosengren, who votes on policy changes, told the Financial Times at the weekend that he's ready to back a rate increase. St Louis Fed President James Bullard, who also votes this year, speaks in Beijing Monday, while John Williams of the San Francisco Fed, who doesn't vote until 2018, is due to give an address in New York. Philadelphia Fed chief Patrick Harker delivers two speeches this week, while Fed Chair Janet Yellen will speak at Harvard University on Friday.

Japan's Topix index lost 0.5 per cent. The yen gained against the US dollar on Monday to trade at 110.02 after falling 0.2 per cent Friday. Exports fell for a seventh consecutive month in April as the yen strengthened, underscoring the mounting challenges to Prime Minister Shinzo Abe's efforts to revive economic growth. Overseas shipments dropped 10 per cent while imports declined 23 per cent.

G-7 Clash

Japan and US finance chiefs clashed at the Group of Seven meeting over the weekend. The biggest source of tension was the strong yen, with Japanese officials concerned about the currency's impact on exports. Finance minister Taro Aso signaled a willingness to take action against "disorderly" moves.

US Treasury Secretary Jack Lew was unsympathetic, saying there had to be "a pretty high bar" for intervention.

Australia's S&P/ASX 200 Index added 0.1 per cent and New Zealand's S&P/NZX 50 Index was little changed. South Korea's Kospi index advanced 0.2 per cent.

E-mini futures on the S&P 500 were little changed after the underlying US equities gauge advanced 0.6 per cent Friday. The measure rebounded from a seven-week low, led by a rally in technology shares.

BLOOMBERG