TOKYO, January 17, 2025 (Reuters) — Asian stock markets edged lower on Friday, following losses in U.S. equities overnight, even as bond yields dropped amid renewed speculation that the Federal Reserve might cut interest rates in June. Despite stronger-than-expected economic data from China, regional markets struggled, with Japan’s Nikkei particularly hit by a rising yen and growing expectations for a Bank of Japan rate hike.
Japanese shares were among the worst performers, with the Nikkei 225 index on track for its worst week in three months. The yen’s rebound added pressure on export-heavy stocks, particularly in light of speculation that the Bank of Japan (BOJ) could raise rates during its upcoming meeting on January 24.
In contrast, Chinese stocks showed some resilience, bolstered by official figures revealing a 5.4% year-on-year expansion in China’s economy for the fourth quarter of 2024. This exceeded expectations and brought full-year growth in line with Beijing’s target of 5%. Mainland Chinese blue-chip stocks gained 0.3%, while Hong Kong’s Hang Seng index rose by 0.14%. The yuan also saw a slight appreciation, trading at 7.34 per dollar in offshore markets.
At the same time, regional equities faced headwinds, with MSCI’s broad Asia-Pacific index dropping 0.4%, while the world index dipped by 0.05%. Japan’s Nikkei dropped by 1.1%, and S&P 500 futures indicated a modest 0.1% gain, following a 0.2% decline in the cash market overnight.
Looking ahead, market activity is expected to remain subdued ahead of Martin Luther King Jr. Day in the U.S. on Monday and the upcoming inauguration of President-elect Donald Trump. This cautious sentiment follows strong earnings reports from U.S. banks earlier in the week, which had temporarily boosted market confidence.
“The market narrative has shifted back to fundamentals, with earnings reports proving resilient despite broader macroeconomic concerns,” said Kyle Rodda, senior analyst at Capital.com. “At the same time, the decline in bond yields and the dollar suggests that investor worries over inflation and prolonged interest rate hikes are easing.”
U.S. Treasury yields, which have been in decline, saw the ten-year yield drop to 4.6125%, having hit its lowest point since early January at 4.5880% on Thursday. This follows comments from Federal Reserve Governor Christopher Waller, who suggested that the Fed might still implement up to four rate cuts this year, depending on the state of the economy.
As traders adjust their expectations, the Fed’s June meeting is now viewed as a likely point for a quarter-point rate reduction. Meanwhile, in Japan, bond yields also eased in line with global moves, though comments from BOJ officials spurred speculation of a rate hike next week, with expectations of a 79% chance for a quarter-point increase.
In currency markets, the yen surged to a fresh one-month high of 154.98 per dollar, supported by the outlook for earlier Fed rate cuts. The U.S. dollar index, which tracks the greenback against a basket of major currencies, fell by 0.06% to 108.90, with the euro and British pound remaining relatively stable at $1.0308 and $1.2237, respectively.
The retreat in bond yields provided a boost to alternative assets. Bitcoin rose to $101,769.43, its highest level since January 7, while gold hovered near a one-month high at $2,714 per ounce. Speculation around Fed rate cuts also supported crude oil, with Brent crude futures edging up by 0.2% to $81.42 per barrel and U.S. West Texas Intermediate crude gaining 0.3% to $78.95 per barrel.
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