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  3. Bank of Japan ups rates to 31-year high

    The Bank of Japan raised interest rates to a 31-year high on Friday and signalled its readiness to keep pushing up borrowing costs, joining other major central banks in fighting persistent inflation pressures driven by soaring oil costs. The widely expected move, which was the first hike in three months, takes interest rates closer to levels the central bank deems neutral to the economy, marking another step away from decades of ultra-low rates that cemented the yen's status as a cheap global funding currency. It follows rate hikes by its European and US peers, highlighting central bank's focus on global inflation risks caused by the Iran war-induced energy cost spike, expansionary fiscal policies and surging demand for AI investment. At the two-day meeting ending on Friday, the bank raised its policy rate to 1.25 percent from one percent by a 7-2 vote. Doveish board members Toichiro Asada and Ayano Sato were the dissenters. "Wholesale inflation remains elevated and price pressures from business-to-business trading has started to spill over into consumer prices," the bank said in a statement announcing the decision. "Underlying inflation has been approaching two percent" as companies continue to pass on the cost of higher wages and inflation expectations keep heightening, it said. While economic and price developments are moving in line with the bank's baseline forecast, there was a risk of underlying inflation deviating from its two percent target, it said. Markets are focusing on bank governor Kazuo Ueda's news conference, scheduled for later on Friday for clues on the pace and timing of future rate hikes. A hike to 1.25 percent brings the rate within the bank's estimated 1.1 percent to 2.5 percent range of Japan's nominal neutral rate, or the level that neither cools nor overheats growth, raising questions about how far it could eventually hike rates. But the bank still lags global peers with its policy rate lower than that of the European Central Bank, which raised its key rate last week to 2.5 percent, and the Fed's 3.75 percent to four percent range. The still-wide rate divergence may keep the yen weak against other currencies, pushing up import costs and broader inflation. (Reuters) Edited by Tony Sabine

  4. HK, regional markets up as action looms on inflation

    Asian stocks rose and the US dollar held its ground on Friday as investors contended with global policymakers ramping up efforts to rein in inflation, with a dip in oil prices improving sentiment ahead of an expected rate hike from the Bank of Japan In Hong Kong, the benchmark Hang Seng Index opened up 119 points, or 0.5 percent, at 24,723. The China enterprises index was up 27 points, or 0.3 percent, at 8,202 while the tech index was up 17 points, or 0.41 percent, at 4,328. Up north, the benchmark Shanghai Composite Index opened up 16 points, or 0.42 percent, at 3,891. The Shenzhen Component Index was 154 points, or 1.15 percent, higher at 13,563 while the ChiNext Index was 53 points, or 1.61 percent, up at 3,351. The gains came with monetary policy response being in focus this week as the over six-month-long war in the Middle East shows few signs of ending, keeping oil prices above US$100 per barrel and fanning inflation fears across the globe. Hopes of alternate ways for oil supply from the Middle East to reach markets pushed Brent crude futures down one percent to US$103.77 a barrel even as concerns about strikes between Saudi Arabia and Yemen's Houthis lingered. Traders also took their cues from a rally on Wall Street overnight, led by beaten-down tech stocks. Bond prices steadied after another brutal selloff this week that took the 10-year US Treasury beyond 5 percent to its highest since 2007. It was last at 4.936 percent. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.55 percent. In Tokyo, the Nikkei opened 545 points, or 0.85 percent, higher at 64,681 before losing some ground to be at 64,584 at one stage before lunch. In Seoul, the Kospi surged 170 points, or 2.54 percent, to 6,885 before, also like the Nikkei, wandering down to be at 6,851 at one stage before noon. The Bank of England warned on Thursday it may have to hike if the Middle East war drags on while the Federal Reserve raised rates on Wednesday for the first time in three years and flagged more in the coming months. The European Central Bank last week also cautioned the need for further tightening as it raised rates. "If bonds reverse and yields push higher again, volatility could quickly return," said Chris Weston, head of research at Pepperstone. "For now, though, the buyers have regained some control, and the price action suggests the post-Fed risk-off move has lost momentum." The yen softened to 156.23 per US dollar in early trading as traders braced for the policy decision from the Japanese central bank later in the day, with the Bank of Japan set to raise interest rates to a 31-year high and pledge to deliver more to counter inflation risks. "The key as such for markets is not just whether Bank of Japan hikes, but also how it hikes and the communication by governor Kazuo Ueda on the path moving forward," said Michael Wan, currency strategist at MUFG. (Reuters/Xinhua) Edited by Tony Sabine