Asian shares mostly fell Friday, tracking losses on Wall Street after Federal Reserve Chair Jerome Powell indicated increases in interest rates must be faster to fight inflation.
Major indexes cascaded downward in Asia. Japan's consumer price index data showed an increase for the seventh consecutive month, although the results were within market expectations.
Japan’s benchmark Nikkei 225 dipped 1.6% in afternoon trading to 27,106.56. Australia’s S&P/ASX 200 dropped 1.6% to 7,473.30. South Korea’s Kospi shed 0.7% to 2,707.96. Hong Kong’s Hang Seng slipped 0.2% to 20,638.33, while the Shanghai Composite recouped earlier losses to edge up 0.4% to 3,091.79.
Japanese Finance Minister Shunichi Suzuki made comments seen as a slightly more forceful pushback against “sudden movements" in exchange rates after meeting with Treasury Secretary Janet Yellen on the sidelines of G-20 finance ministers’ meetings.
The U.S. dollar fell to 127.91 Japanese yen early Friday from 128.36 yen. The euro cost $1.0850, inching up from $1.0840.
An intervention, particularly from the U.S., may be coming, said Stephen Innes at SPI Asset Management.
"The BOJ is likely to remain steadfast in its approach to ultra-dovish monetary policy relative to its peers that implicitly welcomes yen depreciation,” he said, referring to Japan's central bank.
But the main cause of the dollar's surge against the yen and other currencies — a growing gap between interest rates in Japan and some other Asian countries and rising U.S. interest rates — is unlikely to abate.
In a panel discussion held by the International Monetary Fund, Fed Chair Jerome Powell said the Fed must move faster than it has previously to tackle high inflation, which suggests sharp interest rate increases are likely in coming months.
Powell's remarks helped send stocks lower on Wall Street. The S&P 500 closed 1.5% lower at 4,393.66 after having been up 1.2% in the early going. The Dow Jones Industrial Average fell 1% to 34,792.76 and the Nasdaq slid 2.1% to 13,174.65.
Smaller company stocks fell more than the broader market. The Russell 2000 gave up 2.3% to 1,991.46.
“Under the weight of war, global energy and food risk, equity markets may well begin to buckle, unfortunately in a rather spectacular manner. We have been saying for some time that the only way to protect your investment portfolio is to be cautious on equities and buying gold, oil and the U.S. dollar,” said Clifford Bennett, chief economist at ACY Securities.
The broader market has had a choppy week as investors review the latest round of corporate earnings amid lingering concerns about rising inflation and the Fed’s shift away from an ultra-low interest rate policy.
The Fed has already announced a quarter-percentage point rate hike and Wall Street expects a half-percentage rate hike at its next meeting in two weeks. Other central banks have also moved to raise interest rates to try and temper the impact of rising prices on businesses and consumers.
During the panel discussion Thursday, Powell suggested that “there’s something in the idea of front-loading” aggressive rate hikes as the Fed grapples with inflation that has reached a four-decade high.
That suggests a half-point rate increase could be on the table when Fed officials hold their next interest rate and economic policy meetings May 3-4, Powell said. In the past, the Fed has typically raised its benchmark short-term rate by more modest quarter-point increments.
Markets are also closely watching the presidential runoff election in France this weekend. President Emmanuel Macron appears to have widened his lead over far-right challenger Marine Le Pen, easing some worries about major change in Europe. Macron has received support from the center-left leaders of Germany, Spain and Portugal, who have urged French voters to choose him.
On Wall Street, more than 80% of the stocks in the S&P 500 fell Thursday, with technology stocks accounting for a big share of the decline. Pricey valuations for many of the bigger technology companies give them more sway in directing the broader market higher or lower. Microsoft fell 1.9% and chipmaker Nvidia slid 6%.
American Airlines gained 3.8% after telling investors it expects to turn a profit in the second quarter as more people return to travel.
Tesla rose 3.2% after after the maker of electric cars and solar panels reported strong sales and a seven-fold increase in profits despite global supply chain kinks.
Bond yields have been gaining ground as investors prepare for higher interest rates. The yield on the 10-year Treasury rose significantly to 2.97% Friday from 2.92% late Thursday, hovering near its highest levels since late 2018.
Benchmark U.S. crude fell $1.37 to $102.42 a barrel. It rose 1.6% on Thursday and is up roughly 40% for the year. That has made gasoline more expensive, which cuts deeper into consumers' wallets. Brent crude, the international standard, lost $1.39 to $106.94 a barrel.
