Asian investors jockeyed for position ahead of a much-anticipated speech by Federal Reserve boss Jerome Powell later Friday, as the dollar weakened amid speculation about how big an expected interest rate cut next month could be.
There was also a focus on Tokyo, where the head of Japan's central bank was appearing in front of lawmakers for the first time since a surprise rate hike and hawkish comments helped spark turmoil on world markets.
While a cut is considered virtually inevitable in September, traders remain edgy in the lead-up to Powell's speech at the annual symposium of central bankers in Jackson Hole, Wyoming, amid fears he might not be as dovish as hoped.
He had already put markets on alert for a reduction after saying in recent weeks that one could come "as soon as" September and that inflation did not have to hit decision-makers' two percent target before they moved.
But a massive miss on non-farm payrolls (NFP) for July and other signs that the labour market has softened have sown a seed of worry among some that the US economy was in danger of slipping into recession, even after a string of other data suggesting otherwise.
Data released Thursday showing a small rise in jobless claims, a weakening of factory activity, and a jump in home sales did little to change minds.
Powell's speech comes after three Fed officials said they wanted to see more data before agreeing to a rate cut.
"He will likely signal that a rate cut is coming soon," Deutsche Bank chief US economist Matthew Luzzetti told AFP. "However, I think he will not indicate the probable size of that rate cut."
Markets have priced in about 100 basis points of reductions before the end of the year, though there is much debate on how big the first will be, with some keen on seeing a 50-point move next month.
But analyst Stephen Innes said: "There's a decent chance that those hoping for Chair Powell to wave the '50 basis points rate cut' flag might face some dovish disappointment.
"This is likely act one, with the real plot twist waiting in the wings when the NFP drops.
"Given how the weekly jobs data has been holding up, there's a good chance the market could scale back the 100 basis points of cuts currently baked into the 2024 swap curve."
Wall Street's three main indexes ended in the red, having stumbled slightly this week following an eight-day rally.
Asia also stuttered.
Hong Kong slipped, with tech firms among the big losers following their US counterparts.
That came even after market heavyweight Alibaba said it would upgrade its shares in the city to primary status, allowing it to join a connect scheme with the mainland and open it up to more than 200 million Chinese investors.
Some estimates say it could rake in as much as US$19.5 billion from the move, according to Bloomberg News.
There were also losses in Shanghai, Tokyo, Sydney, Singapore, Taipei and Seoul on Friday, while Wellington and Jakarta edged up.
The yen rose after Bank of Japan boss Kazuo Ueda indicated to lawmakers in Tokyo that it could hike rates again, even after the turmoil caused by its most recent move.
Global equities tumbled and the yen soared earlier this month when officials unveiled a surprise increase, just hours before the Fed indicated it was all but set to begin cutting.
That sparked a massive unwind of the so-called "yen carry trade" in which investors use the cheaper currency to buy assets with better returns such as stocks.
The yen has been under pressure for years -- and hit a nearly four-decade low last month -- owing to the BoJ's refusal to back off years of ultra-loose monetary policy even as other central banks hiked rates.
Ueda's testimony on the event came as data showed core Japanese inflation had picked up in July.
Tokyo - Nikkei 225: DOWN 0.2 percent at 38,117.44 (break)
Hong Kong - Hang Seng Index: DOWN 0.8 percent at 17,503.96
Shanghai - Composite: DOWN 0.2 percent at 2,842.08
Dollar/yen: DOWN at 145.64 yen from 146.27 yen on Thursday
Euro/dollar: UP at $1.1124 from $1.1115
Pound/dollar: UP at $1.3101 from $1.3092
Euro/pound: UP at 84.91 pence from 84.87 pence
West Texas Intermediate: FLAT at $73.00 per barrel
Brent North Sea Crude: FLAT at $77.19 per barrel
New York - Dow: DOWN 0.4 percent at 40,712.78 (close)
London - FTSE 100: UP 0.1 percent at 8,288.00 (close)
