Stocks slide as higher-for-longer sinks in; yen drops on BOJ

SINGAPORE, Sept 22 (Reuters) – Stocks eyed their worst week in a month on Friday and Treasuries hit decade lows as investors hunkered down for U.S. interest rates to stay high for some time, while the yen was pinned near an 11-month trough after the Bank of Japan left short-term rates below zero.

Benchmark 10-year U.S. Treasury yields hit a 16-year high of 4.508% in Tokyo. Thirty-year yields hit their highest in a dozen years.

MSCI’s index of global equities (.MIWD00000PUS) was flat, with a 2.6% drop for the week so far.

MSCI’s index of Asia-Pacific shares ex-Japan (.MIAPJ0000PUS) touched a 10-month low before bouncing 0.5% on vows in China to support private business. It is down 2.8% this week.

The Bank of Japan (BOJ), as expected, maintained super-low interest rates and left its outlook and yield control policy unchanged to signal it was in no hurry to end massive stimulus.

The yen fell about 0.4% to 148.12 per dollar after the announcement but stopped short of Thursday’s 11-month low, with traders extra wary of intervention after the BOJ noted it was watching the impact of FX moves on Japan’s economy.

“It just puts markets further on notice that it’s not a green light to be buying dollar/yen with impunity,” said Ray Attrill, head of FX at National Australia Bank in Singapore.

Japan’s Nikkei (.N225) pared losses of as deep as 1% to trade 0.2% lower in the afternoon.

European stock futures and FTSE futures also pared losses to trade about 0.2% lower in Asia. S&P 500 futures rose 0.2%.

Ten-year Japanese government bond futures rallied though cash yields were little changed and near decade highs at 0.74%.

BOJ Governor Kazuo Ueda is due to give a press conference at 0630 GMT and is sure to be asked whether the sliding yen might hasten a policy shift and to elaborate on recent remarks suggesting that conditions for rate hikes might arrive by year’s end.

“Of course, there is no way that the BOJ will respond to weakening yen by raising interest rates or other monetary policy measures, but it will be interesting to see how much caution the BOJ takes with regard to the current financial markets,” said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corporation in Tokyo.

TURNING POINTS

The BOJ decision almost rounds out the week for major market events, though British and European PMIs are due later as are speeches from U.S. Federal Reserve officials Mary Daly, Neel Kashkari, Susan Collins and Lisa Cook.

The Fed held rates this week, but traders heeded its pushback on bets for swift cuts in 2024 and were sellers along the U.S. yield curve.

Fed members lifted their median projection for the funds rate in 2024 by 50 basis points to 5.1% and traders shaved about 15 bps from implied futures pricing, which has rates at 4.7% at the end of next year.

Central banks in Sweden and Norway announced 25 basis-point hikes with the prospect of more to come.

Yet the Bank of England, in a split decision, left rates on hold for the first time in nearly two years, sending sterling to a six-month low, while the Swiss franc fell sharply after a surprise hold on rates from the Swiss National Bank.

“It’s a lot of mixed messages and stories, and often you get those around turning points,” said Craig Ebert, senior economist at BNZ in Wellington.

In foreign exchange markets, the dollar has been buoyant as markets struggle to be certain that the Fed has finished hiking. The euro traded under pressure at $1.0655 in Asia, not far from Thursday’s six-month low of $1.0617.

Oil has also been in the spotlight this week as rising prices have added to worries of resurgent inflationary bursts that will keep rates elevated for longer. At $93.89 a barrel, Brent futures are up 8% this month.

In emerging markets, Indian bonds and the rupee rallied after JPMorgan said it would add Indian debt to its widely tracked emerging markets index, setting the stage for billions of dollars in foreign inflows.

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