Asian stocks tumble amid Bank of Japan policy shift speculation

Investor anticipation for a potential shift from the Bank of Japan's (BoJ) ultra-easy monetary policy has led to a downturn in Asian stocks, with the MSCI's broadest index of Asia-Pacific shares outside Japan falling 0.4% to reach a 10-month low today, Friday. This comes amid speculation that BoJ Governor Kazuo Ueda may provide some forward guidance on future rate hikes, despite no policy change being expected. This speculation has been fueled by Japan's inflation rate exceeding targets for 17 consecutive months and the yen's depreciating value playing a role in price increases.

The yen recovered from an 11-month low of 148.46 per dollar to trade at 147.63 today, and Japanese government bond yields reached a decade high of 0.745%. Simultaneously, Japan's Nikkei fell by 1%. Meanwhile, the Federal Reserve's recent increase in their projections for 2024 rates has led investors to reduce their expectations for rate cuts next year, pushing two-year yields above 5.2%. This has resulted in the S&P 500 falling by 1.6% overnight and a total of 2.7% over the week.

In contrast to the BoJ's potential policy shift, the Bank of England (BoE) made the decision to maintain interest rates, marking the first time this has happened in almost two years. This decision contributed to the sterling hitting a six-month low. Despite this, BoE Governor Andrew Bailey emphasized that their work is not yet complete.

In other European central bank actions, Sweden and Norway have announced interest rate hikes of 25 basis points, indicating more could be on the way. In contrast, the Swiss National Bank's decision to hold rates led to a 0.7% drop in the franc against the dollar and a 0.6% fall against the euro.

Expectations of sustained high U.S. interest rates have bolstered the dollar, which hit a six-month high against the euro at $1.0671. Meanwhile, India's rupee experienced an uptick in offshore trade following JPMorgan's announcement that it would include Indian bonds in its emerging markets debt index, paving the way for substantial foreign inflows.

In the commodities market, a rise in oil prices has added to investor unease, as it is likely to extend the period of inflation. Brent crude futures remained stable at $93.51 a barrel today, marking an approximately 8% increase for September.

European futures experienced a 0.6% decline, while S&P 500 futures remained steady in Asia. Benchmark 10-year Treasury yields reached a 16-year high of 4.50% in Tokyo today.

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