TOKYO — Asian stocks were mixed on Thursday after the Federal Reserve raised its key interest rate by three-quarters of a point and signaled that further rate hikes were coming to fight inflation.
Wall Street rallied on Wednesday after the Fed’s biggest hike since 1994, as investors welcomed comments from Chairman Jerome Powell suggesting future rate hikes could be more modest. The larger-than-usual rate hike had also been predicted for weeks and came as no surprise.
The Bank of Japan is holding a two-day policy meeting starting Thursday. Japan’s central bank is under pressure to act given downward pressure on the yen from rate hikes in the US and ultra-low rates in Japan.
Investors sell yen and buy dollars in anticipation of higher returns on dollar-denominated holdings. Japanese politicians and the head of the central bank have expressed concerns about the decline in the yen, but no drastic policy change is expected.
On Thursday afternoon, the US dollar rose slightly to 134.19 Japanese yen from 133.82 yen. It recently surpassed 135 yen, the highest level in 20 years. The euro traded at $1.0431, down from $1.0447.
Japan’s benchmark Nikkei 225 added 0.5% in afternoon trade to 26,453.91. Australia’s S&P/ASX 200 shed earlier gains, falling nearly 0.2% to 6,591.10. The South Korean Kospi rose almost 0.1% to 2,448.65. Hong Kong’s Hang Seng fell 1.3% to 21,029.07, while the Shanghai Composite fell 0.6% to 3,286.60.
Japan’s finance ministry reported a trade deficit of nearly 2.4 trillion yen ($17.9 billion) last month, its 10th consecutive month of red ink. Japan racked up its highest imports for the month of May since 1979, as soaring energy prices and a weak yen sent import values skyrocketing. Resource-poor Japan imports almost all of its energy.
On Wall Street, the S&P 500 climbed 1.5% to 3,789.99 after riding a roller coaster immediately after the Fed’s latest decision.
In the bond market, Treasury yields fell after Powell hinted at lower rate hikes later this year. Earlier this week, yields hit their highest levels in more than a decade on expectations of a more aggressive Fed.
The Fed is “not trying to cause a recession now, let’s be clear about that,” Powell said. He called Wednesday’s surge “front-loading.”
The two-year Treasury yield fell to 3.21% from 3.45% on Tuesday night, with the biggest move coming after Powell said rate hikes of 0.75 percentage points would not be common. . The 10-year Treasury yield fell to 3.34% from 3.48%.
The Dow Jones Industrial Average oscillated between gains and losses before ending up 1% at 30,668.53. The Nasdaq composite jumped 2.5% to 11,099.15.
The S&P 500 fell into a bear market earlier this week and Wednesday’s gain was its first in six days.
Some analysts have warned that the recovery could be short-lived given the depth and breadth of inflation that has seeped into the economy.
All manner of investments, from bonds to bitcoin, have fallen this year as high inflation forces central banks to quickly remove support buoyed under markets at the start of the pandemic.
Even without a recession, higher interest rates hurt investment prices. The hardest hit were those that soared the most in the easy money era of ultra-low interest rates, including high-growth tech stocks and cryptocurrencies.
The economy is still largely resilient amid a booming labor market, but it has recently shown signs of distress. US retail sales unexpectedly fell in May from April.
Cryptocurrency prices continued to fall, and bitcoin fell to $20,087.90, nearly 71% below its all-time high of $68,990.90 set late last year. It was down almost 1% at $21,770 in afternoon trading, according to CoinDesk.
Powell said on Wednesday the Fed was moving “quickly” to bring rates closer to normal levels after last week’s stunning report showed consumer inflation unexpectedly accelerated last month. This dashed hopes on Wall Street that inflation may have already peaked.
The war in Ukraine has helped push up oil prices as the region is a major energy producer. COVID infections in China, meanwhile, have shut down factories and disrupted supply chains. All of this has helped send the S&P 500 down more than 20% from its all-time high in early January, putting Wall Street in what investors are calling a bear market.
Many of these concerns are still present, which will likely keep markets volatile.
In energy trading, benchmark U.S. crude jumped 56 cents to $115.87 a barrel in electronic trading on the New York Mercantile Exchange. It lost $3.62 on Wednesday to $115.31 a barrel. Brent crude, the international standard, added 43 cents to $118.94 a barrel.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama