Asian stocks moved higher on Friday as investors assessed a wave of tighter monetary policy from major central banks, while the dollar remained relatively steady. The Bank of Japan (BOJ) joined the global tightening trend by raising interest rates as widely expected, although the move was followed by a decline in the yen.
The Bank of Japan increased its policy rate from 1% to 1.25%, taking borrowing costs to their highest level in 31 years. The decision was approved by a 7-2 vote, with board members Toichiro Asada and Ayano Sato voting against the increase. The yen weakened about 0.5% to 156.75 against the U.S. dollar immediately after the announcement. Despite Friday’s decline, the currency remains nearly 2% higher for the month.
Investors Watch for Further Hikes
The BOJ’s latest move comes as inflation pressures remain a major concern for policymakers worldwide. The prolonged conflict in the Middle East has kept oil prices above $100 a barrel, adding to fears that elevated energy costs could make inflation more persistent.
Fred Neumann, chief Asia economist at HSBC, said the Bank of Japan statement and the presence of two dissenting votes created uncertainty over how quickly the central bank may tighten policy further. Markets are now watching closely for indications that another rate increase could come in December.
The yen had strengthened earlier this month on expectations that the BOJ would accelerate its rate-hike cycle, along with indications that Japanese investors were beginning to repatriate overseas funds. However, those gains have partially reversed following a more hawkish stance from the U.S. Federal Reserve.
Global Central Banks Stay Focused on Inflation
The Bank of Japan decision follows a series of warnings from other central banks. The Bank of England said Thursday that prolonged Middle East conflict could increase the need for higher interest rates. The Federal Reserve also raised rates on Wednesday for the first time in three years and indicated that additional increases could follow. The European Central Bank similarly warned last week that further tightening may be necessary.
Australia’s central bank added to the concerns on Friday. Reserve Bank of Australia Governor Michele Bullock said some of the inflation risks previously identified by policymakers appeared to be emerging. She also said officials would consider whether three rate hikes this year would be sufficient to return inflation to the bank’s 2%-3% target.
Falling Oil Prices Support Market Sentiment
Meanwhile, easing oil prices provided some relief to investors. Brent crude futures fell as much as 1.5% to $103.29 a barrel amid hopes that alternative routes could help maintain Middle East oil supplies, despite continuing concerns over tensions involving Saudi Arabia and Yemen’s Houthis.
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