Asian equities fluctuated on Friday amid subdued trading, with the dollar holding steady and the yen stuck near five-month lows. Investors are cautiously eyeing 2025 as they anticipate a tempered approach from the Federal Reserve on interest rate cuts, while speculation grows about a potential rate hike from the Bank of Japan (BOJ).
Yen Under Pressure Amid Policy Divergence
The yen lingered at 157.80 per dollar, maintaining its position at levels last seen in July. The Japanese currency has depreciated by over 10% this year, marking its fourth consecutive annual decline.
The BOJ’s December meeting summary, released Friday, keeps alive the possibility of a rate hike in January, following the central bank’s decision to hold rates steady this month. The persistent interest rate differential between the BOJ and the Fed has weighed on the yen, even as the Fed gradually reduces rates.
Investors remain cautious as the yen approaches the 160-per-dollar threshold, wary of potential intervention from Tokyo to stabilize the currency.
Stock Market Highlights
Broad Performance
- MSCI’s Asia-Pacific Index (excluding Japan) rose slightly to 574.88, poised for a 9% gain in 2024.
- Japan’s Nikkei 225 climbed 0.77%, driven by the weaker yen, marking a robust 19% increase this year.
- China’s CSI300 Index and Hong Kong’s Hang Seng Index were relatively flat, with the latter up 0.12% after a holiday break.
Kyle Rodda, Senior Financial Market Analyst at Capital.com, noted:
“There’s a lull in the markets right now. Barring any extreme surprises, trading will likely remain directionless as we close the year.”
2025: A Year of Shifting Focus
Investors are turning their attention to the Fed’s rate-cut trajectory and other global concerns, including U.S. trade policies under the incoming Trump administration and broader geopolitical risks.
Earlier this month, the Federal Reserve surprised markets by reducing rates by 25 basis points but signaled only two rate cuts in 2025, down from September’s projection of four. Traders are now pricing in 37 basis points of easing, with the next cut expected by June.
“If markets can align with the Fed’s outlook of two cuts and data supports a balanced economic scenario, the bull market could extend further,” said Rodda.
The evolving Fed policy has pushed the 10-year U.S. Treasury yield to a seven-month high of 4.57%. Meanwhile, the dollar index stood at 108.11, close to its two-year high reached last week.
Commodities Update
- Gold edged lower to $2,631.34 per ounce, yet remains on track for a 28% annual gain, its best performance since 2011.
- Oil prices dipped slightly, with Brent crude and U.S. West Texas Intermediate futures both down by 0.1% in early trading.
As markets wind down for 2024, investors are set to recalibrate their strategies for 2025, balancing optimism around easing U.S. monetary policy with concerns about geopolitical and economic uncertainties.
