Yen Gains, Asian Stocks Tepid After Rate-Cut Bets: Markets Wrap

Asian stocks traded in a narrow range at Thursday’s open, easing after three days of gains driven by bets on a Federal Reserve interest rate cut next month.

The MSCI Asia Pacific Index fell 0.2% as stocks in Japan retreated 1%. The yen gained 0.4% against the dollar. US Treasury Secretary Scott Bessent said the Bank of Japan is falling behind the curve in addressing inflation and expected the central bank to hike rates. 

Chinese equities will be in focus after the Nasdaq Golden Dragon China Index rose for a second session, helped by earnings from Tencent Holdings Ltd. US stocks closed at a record as Apple Inc. and Amazon.com Inc. climbed. Bitcoin reached an all-time high. Treasuries were steady Thursday after rallying in the prior session. The dollar fell for a third consecutive day. 

Stocks soared to record levels amid low volatility as traders now fully expect a quarter-point move by the Fed after an inflation print earlier this week was seen as benign. External pressure on the Fed is also coming from President Donald Trump’s administration with Bessent making his most explicit demand yet for the central bank to execute a cycle of cuts.

“As the labor market continues to weaken, we think the US central bank will resume interest rate cuts next month, with 25-basis-point cuts at each meeting through January 2026 for a total of 100 basis points,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

On Japan, Bessent said the central bank is going to be hiking rates as the country needs to get “inflation problem under control.”

In the latest Bloomberg survey of economists watching the BOJ, around 42% of respondents said they expected a rate hike in October, with a third expecting a move in January. The BOJ is expected to stand pat when it next sets policy on Sept. 19.

Bessent — who suggested the Fed’s benchmark rate ought to be at least 1.5 percentage points lower than it is now — said officials might have cut rates if they’d been aware of the revised data on the labor market that came out a couple of days after the latest meeting. 

“We could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” he said in a television interview on Bloomberg Surveillance Wednesday. 

The Federal Reserve Open Market Committee last month kept their benchmark at a target range of 4.25% to 4.5%.

“There is scope for the FOMC to take a more dovish tone next year, particularly if Powell chooses to give up his position as governor once his stint as chair comes to an end,” Jane Foley, strategist at Rabobank in London, wrote in a note.

Meanwhile, Trump, who has also criticized the Fed for not easing the rates, said he may name the next Fed chair “a little bit early” and added that he was down to three or four potential candidates as he looks for a successor to Powell.

A report on producer prices due Thursday will offer insights on additional categories that feed directly into the Fed’s preferred price gauge — which is scheduled for later this month.

“As the market continues to digest the shift in the trajectory of the real economy following the combination of July’s inflation and employment data, it follows intuitively that the question has become: how large of a cut should Powell deliver?” said Ian Lyngen at BMO Capital Markets.

In other corporate news, Trump’s controversial plan to take a cut of revenue from chip sales to China has US companies reconsidering their plans for business with the country, offering a model for circumventing years of trade tensions.

Elsewhere, geopolitical tensions remained on edge after the US president warned he would impose “very severe consequences” if Vladimir Putin didn’t agree to a ceasefire agreement later this week, following a call with European leaders ahead of his meeting with the Russian president. 

Stocks

• S&P 500 futures were little changed as of 9:45 a.m. Tokyo time

• Hang Seng futures rose 0.4%

• Japan’s Topix fell 1.1%

• Australia’s S&P/ASX 200 rose 0.6%

• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.1712

• The Japanese yen rose 0.4% to 146.72 per dollar

• The offshore yuan was little changed at 7.1788 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $123,719.98

• Ether rose 0.3% to $4,732.47

Bonds

• The yield on 10-year Treasuries was little changed at 4.23%

• Japan’s 10-year yield advanced three basis points to 1.515%

• Australia’s 10-year yield declined two basis points to 4.20%

Commodities

• West Texas Intermediate crude rose 0.3% to $62.81 a barrel

• Spot gold rose 0.5% to $3,371.18 an ounce