HONG KONG: Asian markets sank Thursday after Federal Reserve boss Janet Yellen sounded a warning over a possible British exit from the EU, while the yen soared to a 21-month dollar high as the Bank of Japan refused to pump up its stimulus.
The Fed on Wednesday lowered its growth forecasts for this year and the following two, and flagged interest rates rises to be lower and slower, highlighting increasing concern about the US and global economic outlook.
Her comments dragged New York stocks lower and sent the dollar tumbling against the yen and even the British pound despite fears of Britain leaving the EU.
In a news conference after the Fed kept interest rates unchanged, Yellen voiced confidence in the US economy but said there were concerns about the impact a British exit would have across the world.
“Clearly, this is a very important decision for the United Kingdom and for Europe,” she told reporters. “It is a decision that could have consequences for economic and financial conditions in global financial markets. If it does so, it could have consequences in turn for the US economic outlook.”
The news put downward pressure on the dollar, and that was compounded Thursday when Japan’s central bank held off boosting its stimulus program, despite stuttering economic growth at home and uncertainty overseas.
The dollar bought 104.53 yen after the BoJ wrapped up its two-day policy meeting — its lowest since September 2014. That hammered Japan’s exporters, sending the Nikkei stock index more than two percent down in the afternoon.
“People were expecting the BoJ to increase (monetary) easing… with growth deteriorating,” Tim Condon, head of Asian research at ING Groep NV in Singapore, told Bloomberg News. “They’ll probably need to bring in some fiscal stimulus given the limits on the effectiveness of monetary policy. The worst case scenario if (Britain leaves the EU) will be catastrophic.”
Among other markets Hong Kong was down 1.9 percent by lunch, while Seoul and Singapore each shed 0.7 percent. Shanghai was marginally lower but Sydney added 0.2 percent.
World markets have been in turmoil over the past week on worries about the global economic outlook and, in recent days, a growing sense that the June 23 referendum will see Britons vote to break away from the European Union.
Despite jitters over next week’s vote, the pound held most of its gains against the dollar Thursday morning, sitting at 1.4187 having fallen to a two-month low below $1.41 earlier in the week.
Oil prices extended their losses as unrest in Nigeria and wildfires in Canada, which had helped limit output, begin to ease.
US benchmark West Texas Intermediate was down 0.9 percent at $47.56 and Brent shed 0.7 percent to $48.61.
WTI is down eight percent from last week’s 11-month high, while Brent has lost more than six percent from an eight-month peak.
Key figures around 0410 GMT
Tokyo – Nikkei 225: DOWN 2.1 percent at 15,583.75
Shanghai – Composite: DOWN 0.12 points at 2,887.09 (break)
Hong Kong – Hang Seng: DOWN 1.9 percent at 20,074.39 (break)
Euro/dollar: UP at $1.1264 from $1.1263 late Wednesday
Pound/dollar: DOWN at $1.4187 from $1.4212
Dollar/yen: DOWN at 104.53 yen from 105.98 yen
New York – DOW: DOWN 0.2 percent at 17,640.17 (close)
London – FTSE 100: UP 0.7 percent at 5,966.80 (close)