HONG KONG: Japanese stocks led a broad Asian stock slide on Friday as the yen advanced ahead of a key US jobs report later in the day and after the European Central Bank indicated it could expand its stimulus.
With mainland Chinese markets closed for a second day, traders focused on macro issues, chiefly the US Federal Reserve’s plans for raising interest rates.
While expectations are for a hike before the end of the year—with US growth picking up—the recent turmoil in global markets caused by China’s ongoing economic crisis has muddied the waters for the Fed’s policy committee.
And Friday’s non-farm payrolls data is seen as crucial in helping the central bank make its decision, with some experts suggesting policymakers could put off a decision until the end of the year.
“There’s nervousness in the market about growth in Asia and the implications of the Fed changing policy should payrolls be seen as clearing the way for a hike,” Sean Callow, a strategist at Westpac Banking Corp. in Sydney, told Bloomberg News.
“The fact that dollar-yen in particular is looking soggy is obviously a bad sign.”
Any rise in Fed borrowing rates would lead to a shift of capital back to the United States as dealers look for better returns on their investments, particularly hurting emerging economy currencies such as the South Korean won and Malaysian ringgit.
However, while higher rates usually benefit the dollar—it has rallied over the past year on hike speculation—the unit is struggling against the yen owing to a flight to safe investments.
It bought 119.25 yen in Tokyo, compared with 120.01 yen in New York and much lower than the 120.40 yen earlier Thursday in Asia.
A stronger yen hurts Japanese exporters, whose repatriated profits are boosted by a weaker currency.
The Nikkei stumbled more than three percent in the afternoon before ending down 2.15 percent at a seven-month low.
Among other Asian markets, Hong Kong gave up early gains to close 0.45 percent lower in late trade—after returning from a one-day holiday—while there were also losses of more than one percent in Seoul and Singapore.
However, Sydney bounced back from early selling to end 0.25 percent higher.
The euro softened after the ECB president Mario Draghi said the bank was ready to ramp up its vast bond-buying scheme—known as quantitative easing (QE)—if needed to kick-start the eurozone economy.
“The asset purchase program provides sufficient flexibility in terms of adjusting the size, composition and duration of the program,” Draghi told a news conference after the ECB kept interest rates unchanged at record lows.
The bank also cut its growth and inflation forecasts for 2015-2017, noting the downside risks from low oil prices and the economic slowdown in China.
“Mario Draghi didn’t let markets down. He obliged with not only a promise of more QE if needed but also announced the ECB can now purchase more of any one debt issue,” Lawler said.
A possible widening of QE highlights the divergence of policy between the ECB and the Fed, suppressing the euro.
The single currency fetched $1.1144 Friday, against $1.1224 in US trade, while it also slipped to 132.89 yen from 135.15 yen.