HONG KONG: Tokyo stocks led Asia higher on Monday, boosted by hopes the government will delay a sales tax hike and by a weaker yen after Federal Reserve boss Janet Yellen hinted that a US interest rate increase was looming.
Yellen said Friday she believed growth and the strengthening of the labor market would continue, and in that case, “probably in the coming months such a move would be appropriate.”
That timeframe, which other Fed policymakers have also referred to in recent weeks, would put the Fed’s action at its June 14 to 15 or July 26 to 27 meeting.
The US central bank has repeatedly stated its intention to continue raising rates this year after December’s first hike in nine years.
“Janet Yellen’s remarks on Friday confirm that at least one increase in the Fed rate is likely this year,” Ric Spooner, chief market analyst at CMC Markets, said in an email commentary.
“Traders will take confidence from the fact that stock markets are firm in the face of this confirmation. As far as the markets are concerned, the timing of the next Fed increase now becomes the central issue.”
Tokyo led the charge in Asia, ending up 1.4 percent and above 17,000 points for the first time in a month as the dollar surged against the yen. Hopes the government would delay a consumption tax hike also powered shares higher.
The dollar rose to 111.15 yen from 110.37 yen Friday in New York—the yen’s weakest level in about a month. A weaker currency is good for exporters as it inflates the value of their overseas profits.
Media reports over the weekend said Prime Minister Shinzo Abe had told his close aides that he intends to push back a sales tax increase to October 2019 on fears it could damage the already fragile economy.
Hong Kong rose 0.3 percent, while Shanghai and Sydney were flat. Seoul shed 0.1 percent, but Jakarta and Taipei gained 0.5 and 0.9 percent respectively.
“There has been a deliberate move on the part of the Fed to steer the market toward prospects of near-term tightening,” Philip Borkin, a senior economist at ANZ Bank New Zealand Ltd., said in a client note according to Bloomberg News.
“The Fed will probably be reasonably chuffed at the way the market is absorbing that message.”
Oil prices dipped on the stronger dollar, with North Sea Brent for July dropping 24 cents to $49.08 while US benchmark West Texas Intermediate for July delivery fell 13 cents to $49.20 a barrel.
A stronger greenback makes dollar-priced oil more expensive, denting demand and hurting prices.
Traders are now looking to the June 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, where it is hoped a deal on reducing production can be reached.
Prices had topped $50 a barrel for the first time this year on Thursday after production disruptions in Canada as well as unrest in Nigeria.
But some analysts are skeptical about the meeting—a first for Saudi Arabian new Energy Minister Khalid al-Falih.
“Going into the meeting, there’s a bit of an aggressive tone [from Saudi Arabia], so that’s probably not going to sit well with the rest of OPEC,” said IG Markets analyst Bernard Aw.
On Sunday Canadian petroleum producer Suncor said production in Canada’s fire-ravaged oil sands area was coming back online.
In early European trade, Paris eased 0.1 percent and Frankfurt dropped 0.3 percent. Trading was closed in London for a public holiday.