SINGAPORE- Asian stocks nudged higher on Tuesday ahead of the influential US inflation report, while Japanese shares fell and the yen firmed on rising expectations that the Bank of Japan may be ready to exit ultra easy-monetary policy as early as next week.
Gold was hovering just below its record peak touched last week and the dollar was broadly steady as traders looked for the US consumer price index report later in the day to gauge when the Federal Reserve will likely start its rate cutting cycle.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.20 percent higher, just shy of the seven-month high it touched on Friday. China stocks rose, with Hong Kong’s Hang Seng Index up 0.75 percent led by tech stocks, while the blue-chip CSI300 index 0.13 percent higher.
Japan’s Nikkei extended its decline and was down 0.84 percent , with the BOJ refraining from purchasing Japanese exchange-traded funds on Monday even as local shares dropped sharply, adding to speculation that a shift away from ultra-loose monetary policy is right around the corner.
A growing number of BOJ policymakers are warming to the idea of ending negative interest rates this month on expectations of hefty pay hikes in this year’s annual wage negotiations, four sources familiar with the central bank’s thinking told Reuters last week. The BOJ is due to meet next week.
The changing expectations helped the yen strengthen over the past week, with the Asian currency last at 147.26 per dollar.
Bank of Japan Governor Kazuo Ueda said on Tuesday the economy is recovering moderately, but said there were some weakness seen in recent data, putting yen under pressure on the day.
Futures now imply a 50 percent chance the BOJ will shift rates to zero at its meeting on March 18-19, though some still think it might wait until its April 26 meeting.
“The question for investors is whether the BOJ will stop to ending negative rates, or start a tightening cycle. We think the former,” Frank Benzimra, head of Asia equity strategy at SocGen told the Reuters Global Markets Forum.