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Asia markets mostly lower; stronger yen weigh on Japanese shares

Jaap Arriens | NurPhoto | Getty Images

Asia markets closed lower on Thursday, as a weaker dollar weighed on Japan's shares and South Korean stocks failed to get a boost from a surprise interest rate cut.

The Bank of Korea (BOK) surprised markets by cutting its policy rate by 25 basis points to a record-low of 1.25 percent. A Reuters poll of analysts showed markets expected the central bank to keep rates steady at 1.5 percent.

South Korean stocks had a muted reaction to the decision, with the benchmark Kospi trading as high as 2,035.27 after the decision, compared with around 2,030 before the announcement. The index then slipped to close down 2.91 points, or 0.14 percent, at 2,024.17.

The Korean won weakened against the dollar, with the pair trading as high as 1160.30 after the decision, compared with as low as 1150.47 before the announcement. As of 3:15 p.m. HK/SIN, the dollar/won pair reversed gains to trade at 1153.03.

Analysts said the soft outlook for South Korea's growth prospects influenced the BOK's decision to move on Thursday.

On Wednesday, Reuters reported the South Korean finance minister said the government and the BOK will create an 11 trillion won ($9.50 billion) fund to support the two state-run banks most exposed to the shipping and shipbuilding firms currently being restructured.

"Concerns about the downside risks corporate restructuring will pose to the economy were likely a factor in the BOK's decision to act today," Krystal Tan, an economist at Capital Economics, said in a note Thursday.

In Japan, the Nikkei 225 snapped two consecutive sessions of gains, closing down 162.51 points, or 0.97 percent, at 16,668.41, as dollar weakness pushed up the yen and put stocks under pressure. Investors will watch for the Bank of Japan's monetary policy meeting later in the month.

The yen traded at 106.52 against the dollar as of 3:17 p.m. HK/SIN, dropping from levels near 107.80 earlier in the week.

"The inability of dollar-yen to stop falling during Tokyo market hours clearly reflects domestic flow dynamics behind the yen strength," Bank of America-Merrill Lynch analysts said in a note Wednesday. "A notable portfolio flow development is Japan's slowing outward equity investments. Japanese investors have net sold foreign equities on a 13-week rolling base - albeit a small amount - for the first time since May 2014."

It noted that Japanese banks remained net sellers of foreign bonds in May as well.

The analysts added, "We are not saying the yen strength is all because of domestic flows since foreign investors' unwinding of long Japan equities and dollar-yen and more recently renewed shorts have also been notable."

Japanese exporters closed mostly down, with Toyota off by 1.37 percent, Nissan down 2.5 percent and Sony off by 1.38 percent. A stronger yen is a negative for exporters as it reduces their overseas revenue when converted into local currency.

Earlier in the session, data released by the Cabinet office in Japan showed business investment in the country was contracting, which also weighed on the stock market. Japan's core machinery orders for April, excluding orders from ships and electric power companies, decreased a seasonally adjusted 11 percent from the previous month. Economists polled by Reuters had estimated a 3.8 percent decline.

Australia's ASX 200 wavered between positive and negative before closing down 8.04 points, or 0.15 percent, at 5,361.93. The energy and material sub-indexes gave up much of their morning gains to finish up 0.3 percent and flat, respectively. Commodity prices, which are usually denominated in dollars, typically get a boost from a weaker greenback.

Major Australian miners finished up, with shares of Rio Tinto higher by 0.6 percent, Fortescue up 3.48 percent and BHP Billiton gaining 0.36 percent.

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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The dollar remained weak against a basket of currencies, with the dollar index trading at 93.565 as of 3:37 p.m. HK/SIN, down from levels over 95 on Friday after last week's disappointing jobs report stateside reduced the probability of a rate hike from the Fed in June.

"The weakness of the dollar, decline in Treasury yields and rise in stocks tell a consistent story of pared back expectations for Fed tightening," said Kathy Lien, managing director of foreign exchange strategy at BK Asset Management. "Fewer traders looking for a summer rate hike and their shift in expectations has and should continue to keep the dollar under pressure."

The euro traded at $1.1387 as of 3:38 p.m. HK/SIN, down from a high of $1.1415 earlier in the session.

The European Central Bank formally started its corporate sector purchase program on Wednesday; the move was announced by Mario Draghi in March as part of the central bank's measures to kickstart the flagging euro zone economy and lift inflation to the bank's 2 percent target.

Early Thursday, the Reserve Bank of New Zealand (RBNZ) announced that it kept its official cash rate unchanged at 2.25 percent at its policy meeting.

In its policy statement, the central bank said its decision was influenced by modest recovery in commodity prices and "financial stability concerns" over house price inflation in Auckland and other regions. The bank did not rule out further policy easing, stating it may be required to ensure future average inflation "settles near the middle of the target range."

Despite the on-hold decision and the possibility of further easing ahead, the New Zealand dollar climbed. Analysts at Goldman Sachs noted, "there currently appears no sense of urgency to act on this easing bias," which works against the prospects for near-term rate cuts.

The New Zealand dollar was trading at $0.7127 as of 3:39 p.m. HK/SIN, compared with around $0.7003 before the decision. Initially, stocks had a more muted reaction, trading nearly flat, but later slipped, with the benchmark NZX 50 closing down 20.96 points, or 0.3 percent, at 6,970.55.

Oil prices remained above the psychologically key $50 level, with global benchmark Brent down 0.13 percent at $52.44 a barrel as of 3:40 p.m. HK/SIN. U.S. crude was up 0.16 percent at $51.31.

Energy plays in the region advanced, with Santos shares up 1.48 percent, Oil Search up 0.29 percent and Inpex adding 2.59 percent.

Elsewhere, Chinese government data showed price pressures in the country eased in May on the back of falling food prices. The consumer price index rose an annual 2 percent, missing forecasts for a 2.3 percent increase, according to Reuters. Food prices, a major component of the index, rose 5.9 percent on-year.

The producer price index, on the other hand, dipped 2.8 percent on-year, compared with a Reuters estimate for a 3.3 percent decline.

In the U.S., the Dow Jones industrial average was up 66.77 points, or 0.37 percent, at 18,005.05; the S&P 500 was up 6.99 points, or 0.33 percent, at 2,119.12 and the Nasdaq composite added 12.89 points, or 0.26 percent, to 4,974.64.

Markets in China, Hong Kong and Taiwan are closed Thursday for the Dragon Boat Festival.