Asia Markets

Nikkei drops 3.1 pct, dollar-yen tumbles under 104 as BOJ keeps rates steady

Tomohiro Ohsumi | Bloomberg | Getty Images

The Japanese yen strengthened sharply against the dollar and Nikkei shares tumbled on Thursday after the Bank of Japan (BOJ) kept monetary policy steady, in line with expectations.

Japanese shares sold off, with the closing down 485.44 points, or 3.05 percent, at 15,434.14, compared with a 1.10 percent decline before the BOJ decision.

The dollar/yen currency pair traded at 103.74 as of 2:41 p.m. HK/SIN, compared with levels as high as 106.02 before the policy announcement. The yen also strengthened against the major crosses, with the euro/yen pair down 1.87 percent at 117.10, the Aussie/yen pair down 2.75 percent at 76.35, while the yen/won pair was up 2.55 percent at 11.29.

The yen's strength came despite mid-day jawboning likely aimed at weakening the currency. Before the BOJ announcement, Japan's chief government spokesman said the yen's moves were being closely watched, calling the appreciation rapid and speculative, according to a Reuters report.

In its policy statement, the BOJ said risks to the economic outlook include uncertainties in emerging and commodity-exporting economies, particularly China, impact of monetary policy response from the U.S. on global financial markets, prospects regarding Europe's debt problem and economic activity, as well as geopolitical risks.

"The BOJ decided a status quo at the June meeting to avoid criticism for a collusive relationship with the government facing the July Upper House election and to save its scarce ammunition before the U.K. referendum next week," said Kohei Iwahara from Natixis Japan Securities, adding further easing could still be in the cards as early as July.

Iwahara added, "The yen is already stronger than most companies feel comfortable at and a dovish Fed could strengthen the yen further, which increases the BOJ's difficulties to achieve its inflation target."

The rest of Asian markets were mostly lower, as investors digested the Federal Reserve's decision to keep interest rates on hold Wednesday.

In South Korea, the Kospi closed down 16.84 points, or 0.86 percent, at 1,951.99.

In Hong Kong, the fell 1.98 percent in late afternoon trade. Chinese mainland markets closed lower, with the composite down 13.73 points, or 0.48 percent, at 2,873.47, and the Shenzhen composite down 4.43 points, or 0.23 percent, at 1,885.43.

That followed gains on Wednesday when the markets largely ignored a snub from MSCI, which made the decision to keep mainland listed shares out of its key emerging markets index.

Bucking the trend, Australia's benchmark ASX 200 gave up gains close essentially flat at 5,145.98.

The Federal Open Market Committee held its interest rate target at 0.25-0.50 percent on Wednesday, after a two-day policy meeting.

In its post-meeting statement, the Fed noted that the unemployment rate had declined (to 4.7 percent), but "job gains have diminished." Fed Chair Janet Yellen said in a press conference following the statement release that the Brexit vote, due on June 23, was also one of the factors in Wednesday's decision.

The Fed's dot plot of future rate projections indicated there was still a greater likelihood of two moves before the end of 2016, but doubts have increased that that will happen.

"The level of confidence in that central case view is now less, with six members anticipating only one hike this year," said ANZ's Brian Martin.

Martin added that while all Fed meetings were considered "live," the market pricing for a possible hike in July had fallen to almost zero. "[The Fed] will need a robust labor market report for June and strong data on retail sales and improving inflation if rates are to move up next month," he said.

Analysts noted that the markets didn't seem to appreciate the dovish bent.

Angus Nicholson, a market analyst at spreadbettor IG, said on Thursday, "Equity markets did not take the release especially well, with U.S. markets closing down for the fifth day in a row...In the wake of the release, gold saw some minor gains, as did emerging market currencies and high yield debt."

The dollar weakened against a basket of currencies, with the dollar index trading at 94.428 as of 3:47 p.m. HK/SIN, compared with levels near 94.798 on Wednesday afternoon Asia time.

The onshore traded at 6.5812 against the dollar, after the People's Bank of China set the yuan mid-point at 6.5739 on Thursday. China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

Oil prices fell for a fifth straight day overnight amid global uncertainties, particularly around the prospect of the U.K. leaving the EU following its June 23 referendum. On Thursday afternoon Asia time, global benchmark Brent traded down 1.51 percent at $48.23 a barrel, after finishing down 1.7 percent overnight. U.S. crude futures were down 1.35 percent at $47.36, after dropping 1 percent in U.S. hours.

traded up 1.43 percent at $1,309.55 an ounce, following the Fed decision and weakness in the dollar. Gold miners in the region were up sharply, with Newcrest adding 2.92 percent and Evolution Mining up 4.74 percent.

In company news, shares of Australia's Crown Resorts soared 13.23 percent, after the company announced plans for a demerger of its Australian and international investments.

Ratings agency Standard & Poor's cut commodities trader Noble Group's credit rating deeper into junk status on Wednesday. Noble's long-term corporate credit rating was downgraded to B+ from BB-.

"We downgraded Noble to reflect our view that the company's liquidity position has weakened despite the recent completion of refinancing and a proposed US$500 million fully underwritten rights issue," S&P Global Ratings credit analyst Danny Huang said in a media release.

Noble Group shares were down 2.17 percent at 0.225 Singapore dollars as of 3:57 p.m. HK/SIN, off an earlier high of 0.230.

Stateside, the closed down 34.65 points, or 0.2 percent, at 17,640.17. The S&P 500 index was down 3.82 points, or 0.18 percent, at 2,071.50 and the composite finished down 8.62 points, or 0.18 percent, at 4,834.93.