Asia Markets

Japan's stocks close lower on news that Prime Minister Shinzo Abe will resign

Key Points
  • Shares in Japan slipped on Friday following local media reports the country's Prime Minister, Shinzo Abe, is set to step down. Abe later confirmed his surprise resignation during a Friday press conference after the market close in Japan.
  • U.S. Federal Reserve Chairman Jerome Powell announced Thursday a major policy shift by the U.S. central bank to "average inflation targeting." 
  • The Fed also adjusted its view of full employment to allow gains in the labor market to run more broadly.

Stocks in Asia Pacific's major markets were mixed on Friday as investors reacted to recent developments from the U.S. Federal Reserve.

Shares in Japan fell. The Nikkei 225 closed 1.41% lower at 22,882.65 after dropping more than 2% earlier during the session. The Topix index shed 0.68% to end its trading day at 1,604.87.

The moves came following local media reports the country's Prime Minister, Shinzo Abe, was set to resign. Abe later confirmed his surprise resignation during a Friday press conference after the market close in Japan.

NHK had reported earlier that Abe plans to step down to "deal with a health problem," citing sources close to the prime minister. A similar report emerged from Kyodo News, citing a source in Abe's Liberal Democratic Party, that the Japanese prime minister "will step down from his post due to health concerns."

The Japanese yen changed hands at 105.57 per dollar following the report, after seeing an earlier low of 106.94 against the greenback.

Mainland Chinese stocks led gains among the region's major markets, with the Shanghai composite up 1.6% to approximately 3,403.81 while the Shenzhen component gained 2.336% to around 13,851.32. Hong Kong's Hang Seng index advanced 0.56% to finish its trading day at 25,422.06.

South Korea's Kospi gained 0.4% to close at 2,353.80.

The S&P/NZX 50 in New Zealand edged 0.333% higher to close at 12,093.52. Earlier on Friday, the stock exchange was down for the fourth day in a row following cyber attacks earlier this week. In Australia, the S&P/ASX 200 slipped 0.86% on the day to 6,073.80.

Overall, the MSCI Asia ex-Japan index rose 0.18%.

Federal Reserve developments

U.S. Federal Reserve Chairman Jerome Powell announced Thursday a major policy shift by the U.S. central bank to "average inflation targeting." That means the Fed will allow inflation to run "moderately" above the central bank's 2% goal "for some time" after periods when it has run below that objective.

The Fed also adjusted its view of full employment to allow gains in the labor market to run more broadly. That indicated that the central bank will be less inclined to raise interest rates when the unemployment rate falls, as long as inflation does not creep up as well.

"All this adds up to a view that the Fed Funds rate  is going nowhere at least until the Fed can look 2%+ inflation in the whites of its eyes," Ray Attrill, head of foreign exchange strategy at National Australia Bank, wrote in a note. "Rates have barely budged at the shorter end of the yield curve, the money market not priced for a first Fed Funds rate rise until about four years from now."

JPMorgan Asset Managment's Tai Hui agreed with Attrill's view, telling CNBC's "Squawk Box" Friday that the Fed is "likely to keep its policy rates at a a very low level for an extended period of time even beyond ... the recovery ... from the pandemic."

"The fact that it's average rather than … single-sided, it means that the Fed is gonna keep rates very low. So that will be great for risk assets," said Hui, who is Asia chief market strategist at JPMorgan Asset Management.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 92.334 after touching an earlier high of 93.096.

The Australian dollar changed hands at $0.731 following its rise this week from levels below $0.72.

Oil prices were lower in the afternoon of Asian trading hours, with the international benchmark Brent crude futures down 0.4% to $44.91 per dollar. U.S. crude futures shed 0.39% to $42.87 per barrel.

— CNBC's Jeff Cox contributed to this report.