BOJ's caution lifts Japanese stocks, pushes yen to six-week lows

Source: Market Screener

SINGAPORE, June 14 (Reuters) - Japanese shares rose on Friday, outperforming weaker Asian markets, and the yen slid broadly after the Bank of Japan said it would start trimming its huge bond purchases in the future, dashing some expectations it would begin the process sooner.

Tokyo's Nikkei reversed course to trade 0.3% higher, while the yen slid to 158.19 per dollar, its lowest in over six weeks, as the BOJ takes another step toward retreating from its massive monetary stimulus.

Investors are also pondering the outlook for U.S. rates after the Federal Reserve tempered its rate-cut views even as inflation came in softer than expected, with the dollar hovering near a one-month high on the back of the hawkish Fed.

While the BOJ said it will continue to buy government bonds at the current pace of roughly 6 trillion yen ($38 billion) per month, it also committed to laying out details of its tapering plan for the next one to two years at its meeting in July.

The BOJ said on Friday it will collect views from market players, before deciding on the long-term tapering plan at its next meeting. As widely expected, the BOJ kept its short-term policy rate target in a range of 0-0.1% by a unanimous vote.

"The Bank of Japan left markets searching for direction," said Fred Neumann, chief Asia economist at HSBC. "By offering no specifics in its bond purchase reduction, the BOJ signaled that it is not in a hurry to tighten policy."

The yen, which is extremely sensitive to U.S. Treasury yields, is down over 10% against the dollar this year and was last at 158.15 per dollar, down over 0.6% on the day.

The yen is at levels last seen on April 29, when it hit a 34-year low of 160.245 that triggered several rounds of interventions by Japanese authorities totalling 9.79 trillion yen ($62.25 billion).

"If BoJ wanted to arrest any weakness in JPY, today's statement wasn't helpful," said Tom Kenny, senior international economist at ANZ, noting that the announcement on quantitative tightening was a little bit underwhelming.

"The BoJ more or less kicked the can to the next meeting."

Across Asia, stocks wavered, with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.10%. Chinese stocks also fell, with the blue chip stocks off 0.4%.

Futures pointed to a higher open in Europe, with the Eurostoxx 50 futures and FTSE futures up 0.3%.

Political uncertainty in Europe has kept the euro under pressure. The single currency last fetched $1.0737 and was on course for a 0.6% decline in the week, its sharpest weekly fall since early April.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased to a 10-month high last week, while producer prices unexpectedly fell in May.

That followed Wednesday's cooler-than-expected consumer inflation report and the Fed's revised dot plot, which lowered rate-cut expectations this year to one from three.

James McCann, deputy chief economist at abrdn, said the Fed seems to be in a patient mood as it waits for signs of sustained progress on inflation and expects the U.S. central bank to start its monetary easing campaign in December.

Traders though are taking their cues from the inflation reports and are now pricing in roughly 50 basis points of cuts this year, with a rate cut in September priced in at 68%, CME FedWatch tool showed.

"Rate expectations are likely to remain volatile over coming months against the backdrop of a data dependent Fed," McCann said.

The shifting expectations has seen the dollar bounce around this week, with the U.S. currency index which measures its value against six peers, last at 105.33, not far from the one-month high of 105.46 it touched on Tuesday..

In commodities, oil prices eased on Friday but were on track for their first weekly gain in four weeks.

Brent crude futures fell 0.45% to $82.38 a barrel while West Texas Intermediate (WTI) U.S. crude futures eased 0.57% to $78.17. ($1 = 157.2600 yen)

(Reporting by Ankur Banerjee; Editing by Shri Navaratnam and Muralikumar Anantharaman)