The yen stabilized near a 12-week high against the dollar on Friday while Asia-Pacific equity markets remained on the back foot a day after their worst session since mid-April.
Regional stocks took their cues from Wall Street, where the S&P 500 and tech-heavy Nasdaq slipped further after Wednesday’s frenetic selling.
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MSCI’s broadest index of Asia-Pacific shares fell 0.55 per cent on Friday, extending the 1.88 per cent tumble from the previous day.
Taiwan’s stock benchmark slumped 3.3 per cent as it reopened from a two-day closure due to a typhoon.
Japan’s Nikkei eased 0.07 per cent after failing to sustain earlier gains.
However, some markets rebounded, with Hong Kong’s Hang Seng up 0.74 per cent and Australia’s benchmark adding 0.85 per cent.
US stock futures also pointed higher, with S&P 500 futures rising 0.36 per cent and Nasdaq futures advancing 0.45 per cent.
US economic data from overnight gave some cause for optimism, with economic growth faster than expected in the second quarter and inflation cooling. That helped dispel worries that the expansion was in danger of an abrupt end, while also supporting wagers for a Federal Reserve interest rate cut in September.
Friday’s release of the PCE deflator, one of the Fed’s preferred price gauges, will be “the next test, and arguably climax to the week’s trade,” said Kyle Rodda, a senior market analyst at Capital.com.
“There are concerns about upside risk to the current consensus estimate for the PCE Index,” Rodda said.
“While a modest upside surprise wouldn’t necessarily derail the path back to the target of inflation, it could impact the expected timing of the first (Fed) cut and the number of cuts that could come over the next six months. That could rattle the markets at a time when sentiment is already a little cautious.”
Safe-haven demand for the yen cooled overnight, and an unwinding of long-held bearish bets lost steam after the Japanese currency gained 2.4 per cent this week against the dollar, putting it on track for its best performance since late April.
The dollar last traded 0.28 per cent lower at 153.525 yen, after dropping as low as 151.945 on Thursday for the first time since May 3, and then springing back by the end of the trading day.
The area between 152 and 151.80 has proved to be “a brick wall of demand,” said IG analyst Tony Sycamore.
“We continue to expect this support level to hold, with a squeeze back toward 155.30ish not out of the question ahead of Wednesday’s Bank of Japan meeting,” Sycamore said. “After that, all bets are off.”
The Bank of Japan and the Fed announce policy decisions on July 31.
The rate futures market has priced in a 67.2 per cent chance that the BOJ will raise rates next week by 10 basis points (bps), up from a 40 per cent chance earlier in the week, according to LSEG estimates.
Markets see only a slight chance for a Fed rate cut of at least 25 bps next week but are fully pricing in a September reduction, according to CME’s FedWatch Tool.
US two-year Treasury yields eased slightly in Asian hours to 4.4389 per cent but were well off the overnight low of 4.34 per cent, a level last seen in early February.
The 10-year yield was down slightly at 4.2466 per cent.
Elsewhere in currency markets, the euro rose 0.11 per cent to $1.0857 and sterling added 0.1 per cent to $1.2863.
Oil prices rose slightly as the stronger-than-expected US economic data raised expectations for increased crude demand from the world’s largest energy consumer.
Brent crude futures for September rose 7 cents to $82.44 a barrel. US West Texas Intermediate crude for September increased 4 cents to $78.32 per barrel.