US interest rate cuts loom as BoJ warns of hikes

By Noel Randewich

(Reuters) – A look at the day ahead in Asian markets by Noel Randewich.

Investors in Asia will digest the near certainty of US monetary policy easing in September after a speech by US Federal Reserve Chairman Jerome Powell on Friday confirmed that the United States is ready to start cutting interest rates.

In his keynote speech at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming, Powell said “the time has come for policy to adjust” as risks to rising inflation have receded and risks to negative for employment.

Powell’s comments lifted the yen and weakened the dollar index, with lower interest rates compared to Japanese rates making Japan’s currency more attractive.

USD/JPY hit its lowest level since August 6 in late Friday trading.

Geopolitical risk rose over the weekend as Hezbollah fired hundreds of rockets and drones at Israel early Sunday, while Israel’s military said it had struck Lebanon with about 100 jets to counter a larger attack. It was one of the biggest clashes in more than 10 months of war on the border and raised the specter that Israel’s war in Gaza is turning into a wider conflict.

Investors will also be looking at the outlook for Japanese interest rates after Bank of Japan Governor Kazuo Ueda on Friday reaffirmed his determination to raise interest rates if inflation remains on track to sustainably reach its 2 percent target.

Ueda’s comments came as data showed Japan’s core inflation accelerated for a third straight month in July, with a slowdown in demand-driven price growth that could complicate the central bank’s decision on whether to raise interest rates further.

The Nikkei stock average ended up 0.4 percent on Friday after Ueda’s parliamentary testimony.

After spending all year trying to put a floor under the collapsing yuan, China’s central bank is suddenly faced with the opposite problem and is resorting to subtle ways to stem the currency’s sharp appreciation.

The usually tight yuan strengthened 1.3 percent against the dollar in August, boosted by expectations of a Fed interest rate cut that will strengthen the Japanese yen.

On China’s commercial banking front, Bank of China Vice Chairman and Chairman Liu Jin resigned on Sunday. The state-owned lender said its board approved Chairman Ge Haijiao to serve as interim chairman.

The US political landscape offered few new signs of certainty for global investors after Vice President Kamala Harris sealed the Democratic presidential nomination with a brawny speech on Thursday, setting out broad foreign policy principles and stark contrasts with Republican rival and former President Donald Trump.

The story continues

With 11 weeks left in the White House race, contracts for a Harris win are trading at 55 cents, with a possible payout of $1, on political betting platform PredictIt.

Contracts for a win by Trump, who has suggested he would impose tariffs of 60 percent or higher on all Chinese goods, are at 49 cents.

Tariffs were in the spotlight last week after China’s Ministry of Commerce met with automakers and industry associations to discuss raising import tariffs on large gasoline-powered vehicles, sounding a warning as the European Union is nearing a decision on tariffs for Chinese electric cars.

On Friday, the United States added 105 Russian and Chinese firms to a list of trade restrictions because of their alleged support for the Russian military.

Here are the key developments that could provide more direction for Asian markets on Monday:

– Singapore Manufacturing (July)

– Japan’s leading indicator (revised) (June)

(Reporting by Noel Randewich in Oakland, Calif.; Editing by Diane Craft)