Asian Stocks Slip, Dollar Firms as Fed Signals Slower Rate Cuts

Asian stocks declined and the dollar neared a two-year high on Thursday after the U.S. Federal Reserve signaled a slower pace of rate cuts next year. The Bank of Japan kept interest rates unchanged, leading to a drop in the yen. The Fed's hawkish stance prompted a sell-off on Wall Street, which reverberated across Asia, with the MSCI's broadest index of Asia-Pacific shares outside Japan falling 1.6%. Tech-heavy Taiwan stocks slid 1.2%, and Australian shares retreated nearly 2%.

The yen weakened to a one-month low of 155.48 per dollar following the BOJ's decision. The Japanese currency traded around 155.3 to the dollar, near the lower end of its range this year, pressured by a strong dollar and a wide interest rate differential. The yen has depreciated over 8% against the dollar in 2024 and is poised for a fourth consecutive year of decline. Market attention now shifts to comments from BOJ Governor Kazuo Ueda to assess not only the timing of the next rate hike but also the magnitude of increases next year. Traders anticipate a 46 basis point increase in BOJ rates by the end of 2025. Ueda is scheduled to hold a press conference at 0630 GMT to explain the decision. Board member Naoki Tamura dissented, proposing a rate increase to 0.5% due to concerns about rising inflationary risks, but his proposal was rejected. 'The hawkish Fed dot plot overnight gave the BOJ an option to increase rates, and there was one dissenting vote for a 25 bps hike, so it looks like rates will be going up early in 2025,' said Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management. The policy decisions from the two central banks highlight the challenges facing the global economy as the United States, the largest participant, transitions under President-elect Donald Trump's leadership early in the new year

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