Asia Stocks, Dollar Edge Lower as Markets Await Fed, BOJ Meetings

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Asian shares dropped on Monday while the dollar slipped as investors took profits from the currency’s recent gains ahead of central bank meetings in the United States and Japan this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4 per cent, taking its cue from a mixed day on Wall Street on Friday.

China’s blue-chip CSI300 index slid 0.9 per cent, while the Shanghai Composite Index was down 1.2 per cent.

Markets in Australia were closed for the Anzac Day public holiday.

Japan’s Nikkei stock index shed about 0.8 per cent as the yen pulled off its lows. Investors also locked in gains after the index soared to an 11-1/2 week high following a report the Bank of Japan will mull another easing step at its two-day policy review that ends on Wednesday.

“We’ve had a strong 20 days and now is the point where the index will break out or move sideways in anticipation of further catalysts,” said Martin King, co-managing director at Tyton Capital Advisors.

“We are also seeing the yen recapitulate against the U.S. dollar following word of the Bank of Japan’s consideration of offering bank loans with negative rates similar to the ECB in the Euro zone,” he said.

Bloomberg reported on Friday that the BOJ is considering applying negative rates to its lending programme for financial institutions.

But some investors still believe the central bank might opt to hold steady as it assesses the impact of its negative interest rate policy unveiled on Jan. 29. A semi-annual report on the country’s banking system issued on Friday by the central bank said the policy has caused some disruption in fund flows and will hurt financial institutions’ profits for the time being.

Underpinning sentiment, Prime Minister Shinzo Abe ordered his government on Sunday to compile an extra budget package to fund reconstruction from recent earthquakes that hit Kumamoto prefecture in southwestern Japan, with an aim to put it into effect by June 1.

Against the yen, the dollar slipped 0.6 per cent to 111.12 yen after it earlier rose as high as 111.90, its loftiest peak since April 1.

“The wide interest rate differential between the U.S. and Japan make it costly to be long yen without momentum,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said in a not to clients.

“Momentum and trend followers appear heavily represented in the futures market, and they have been caught the wrong way. This may see the tone shift from selling dollar rallies to buy dips,” Chandler said.

The dollar index, which tracks the greenback against a basket of six rival currencies, fell 0.2 per cent to 94.935.

The euro added 0.2 per cent to $1.1245. Last week the European Central Bank held its policy rates at historic lows as expected.

The Fed, which lifted its benchmark overnight interest rate in December for the first time in nearly a decade, meets on Wednesday.

Policymakers are expected to hold interest rates steady when they meet this week, but may tweak their description of the economic outlook to reflect more benign conditions, leaving the path open for future rate rises.

A Reuters poll showed on Friday showed that economists expect the Fed to stand pat and deliver a rate hike in June, followed by another before the end of this year.

Crude oil prices slipped after rising on Friday and notching their third straight week of gains as market sentiment turned more upbeat amid signs a persistent global supply glut may be easing.

Brent fell 1 per cent to $44.66 a barrel, while U.S. crude shed 1.3 per cent to $43.15.