Shares in Japan outperformed their Asian counterparts on Thursday, after additional evidence of a slowing US labor market raised the prospect of the Federal Reserve cutting interest rates next week. The Topix and Nikkei 225 indexes each rose about 1.5%, compared with a 0.3% rise in the broader MSCI Asian share index. Indices in South Korea and Taiwan fell after two days of gains. US stock futures remained steady in Asian trade after the S&P 500 index rose 0.3% last night, while Bitcoin remained near $94,000 after a two-day rally. Wednesday’s data showed U.S. companies cut jobs in November at the fastest pace since early 2023, bolstering concerns about more pronounced weakness in the labor market. Exchange rates indicated rising expectations for a rate cut in December, with more than 90% of traders expecting a 25 basis point cut. “Unlike many Asian markets, Japan is more sensitive to developments related to expectations of a US rate cut, in part because the Fed can set the pace of the Bank of Japan via the exchange rate channel,” said Frederic Neumann, chief Asia economist at HSBC Holdings. He added that increasing confidence in the US interest rate cut, by easing pressure on the yen, “could give more room for the Bank of Japan to stay on an accommodative policy for a longer period of time.” Japanese bond yields rise in anticipation of the 30-year bond auction. Japanese bond yields rose sharply as bets intensified on an interest rate hike in the Bank of Japan’s expected December 19 decision. Investors awaited a 30-year bond auction later Thursday, after a 10-year bond sale saw strong demand earlier in the week. In Australia, yields rose to their highest level this year amid growing expectations that the central bank may return to raising interest rates to combat inflation. In currency markets, the dollar index was little changed after falling 0.4% in the previous session, as US Treasuries rose along the curve, pushing two-year bond yields to about 3.48%. The dollar’s decline increased pressure on weaker Asian currencies, such as the Indian rupee, which fell below the psychologically important 90 rupee level against the dollar on Wednesday. China weakens the yuan and limited gains for Asian stocks. Meanwhile, the “People’s Bank of China” set the reference exchange rate for the yuan at a level much weaker than estimates, indicating its attempt to limit the currency’s gains, which is approaching the level of 7 yuan against the dollar. Also read: China sends the strongest signal since 2022 of its intention to combat the rise of the yuan. Despite the small moves in Asian stocks this week, the MSCI regional index is on course for gains for the third session in a row. It rose 2.7% last week, the biggest increase since early October. “Relieving after the US ADB jobs data for November, and increasing hopes for a rate cut next week, are contributing to improved risk appetite in Asia-Pacific markets this morning,” said Homin Lee, chief macroeconomic strategist at Lombard Odier Singapore. As for Japan, he said: “If the results of another auction are muted, the market may begin to promote the story of a flattening yield curve and a recovery in demand for Japanese bonds, before the Fed decides to actually cut.” In commodities, silver fell slightly but was still trading near all-time highs amid strengthening interest rate cut bets. Also Read: US Rate Cut Bets Keep Silver Near Record Levels, Gold Drops Slightly Oil held on to slight gains as investors weighed the prospects for a ceasefire in Ukraine and the repercussions of tensions between the United States and Venezuela. Track trade developments and geopolitical tensions Trade and geopolitical developments were also the focus of investors’ monitoring. US Commerce Secretary Howard Lutnick said the United States expects a major investment pledge from Taiwan during trade talks. In a separate context, NVIDIA CEO Jensen Huang said he was not sure whether China would accept H200 chips if the United States eased export restrictions, after his meeting with Donald Trump on Wednesday. Also read: The president of “NVIDIA” is not confident in China’s desire for chips whose capabilities have been reduced. Despite this apparent optimism, the gains in US stocks came despite weakness in most major technology companies. Salesforce shares rose in extended trading after the company provided revenue forecasts that beat analysts’ estimates. Divided over path to interest rates US policymakers remain divided over whether to cut rates for the third time in a row as they try to balance a slowdown in the labor market with inflation that remains at high levels. Wednesday’s data showed the US services sector expanded at a slightly faster pace, while a measure of prices paid fell to a seven-month low. Also read: A rare split within the Federal Reserve over the path of long-term interest rates. Before the Fed’s last meeting of the year, officials will get a late reading of their preferred gauge of inflation. The September revenue and expenditure report is scheduled to be released on Friday, after a delay due to the government shutdown. The report will include the price index for personal consumption expenditures and its core index, which excludes food and energy. Economists expect a third consecutive increase of 0.2% in the basic index, keeping the annual reading slightly below 3%, which is indicative of stable but continuing inflationary pressures. Elias Haddad of Brown Brothers Harriman said: “Data currently point to the need for an additional rate cut. Labor demand is weak, consumer spending is showing early signs of slowing, and upside inflation risks are fading.”
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