By Daniel Leussink

TOKYO, Reuters – Asian stocks took a hit on Friday following hawkish comments from Federal Reserve officials. This raised expectations that U.S. rates would rise in March and left markets anticipating tighter monetary conditions.

On Thursday, Lael Brainard, the Fed Governor became the most powerful and senior U.S. central banking official to announce that interest rates would rise in March in an effort to fight inflation.

The equity market turned very red as investors sought shelter in more secure assets like government debt.

MSCI’s Asia-Pacific share index outside Japan lost 0.8% during mid-morning trading, while Australia saw a loss of 1.2% and a decline of 1.9% in the middle-day break.

South Korean shares plunged 1.5% as the central bank increased its benchmark rate by 25 basis points, to 1.25%, on Friday. It is trying to limit consumer price inflation and it has done so to restore its position before the pandemic.

China’s Blue-chip Index was 0.3% lower than Hong Kong’s.

“Everyone is really anxious right now. This is because all of it could come under the pressure from Fed policy,” Kyle Rodda (a market analyst at IG) in Melbourne said.

“There’s hope that it will be an easy and painless handoff towards normal policy,” he said. With the Fed treating inflation as a serious matter, that is not always possible.

Christopher Waller (Federal Governor), who repeatedly calls for more aggressive responses to high inflation, said later Thursday that a quick-fire series four or five U.S. rates hikes might be necessary if the inflation does not recede.

According to data released Wednesday, U.S. inflation measured as the Consumer Price Index soared by 7.0% in December. It was nearly 40 years since its lowest year-on–year growth, according to data.

SHIFT TO SAFETY

Yields on the bond market were at 1.725%. They are slowly rising to Monday’s close-to-two year highs. It signals investors’ preference for government debt rather than volatile technology and growth stock.

Japan’s 10-year yield on government bonds was 0.156%. This is its highest point since March 2021.

The market was facing a greater persistent risk from growing demand to have safe-havens.

This is problematic because each asset could have been inflated by loose money policy,” he said.

“Every asset will need to be adjusted to reflect tighter or higher monetary policy.”

While the Fed’s hawkish approach has been a benefit to the U.S. currency, the dollar did not get much bid against the Japanese yen on Friday. This is because the Japanese yen has historically drawn interest from safety-oriented flights.

It was at 94.767 and then settled above the two-month low. After three days with sharper falls, it traded in tighter territory.

Euro remained near $1.1464, close to its two-month peak of $1.1481.

The Japanese yen made a bid in the risk-averse mood and traded at 113.85. This is near the highest trading level for the greenback in three weeks.

The spot price of gold in commodities markets was slightly higher at $1.823 per ounce. However, it is still well below its January peak of $1.831.

After two days of gains, oil prices fell as investors took profits. However, the loss was partially offset by the hope of strong demand in an oversupplied market for the long term. [O/R]

The barrel price fell by 27 cents, to $84.20 per barrel. It lost 43 cents, to $81.69.