Asian stock prices fall, yen collapse keeps markets on alert

By Tom Westbrook

SINGAPORE (Reuters) – Asian stocks fell and bond yields jumped on Thursday on inflation fears. The yen fell below 160 to the dollar and currency traders braced for Japanese intervention to stabilize the yen.

The dollar hit a six-week high against the pound and the kiwi, and was at 160.7 yen, just below Thursday’s 38-year high. The nervous mood left overheated sectors of the financial markets particularly vulnerable, with Nasdaq futures falling 0.5 percent.

Shares of leading chipmaker Micron Technology fell 8 percent in after-hours trading in the U.S. as the company met rather than exceeded high sales expectations. Japan’s Nikkei fell 1 percent. (.T)

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.5 percent. The biggest losses were in Australia, where interest-rate-sensitive stocks fell after data on Wednesday showed a surprise rise in inflation. (.AX)

“Australia’s inflation is currently at its highest level in the developed world,” said Ryan Felsman, senior economist at CommSec, and the market is reassessing the risks of further increases.

Australian three-year government bond yields rose 18 basis points on Wednesday after inflation rose to a six-month high in May, and rose another 10 basis points to 4.21% on Thursday after an overnight sell-off in US government bonds.

Swap markets estimate the probability of the Reserve Bank of Australia raising interest rates by 25 basis points in August to be around 40%; before the inflation surprise, the probability was around 10%.

Australian 10-year government bond yields are above 10-year US Treasury yields for the first time since February, and the Australian dollar remained stable despite broader dollar gains elsewhere.

The inflation surprise in Australia also followed a similarly unexpected rise in inflation in Canada, adding to the jitters in markets awaiting the next reading of the Federal Reserve’s preferred measure of US inflation on Friday.

Later Thursday, US GDP, European confidence numbers, a speech by the deputy governor of the Australian central bank and an interest rate decision in Sweden will take center stage before the first US presidential debate begins.

YEN CLOCK

In foreign exchange markets, US yields supported the dollar, which hit a two-month high of 106.13 against a basket of currencies on Wednesday. (FRX/)

The dollar index rose 1.3 percent for the month and nearly 1.5 percent for the quarter as expectations for interest rate cuts in the U.S. were tempered by stubborn inflation and strong economic data.

Yields on 10-year US Treasuries rose 8 basis points overnight and another 3 basis points in Tokyo to 4.343%, up 15 basis points for the current quarter. (US/)

The story goes on

After falling overnight, the New Zealand dollar fell another 0.1 percent on Thursday to a six-week low of $0.6069 and the pound sterling hit its lowest level in six weeks at $1.2613.

The yen, which fell to a historic low of 171.79 against the euro on Wednesday, remained fragile at 171.57 in Asia and was at 160.7 against the dollar, below the level that had led to Japanese interventions in April and May.

Japanese Finance Minister Shunichi Suzuki said he would not comment on the levels on Thursday, but reiterated that the government was concerned about the impact of the yen’s decline on the economy and was closely monitoring the foreign exchange market.

The yen is the worst performing currency of the G10 countries this year, losing 12% against the dollar. The fall is increasing pressure on the Bank of Japan to raise interest rates from near zero and loosen its grip on the bond market. Such a move is speculated to push the yield on 10-year Japanese bonds up 4 basis points to 1.06%. (JP/)

In commodity markets, Brent crude futures fell 0.4 percent to $84.92 a barrel, down 3 percent for the current quarter. Gold eased amid rising earnings, trading at $2,297 an ounce.

Wheat futures oscillated near two-month lows on signs of a good harvest in the US and improving weather in Russia.

(Edited by Shri Navaratnam)