The powerful rally that had been taking place across Asian stocks for three days came to an abrupt halt Thursday. Scott Bessent’s bombshell remarks sent shockwaves through the currency markets. They strengthened the yen, and Japanese shares fell sharply.
This move triggered a drastic divergence in the entire region. Tokyo’s shares fell, while Shanghai’s soared and Bitcoin reached a record high.
MSCI Asia Pacific Index dropped 0.2% due to a decline of 1.4% in Japan. A sudden surge of 0.5% in the yen versus the dollar was the catalyst, as it was directly a reaction to Bessent’s criticism of Bank of Japan.
He said that the BOJ was “falling behind” the curve in combatting inflation, and that he anticipated it would raise rates. Bessent also continued to pressure the Federal Reserve and sent the dollar down against its Group of 10 peers.
Rodrigo Catril is a Sydney-based strategist with National Australia Bank Ltd.
In recent weeks, it seems that the market has taken more note of Bessent’s comments, and the undercurrent is pushing down the dollar.
Fed in the spotlight
Bessent’s remarks on the Fed are his most direct yet. They cement expectations of a more accommodative monetary policy, which has sent global stock prices to new highs in this past week.
He advocated a drastic easing cycle in a Bloomberg Surveillance interview Wednesday.
He said that the Fed could begin a rate-cutting series in September, beginning with a rate reduction of 50 basis points. The benchmark rate should be 1.5 percentage point lower than it is currently, which ranges between 4.25% and 4.5%.
The market has fundamentally changed its focus due to the external pressure of the Trump Administration. The debate has shifted after a benign US reading on inflation earlier in the week. It is now not about whether the Fed will reduce, but how much.
Ian Lyngen, BMO Capital markets: “As market participants continue to process the change… the intuitive question is how much of a reduction should Powell make?”
Dalal Street: A Flat Start
The complex world picture is translating to a conservative mood in Dalal Street. It looks like the session will start flat for a week that has been shortened by holidays.
The GIFT Nifty Index was almost unchanged around 7:50 a.m. at 24,699, indicating a quiet start.
The move comes on the heels of a positive session that took place on Wednesday. Frontline indexes rose by over a half percent, based on global signals. Experts had warned caution and suggested that the rise could be a “bulltrap.”
The NSE’s provisional data shows that Foreign Institutional Investors were net sellers, with shares valued at Rs 3,644 billion, and Domestic Institutional Investors were net buyers, to the tune Rs 5,623 billion.
While traders are digesting the changes in monetary policy, they will also be watching a U.S. producer price report due on Thursday to get more insight into inflation.
The geopolitical situation is also tense, as President Trump has warned that he will impose “very serious consequences” on Vladimir Putin if he doesn’t accept a ceasefire before their meeting next week. This adds another layer of unease to the current market environment.
As new information becomes available, this post Asian Markets Open: Nikkei falls 1.4% and Sensex is poised to start flat amid global changes may be updated.
