Singapore: The yen eased and Japanese government bond futures rose to a seven-year peak on Tuesday amid reports the Bank of Japan may unveil monetary policy easing steps that are more aggressive than expected at its meeting later.
Asian stock markets fell, with resource shares prominent losers, pressured by declines in US equities and in oil and metals prices.
The Bank of Japan policy decision, due around 9-10:30am, comes as central banks in Japan, the United States and Britain are under political pressure to do more to support economies showing only tepid recovery from the worst recession in decades.
“The BOJ is being pushed into a corner. It cannot ignore government calls for action as that may prompt it to revise the BOJ law,” said Koichi Haji, chief economist at NLI Research Institute.
The BOJ had been expected to take modest easing measures such as expanding its money market operations, but the Nikkei business daily reported on Tuesday it could take more aggressive action such as increasing its purchases of long-term government debt.
Ten-year Japanese government bond futures edged up 0.02 point to 143.47, having reached a seven-year high at 143.59 earlier. The benchmark yield was flat at 0.935%, having dipped to 0.925% earlier.
Traders said the reaction was muted as the market was unconvinced the BOJ would pile into the long-term JGB market, seeing purchases of asset-backed securities as more likely.
The yen softened, although not dramatically, with the dollar gaining around 0.3% against the Japanese currency.
Foreign exchange markets were also watching Australia’s central bank, which as due to deliver its interest rate decision at 9:00am.
Expectations the Reserve Bank of Australia will raise borrowing costs by 25 basis points to 4.75% kept the Australian dollar firm near a two-year high, although market players said a rate rise was not fully priced in.
“The Australian dollar will probably gain if the RBA raises rates as expected,” said a trader at a Japanese brokerage.
Japan’s Nikkei share average touched its lowest level in three weeks and was flat at the mid-session break.
MCSI’s broadest index of Asian shares outside Japan fell 0.6%, with its materials sub-index the biggest drag, down 1.3 percent. Only the utilities sub-index was in positive territory.
US stocks fell on Monday as investors used middling economic data and worries about euro zone debt as a reason to cash in recent gains. The Dow Jones industrial average fell 0.7% and the broader S&P 500 0.8%.
Falling resource stocks took their toll on Australia’s benchmark index which fell 0.8%, with mining heavyweights BHP Billiton and Rio Tinto both shedding more than 1.5%.
US crude oil futures edged down 0.1% to $81.40 a barrel after easing in the previous session due to a stronger dollar, which also pushed down copper prices.
A stronger US currency tends to weigh on dollar-denominated commodities by making them more expensive for holders of other currencies.