Asia report: Shares mixed as yen, possible BoJ rate hike in focus

(Sharecast News) - Asian markets finished mixed on Friday as the yen weakened further, with traders increasingly pricing in the prospect of additional Bank of Japan rate hikes.

The currency hovered around ¥159 to the dollar, having surrendered part of its recent interventiondriven rebound, and the shift in rate expectations kept volatility elevated across regional forex markets.

The Nikkei 225 closed 0.62% higher at 68,732, while Hong Kong's Hang Seng finished 1.10% lower at 25,116. The Shanghai Composite ended flat 3,927, South Korea's Kospi gained 2.42% to 6,947, and Australia's ASX 200 closed 0.8% lower 9,115.

Across the region, sentiment was uneven as investors weighed softer US inflation data against lingering concerns over global rate trajectories.

A media report said the Bank of Japan is preparing to lift rates at its 17-18 September meeting, with policymakers also considering whether to speed up the pace of tightening beyond the current twiceyearly rhythm.

Policy makers are growing increasingly concerned over rising inflation pressures, including elevated wholesale prices, strong global AIdriven demand and the persistent weakness of the yen despite last month's joint Japan-US intervention.

"Sanae Takaichi - the Japanese PM who is famous for her explicit preference for softer interest rates and robust government spending - is facing the ugly reality that interest rates in Japan must be lifted to ease the persistent selling pressure on the yen which, in turn, is probably hurting the Japanese economy more than higher rates would," Swissquote analyst Ipek Ozkardeskaya.

"The latest news suggests that the Japanese government is now turning 'supportive' of a near-term rate hike. The Japanese 10-year yield is pushing above the 2.85% level today - we are more than a full percentage point above the levels that investors thought would trigger a reverse carry trade."

"One big scare is that the more appealing Japanese yields will, at some point (potentially in the near future), trigger a reverse carry trade and pull the rug from under the feet of US sovereign bonds at the worst possible time - when the Fed is under pressure to keep rates lower!"

Reporting by Frank Prenesti for Sharecast.com