Investing.com – Japanese and Australian shares fell on Wednesday, leading declines across Asia, as concerns about higher U.S. interest rates intensified ahead of the end of the Federal Reserve meeting later in the day.
Most other markets in the region were closed for the Labor Day holiday, which also kept broader trading volumes largely subdued.
Risk appetite was clearly negative after sharp losses on Wall Street overnight as new signs of persistent US inflation emerged. US stock futures fell in Asian trading.
Japanese stocks fall due to technology losses and yen volatility
Japanese benchmarks and indices each lost 0.7%, with tech heavyweights posting losses overnight compared to their U.S. peers.
Volatility also made investors wary of Japanese markets. The currency rebounded sharply from 34-year lows on Monday in what was likely seen as government intervention.
The strengthening of the yen reduces the earnings of Japanese corporations, most of which depend on exports.
However, the yen weakened on Tuesday, returning to the lows reached in April. This kept traders on edge regarding any further potential government intervention.
Purchasing Managers’ Index data also showed the Japanese market contracted slightly more than expected in April.
The Nikkei index was the worst performer in Asia in April as uncertainty over the Japanese economy and the Bank of Japan led traders to largely take profits after the index rose to record highs in March.
Australian shares fall, RBA in focus
Australia’s index fell 1.2% amid widespread losses. Sentiment towards Australian markets was also dampened by rising bets that the Reserve Bank of Australia could potentially raise interest rates further in the face of persistent inflation.
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Analysts at Rabobank said they now expect two more rate hikes from the RBA after inflation was higher than expected in the first quarter.
The RBA is expected to keep rates unchanged, at least for now. But the bank may step up its aggressive messaging.
Waiting for the Fed, concerns about rates grow
Broader markets were focused squarely on the latter on Wednesday, where the central bank is expected to keep rates steady.
But Fed Chair Jerome Powell could potentially offer a more hawkish stance, especially after a series of higher-than-expected inflation readings in recent months.
The bank is expected to start cutting rates only by September, if it starts cutting rates at all this year. This scenario does not bode well for risky assets like stocks.