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Asian stocks follow Wall Street after Fed meeting

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Dollar firms against most currencies

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Yen hovers near 155 per dollar level ahead of BOJ decision

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Market pricing in BOJ to stand pat

By Ankur Banerjee

SINGAPORE, Dec 19 (Reuters) - Asian stocks slid, bond

yields rose and the dollar was perched near a two-year high on

Thursday after the U.S. Federal Reserve cautioned it would ease

the pace of rate cuts in the coming year and investors braced

for a Bank of Japan policy decision.

The Fed cut interest rates on Wednesday as expected, but

Chair Jerome Powell's explicit references to the need for

caution from here on sent U.S. stocks sharply lower, with

Treasury yields surging and traders scaling back bets on rate

cuts next year.

The Dow Jones Industrial Average plunged more than

1,000 points.

Asian stocks have taken the cue from Wall Street, with

MSCI's broadest index of Asia-Pacific shares outside Japan

down 1%. Japan's Nikkei fell 1.8%, while

Australian shares slid more than 2%.

"I think we're in a good place, but I think from here it's a

new phase and we're going to be cautious about further cuts,"

Powell said at a press conference.

U.S. central bankers now project they will make just two

quarter-percentage-point rate reductions by the end of 2025,

which is half a percentage point less in easing next year than

officials anticipated as of September.

"The Fed was more hawkish than we anticipated but today's

shift in policy guidance plays right into our view of a long

pause by the Fed at the start of 2025," said Prashant Newnaha, a

senior Asia-Pacific rates strategist at TD Securities.

"The most meaningful surprises were concentrated on the

inflation projections. They reinforce higher for longer is

back."

The shifting expectation of Fed rate cuts lifted the dollar

index, which measures the U.S. currency against six

rivals, to its highest since November 2022 on Wednesday. It was

last at 108.15 in early trading on Thursday.

Sterling was steady at $1.25835 ahead of the Bank

of England policy decision later in the day where the central

bank is expected to keep interest rates unchanged, despite signs

of a slowing economy.

The yield on benchmark U.S. 10-year notes

touched a seven-month high of 4.524% on Wednesday and was last

at 4.51% in early Asian hours.

Tony Sycamore, market analyst at IG, said the outcome of the

Fed meeting should not have come as too much of a surprise to

investors who have watched the recent run of warm U.S. inflation

and activity data.

"However, it has served as the catalyst to wash away some of

the speculative excesses that flowed into risk assets, including

stocks and Bitcoin, following the US election," he said.

Bitcoin eased to $100,340 after dropping 5% on

Wednesday after Powell said the U.S. central bank has no desire

to be involved in any government effort to stockpile large

amounts of bitcoin.

BOJ DECISION LOOMS

The rising Treasury yields along with the looming policy

decision from the Bank of Japan later in the day sent Japan's

10-year government bond yield surging.

The BOJ's policy decision comes as the yen hovers around the

155 per dollar mark, the weaker end of a 139.58 to 161.96 range

it has held this year while under pressure from a strong dollar

and a wide interest rate disadvantage, despite the Fed's rate

cuts.

On Thursday, the yen last fetched 154.81 per

dollar, having touched a one-month low of 154.88 earlier in the

session. The yen is down more than 8% this year against the

dollar and is set for a fourth straight year of decline.

Traders currently price in just a 20% chance of the BOJ

hiking rates later on Thursday, with policymakers keeping

markets guessing and market expectations shifting from December

to January for the next hike.

Investor focus will be on comments from BOJ Governor Kazuo

Ueda to gauge not just the timing of the next rate hike but the

extent of hikes next year. Traders are currently pricing in 44

basis points of BOJ hikes by the end of 2025.

Carol Kong, a currency strategist at Commonwealth Bank of

Australia, said the recent sharp yen weakening will add pressure

on the BOJ to hike on Thursday.

"We stick to our call for a 25 basis point hike because of

high inflation, business confidence and wage growth. But we

would not be surprised if the BOJ delays the rate hike until

January ... we expect it (BOJ) will lay the groundwork for a

hike in early 2025."