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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 weakens to 155.43 per dollar level after BOJ decision

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BOJ stands pat as expected

(Updates after BOJ policy decision)

By Ankur Banerjee

SINGAPORE, Dec 19 (Reuters) - Asian stocks slipped 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, while the Bank of Japan kept rates

steady, as expected.

The yen weakened to touch a one-month low of

155.43 per dollar after the decision. The yen is down more than

8% this year against the dollar and is set for a fourth straight

year of decline.

The BOJ's 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.

Investor focus will now 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.

Ueda is expected to hold a press conference at 0630 GMT to

explain the decision. Board member Naoki Tamura dissented and

proposed raising interest rates to 0.5% on the view inflationary

risks were building, but his proposal was voted down.

"The hawkish Fed dot plot overnight gave the BOJ an option

to increase rates, and there was one dissenting vote for a 25

bps hike, so it looks like rates will be going up early in

2025," said Ben Bennett, Asia-Pacific investment strategist at

Legal and General Investment Management.

The Fed's hawkish shift sent Wall Street lower and Asian

stocks followed suit, with MSCI's broadest index of Asia-Pacific

shares outside Japan down 1%. Japan's Nikkei

was down 1%, while Australian shares slid nearly

2%.

The Dow Jones Industrial Average plunged more

than 1,000 points.

The policy decisions from the two central banks

underscored the challenge facing the global economy as the

biggest participant, the United States, comes under

President-elect Donald Trump's leadership early in the new year.

Fed Chair Jerome Powell said some officials were

contemplating the impact of Trump's plans such as higher tariffs

and lower taxes on their policies, while Ueda highlighted

Trump's policies as a risk in an interview last month.

"The risks that are clearly inherent here, and left

partially unsaid, are what the Trump administration could bring

to the table in terms of inflationary pressure," said Rob

Thompson, macro rates strategist at RBC Capital Markets.

"If the market decides the Fed's done, whether it's

Trump or inflation picks up regardless over the next year, the

risk is that we could re-price towards hikes later on. Did this

tell us anything? Yeah. The market might still be a bit

complacent around some of these risks."

FED JOLTS MARKETS

The Fed cut interest rates on Wednesday as expected, but

Powell's explicit references to the need for caution from here

on sent markets into a tailspin.

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.

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

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

at 4.514%.

In cryptocurrencies, bitcoin briefly slipped below

$100,000 level after Powell said the U.S. central bank has no

desire to be involved in any government effort to stockpile

large amounts of bitcoin.

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.

Gold was last up 0.8% at $2,609 per ounce.