By Ankur Banerjee
SINGAPORE, Sept 18 (Reuters) - Asian stocks rose and the dollar held its ground on Friday as investors contended with global policymakers ramping up efforts to rein in inflation, with the Bank of Japan joining the fray in delivering a widely expected rate hike that left the yen softer.
Monetary policy response is in focus this week as the over six-month-long war in the Middle East shows few signs of ending, keeping oil prices above $100 per barrel and fanning inflation fears across
the globe.
The yen weakened 0.5% to 156.75 per US dollar in immediate reaction to the BOJ raising interest rates to a 31-year high of 1.25% to forestall the risks of overshooting its 2% inflation target. The yen is up nearly 2% this month.
The board decided by a 7-2 vote to raise its policy rate from 1%. Board members Toichiro Asada and Ayano Sato dissented from the decision.
"The tone of the statement, along with two dissenters for the decision to raise rates, leaves lingering doubts that Japan’s central bank will be cautious in tightening monetary policy further," said Fred Neumann, chief Asia economist at HSBC.
"While back-to-back hikes appear unlikely, investors will look for clues as to whether officials are prepared to raise interest rates again in December."
The yen has rallied this month on expectations of a faster pace of rate hikes from the BOJ and early signs of repatriation from Japanese investors but has given up some of those gains this week as the US central bank took a hawkish turn.
"Governor Ueda will need to convince markets that the BOJ is inclined to hike rates at a faster pace," said Sarah Hammoud, currency strategist at Commonwealth Bank of Australia. "We expect the BOJ to hike rates again in December. We consider the risk is that Ueda fails to match the market’s hawkish expectations."
Ueda is expected to hold a news conference at 3:30 p.m. (0630 GMT) to explain the decision.
The Bank of England warned on Thursday it may have to hike if the Middle East war drags on while the Federal Reserve raised rates on Wednesday for the first time in three years and flagged more in the coming months. The European Central Bank last week also cautioned the need for further tightening as it raised rates.
Adding to the chorus of hawkish voices, Australia's top central banker said on Friday some of the upside risks to inflation flagged by policymakers appeared to be materialising.
Michele Bullock, governor of the Reserve Bank of Australia, said a key question facing policymakers at its policy meeting this month would be whether three rate hikes this year would be enough to bring inflation back to the 2%-3% target.
RETREATING OIL PRICES LIFT SENTIMENT
Hopes of alternate ways for oil supply from the Middle East to reach markets pushed Brent crude futures down as much as 1.5% to $103.29 a barrel even as concerns about strikes between Saudi Arabia and Yemen's Houthis lingered.
That along with a rally on Wall Street overnight led by beaten-down tech stocks helped buoy risk appetite. Bond prices also steadied after another brutal selloff this week that took the 10-year US Treasury beyond 5% to its highest since 2007. It was last at 4.936%. [US/] [.N]
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose about 1%. Japan's Nikkei was 0.8% higher while tech-heavy South Korea's KOSPI surged over 2%.
The euro was steady at $1.148, but on course for a 1% drop for the week, its biggest drop since June. [FRX/]
In commodities, spot gold rose 0.5% to $4,361 an ounce. [GOL/]
(Reporting by Ankur Banerjee in Singapore; Editing by Christian Schmollinger)
