Asian stocks muted, yen softer ahead of rates decision

Asian stocks are subdued and gold is hovering near record highs as economic worries and a shifting geopolitical landscape keep risk appetite in check, while the yen is a tad softer ahead of the Bank of Japan’s policy decision.

The euro remained close to the five-month high it reached on Tuesday after Germany’s parliament approved plans for a significant increase in spending, handing conservative leader and the chancellor-in-waiting Friedrich Merz a huge boost.

Geopolitical tensions escalated as Israeli airstrikes pounded Gaza and killed more than 400 people on Tuesday, shattering nearly two months of relative calm since a ceasefire began, unnerving investors.

Adding to the unease, Russian President Vladimir Putin agreed to temporarily stop attacking Ukrainian energy facilities but refrained from endorsing a full 30-day ceasefire.

“While Russia-Ukraine ceasefire talks are ongoing, most feel that we’re no closer to anything truly tangible and a lasting agreement,” said Chris Weston, head of research at Pepperstone.

That left investor sentiment fragile and market moves muted, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.12 per cent. Japan’s Nikkei was 0.5 per cent higher on a weak yen.

The focus in Asian hours will also be on Indonesian stocks after the stock market there clocked its sharpest fall in nearly three years on Tuesday, on concerns over the government’s fiscal strategy and the nation’s growth prospects.

US stocks fell sharply on Tuesday as investors exercised caution ahead of a monetary policy decision from the Federal Reserve, while gauging the potential impact of President Donald Trump’s tariff policies.

Thomas Poullaouec, head of multi-asset solutions for APAC at T. Rowe Price, said on-and-off tariff threats have upended markets trying to weigh the impact on growth and inflation.

“Prolonged uncertainty will begin to have real impacts on policymaker, corporate and consumer behaviour leaving us more cautious near term, and watching for opportunities amid expected higher volatility.”

All eyes during Asian hours will be on the BOJ. The central bank is widely expected to stand pat on rates as policymakers spend more time assessing how prospects of higher US tariffs would affect the export-reliant economy.

Markets are focusing on Governor Kazuo Ueda’s post-meeting briefing for clues on how soon the central bank could next raise rates, a decision complicated by the contrast between benign domestic data and uncertainty caused by Trump’s trade policy.

“The underlying macro backdrop – activity and prices – is likely to unfold in a manner consistent with the BOJ’s forecast. As such we expect the BOJ to hike two more times this year by 25 basis points each in May and October,” ANZ strategists said in a note.

Rising odds of the Japanese central bank raising interest rates this year have helped push the yen higher, gaining 5 per cent against the dollar so far this year.

The yen was last at 149.58 per dollar, slightly weaker on the day but close to the five-month high touched last week.

The dollar index, which measures the US currency against six rivals, was steady at 103.34, hovering near the five-month low it touched in the previous session.

Investor attention later in the day will switch to the Fed. The US central bank is expected to hold interest rates steady, with the focus on the new economic projections from policymakers as well as comments from Fed Chair Jerome Powell.

“The Fed, just like the market, desperately needs some visibility on trade, tariffs and overall policies, and we expect Powell to avoid ifs and buts and instead continue to advocate for a data-dependent approach,” said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management.

Traders are pricing in 58 basis points of easing this year from the Fed, with the first cut fully priced in for July, LSEG data showed.

In commodities, Brent crude futures eased 0.24 per cent to $70.39 a barrel, while US West Texas Intermediate crude slipped 0.2 per cent to $66.75 in early trading.

Gold prices eased to $3,029 per ounce, just below the record high touched on Tuesday as geopolitical jitters led to safe-haven flows.