Published:  01:00 AM, 11 January 2019

Asian markets retreat after rally as strong yen hits Tokyo

Asian markets retreat after rally as strong yen hits Tokyo Pedestrians cross a street in front of a stock indicator board displaying share prices of the Tokyo Stock Exchange in Tokyo on January 7, 2019. -AFP

Asian markets mostly turned south Thursday as investors took a breather after rallying this week on optimism over China-US trade talks and the Federal Reserve's softer tone on interest rates.

There was also growing unease over the US government shutdown, which is now in its third week, after President Donald Trump walked out of a meeting with Democrats to resolve the issue, meaning it will likely drag on for some time to come.

Tokyo led the losses, with exporters hit by a rising yen against the dollar after minutes from the Fed's latest policy meeting showed the policy board happy to slow its pace of rate hikes to prevent a slowdown in the economy. Central bankers said they "can afford to be patient" owing to low inflation and uncertainty about the outlook and while there would likely be more increases in borrowing costs, it would be a "relatively limited amount".

The minutes reinforced comments from Fed boss Jerome Powell last week thatthere was no "pre-set" plan on rates, which fanned a global market rally. Fears about rising costs were a key factor in driving equities lower last year. They also fuelled a dollar sell-off with the greenback weakening across the board and the Chinese yuan at its highest level since late August.

While the dollar stabilised against its major peers Thursday, it saw more losses against higher-yielding currencies, with the new-found optimism providing a boost to riskier assets. "I'm happy to see that there was caution in the minutes," Alicia Levine, chief strategist at BNY Mellon Investment Management, told Bloomberg TV.

"You want it to be that this is what the (Fed policy board) really believes, that caution is warranted, that they're going to be data-dependent, and there are alternative outcomes that they should be aware of. I take great comfort in these minutes."

Shanghai closed 0.4 percent off as data showed inflation weakening, fuelling concerns about the return of deflation that could hurt the economy and company profits. Seoul eased 0.1 percent, while Wellington, Taipei and Mumbai fell, though Sydney gained 0.3 percent and Singapore rose 0.5 percent.

-AFP, Hong Kong

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