Asian shares were mostly lower Thursday, with Tokyo dropping more than 1% as the Japanese yen gained after the Federal Reserve said it would keep interest rates low through 2022.
Asian markets had been expected to fall after the Fed signaled a long path to recovery from the devastation of the coronavirus pandemic.
Overnight, stocks ended a bumpy day mostly lower on Wall Street, though gains for several big technology companies helped push the Nasdaq above 10,000 for the first time. It gained 0.7%, to 10,020.35.
The Fed has cut its benchmark short-term rate to near zero, making the dollar less attractive for investors, as part of a historic effort to counter the economic ravages of the coronavirus pandemic.
Investors tend to seek refuge in the yen in times of financial turmoil, but a strong yen tends to hurt Japan’s major exporters, such as Toyota Motor Corp. and Fast Retailing Co.
Toyota shares fell 1.9% while Fast Retailing’s also dropped 1.9% by midday.
The dollar fell to 106.98 Japanese yen from 107.12 yen late Wednesday. The euro rose to $1.1387 from $1.1377.
Japan’s benchmark Nikkei 225 lost 1.2% to 22,842.90 and South Korea’s Kospi edged 0.2% lower to 2,190.74. Australia’s S&P/ASX 200 sank 2.3% to 6,010.20.
Hong Kong’s Hang Seng gained 0.3% to 24,970.72, while the Shanghai Composite was little changed, inching down less than 0.1% to 2,943.11.
On Wednesday, the S&P 500 fell 0.5% to 3,190.14 and the Dow Jones Industrial Average fell 1% to 26,989.99. Small company stocks bore the brunt of the selling, with the Russell 2000 index losing 2.6% to 1,467.39.
Bond yields were broadly lower, reflecting renewed caution among investors.
The yield on the 10-year Treasury yield slid to 0.72% from 0.82% late Wednesday. It tends to move with investors’ expectations of the economy and inflation, though it’s still well above the 0.64% level where it started last week.
The Federal Reserve emphasized Wednesday that the central bank will keep providing support to the economy by buying bonds to maintain low borrowing rates.
It forecast no rate hike through 2022, which could make it easier for consumers and businesses to borrow and spend enough to sustain an economy depressed by business shutdowns and high unemployment.
The move to leave its key interest rate unchanged wasn’t a surprise to investors, but it was seen as an ominous signal given that nearly all of the members of the central bank’s Federal Open Market Committee foresee no rate hike through 2022 was noteworthy, said Brian Nick, chief investment strategist at Nuveen.
“What you have on the FOMC is unanimity that rates ought to stay low and that their communication should continue to emphasize that they’re not going to raise interest rates, absent a material improvement in the economy,” he said.
The combination of low interest rates and low inflation has been a key driver for gains in big technology companies that can grow almost regardless of the economy.
“That’s been the magic formula for growth stocks,” Nick said.
Wall Street has been generally rising since late March, at first on relief following emergency rescues by the Fed and Congress. More recently, investors have begun piling into companies that would benefit most from a reopening economy that’s growing again. The S&P 500, a benchmark for many index funds, is now within 6% of reclaiming the all-time high it reached in February.
Still, uncertainty remains over how quickly economies can recover from the pandemic, given that the numbers of infections and fatalities are still rising in many countries.
Fed Chair Jerome Powell said employment data for May that showed employers added jobs instead of slashing more was encouraging but hardly enough to ensure the labor market or economy is back on track.
“The labor market may have hit bottom in May,” Powell said. But, he added, “we’re not going to overreact to a single data point.”
In other trading, benchmark U.S. crude oil fell 97 cents to $38.63 a barrel in electronic trading on the New York Mercantile Exchange. It rose 1.7% to settle at $39.60 a barrel on Wednesday. Brent crude, the international standard, fell 90 slipped to $40.83 a barrel.
The Organization for Economic Cooperation and Development said Wednesday that the coronavirus crisis has triggered the worst global recession in nearly a century. It projected that the global economy will shrink by 6% this year in a best-case scenario, with only a modest uptick next year.
The estimate, which is based on an analysis of the latest global economic data, suggests an even sharper decline of 7.6% if there is a second wave of coronavirus outbreaks this year.