Oil Tops $101 as BoJ Signals Further Rate Hikes and Inflation Risks Rise
Asian stocks declined on Thursday, tracking losses on Wall Street as higher oil prices renewed concerns over inflation and the prospect of tighter global monetary policy. Brent crude held above $101 a barrel, while the MSCI Asia Pacific Index fell 0.6%, with benchmark indexes in Japan, South Korea, Taiwan, and Australia all declining.
The weakness followed a 0.5% decline in the S&P 500 and a 0.3% drop in the Nasdaq 100 on Wednesday. Risk sentiment showed some signs of improvement, however, with US and European equity futures edging higher.
Brent crude climbed as high as $101.94 in Asian trading after Iran said it was preparing for a more intense conflict following renewed hostilities in the Middle East. Oil prices had already risen on Wednesday after an Iranian official said the country would not back down in the face of the US naval blockade and attacks on its oil tankers.
The escalation has kept concerns over potential disruptions through the Strait of Hormuz firmly in focus. The 10-year Treasury yield remained near Wednesday’s high of 4.85%, its highest level since late 2023, even after the US government announced plans to purchase up to $6 billion of longer-dated debt.
Bank of Japan board member Kazuyuki Masu said the central bank will continue raising its benchmark interest rate to ensure that the price trend remains around its 2% target. He said it would be unnatural for the policy rate to remain below the BoJ’s estimated neutral-rate range, adding that rates have remained below that level for a long time and need to be adjusted soon.
Masu said the BoJ will carefully consider the Yen, crude oil prices, and global food prices at next week’s meeting when deciding on interest rates. He also said underlying inflation is gradually approaching 2%, but does not currently appear likely to overshoot sharply above that level. When asked about the possibility of a 50-basis-point rate hike, Masu said the bank should take a cautious approach in raising borrowing costs.
The Yen strengthened 0.1% to 153.46 per Dollar following Masu’s comments. The Dollar remained near a four-month low as traders awaited further US economic data for clues on the Federal Reserve’s policy outlook. The Bloomberg Dollar Spot Index slipped 0.1% after reaching its lowest level since early May.
In Europe, the Euro traded within a narrow range ahead of the European Central Bank’s policy decision, with officials widely expected to raise rates by 25 basis points.
Chinese chipmakers also raised prices for AI processors, including products from Huawei and Cambricon.
Meanwhile, President Donald Trump proposed giving all adult US citizens a $5,000 dividend if Republicans retain control of both houses of Congress. Markets largely shrugged off the proposal.
Iran also said it is prepared for a more intense war and would escalate counterstrikes if the US continues attacking its territory and infrastructure.
In the US bond market, Treasury Secretary Scott Bessent’s move to expand the department’s debt buyback program struggled to halt market declines on Wednesday, after the announcement of the size of the first enlarged operation failed to prevent further weakness.
Overall, Asian markets came under pressure as oil prices moved above $101 a barrel and renewed Middle East hostilities increased concerns over inflation and tighter monetary policy. At the same time, the BoJ signaled further rate increases, while the Dollar remained near a four-month low ahead of additional US economic data.
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