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Talking Points:

  • Asian stock market action was muted after the Fed
  • The Nikkei 225 rose, probably on a stronger US Dollar
  • The Bank of Japan left its monetary settings alone

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Asian markets were mixed and narrow Thursday as investors mulled a crucial monetary policy meeting from the US Federal Reserve.

The Fed said it would start winding down its vast, $4.5 trillion balance sheer in October. It left interest rates unchanged, as had been almost universally expected, but left the door wide open to a move later this year, with market odds on a December increase now up to 75%. The central bank kept its growth forecasts unchanged but it did lower its inflation expectations. This in turn saw it lower its own expectation for rate increases out to 2019 to three from four. There was still a good deal of effective monetary tightening there, and both the US Dollar and Treasury yields rose. Asian stocks took the news gingerly. A stronger Dollar rarely causes Japan’s export titans much concern and the Nikkei duly rose 0.2%. Financials also got a lift from higher interest rate prospects, but all other major Asian bourses were in the red by the close, albeit not by much.

The Bank of Japan left its monetary settings alone, again as expected, while the Australian Dollar took a modest if barely explicable hit when Reserve Bank of Australia Governor Philip Lowe said that higher interest rates elsewhere had no “automatic link” to domestic monetary policy. Indeed, the US Dollar was broadly stronger, rising to two-week highs against the Yen, firming up still further later in the session when Bank of Japan Governor Haruhiko Kuroda recommitted to ultra-loose monetary policy until inflation rises to the 2% target, distant thought that day would appear to be.

Gold prices retreated again as the prospect of higher US yields kept investors away, while oil prices slipped on news of higher inventories and production.

The rest of the session will offer investors UK public finance data, US house price numbers along with continuing and initial jobless-claims figures. The Philadelphia Fed’s manufacturing survey is coming up, as are US leading indicators. European Central Bank President Mario Draghi will speak in Frankfurt while Eurozone consumer confidence data are also due.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX