Asian Markets Subdued as Investors Await BOJ and Fed Decisions

Asian stock markets remained cautious on Wednesday, with gold hovering near record highs amid economic uncertainties and geopolitical risks. The Bank of Japan (BOJ) held interest rates steady as expected, leading to slight weakness in the yen, while investors awaited key central bank decisions that could shape market sentiment.

The BOJ’s policy decision came ahead of the Federal Reserve’s highly anticipated announcement later in the day, where the U.S. central bank is also expected to maintain interest rates. Market participants are closely watching BOJ Governor Kazuo Ueda’s post-meeting press conference at 06:30 GMT for insights into the central bank’s next policy moves. Meanwhile, European markets indicated a muted opening, with EUROSTOXX 50 futures up 0.11% and DAX futures flat.

Yen Weakens Amid Cautious Monetary Policy

The Japanese yen traded at 149.79 per dollar, slightly weaker as policymakers signaled the need for more time to assess the impact of higher U.S. tariffs on Japan’s fragile economic recovery. Despite recent fluctuations, the yen has strengthened 5% against the dollar in 2024, reaching a five-month high of 146.545 per dollar last week due to rising expectations of BOJ rate hikes.

Having already raised rates in January, the BOJ unanimously voted to keep its short-term policy rate at 0.5% at its two-day meeting that concluded Wednesday. Analysts are speculating on when the central bank might tighten policy again, with some predicting a possible rate hike as early as June 2025, depending on wage growth and economic conditions. However, uncertainties surrounding U.S. President Donald Trump’s tariff policies could delay further rate increases to the second half of 2025.

Geopolitical Risks Keep Investors on Edge

Heightened geopolitical tensions contributed to market caution. Israeli airstrikes in Gaza killed more than 400 people, breaking two months of relative calm and unsettling investors. Meanwhile, Russian President Vladimir Putin agreed to pause attacks on Ukrainian energy infrastructure, though he refrained from endorsing a 30-day full ceasefire, adding to market uncertainty.

In currency markets, the euro remained near a five-month high at $1.093, following Germany’s parliamentary approval of a significant increase in government spending, strengthening the position of Chancellor-in-waiting Friedrich Merz.

U.S. Markets Brace for Fed’s Policy Announcement

Wall Street saw a sharp decline on Tuesday as investors braced for the Federal Reserve’s monetary policy decision and assessed the potential economic impact of Trump’s proposed tariffs. Uncertainty surrounding global trade policies, interest rates, and geopolitical tensions has kept risk appetite in check.

The Federal Reserve’s announcement is expected to provide fresh guidance on its economic outlook and future interest rate trajectory. The dollar index hovered at 103.34, near a five-month low, as traders priced in 58 basis points of Fed rate cuts for 2024, with the first cut fully expected by July (LSEG data).

Commodities Market Overview

• Gold prices surged to a record high of $3,045.24 per ounce, driven by geopolitical uncertainties and increased demand for safe-haven assets.
• Brent crude futures fell 0.5% to $70.2 per barrel, while U.S. West Texas Intermediate (WTI) crude slipped 0.54% to $66.53 per barrel.

As monetary policy decisions, geopolitical developments, and trade risks continue to shape market sentiment, investors are closely watching the Federal Reserve’s guidance for clearer insights into the global economic outlook.