Japanese stocks hit two-week low as Fed, BOJ meetings loom

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TOKYO — Japanese shares fell on Wednesday, in line with Wall Street and other broader Asian peers, as investors adjusted positions ahead of key policy meetings by the U.S. Federal Reserve and the Bank of Japan this week.

The Nikkei share average was down 1.37% at 27,308.66 at the midday break. The index hit a two-week low of 27,297.5 earlier in the day.

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The broader Topix fell 1.28% to trade at its lowest level since Sept. 7.

Markets have priced in a rate hike of at least 75 basis points, with an 18% chance of a full percentage point, as the US central bank is expected to step up its brutal approach to tackling the inflation

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“If the Fed implements a rate hike of 75 basis points, as most people expect, the market should avoid upsets,” said Yasushi Yokoyama of Aizawa Securities, adding that investors are already looking to on the next climb.

However, the Bank of Japan is seen as unlikely to depart from its dovish path as the only major central bank not to raise interest rates this year, despite the country posting a fifth consecutive month of inflation above the bank’s 2% target.

“Upward price pressures are heavily biased towards food so far, and we therefore believe this acceleration in August will not lead to a policy change by the BoJ,” JP Morgan economist Yuka Mera wrote in a research note.

“For monetary policy adjustment, the BoJ will need to see a broadening of price pressures, particularly in services and wage inflation.”

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Japanese government bond yields rose ahead of central bank meetings, with the 5-year note adding 1.5 basis points to 0.065%, its highest since June.

The BOJ made unscheduled offers to buy several JGBs in the morning, but the response was muted and the benchmark 10-year note remained untraded with the final yield at 0.25%, the implicit policy limit of the CRAZY

The yen was flat at around 143.7 to the US dollar, still in the range of a 24-year record low.

The Nikkei index saw 181 of its 225 components fall in the morning session, while 42 gained and two traded flat.

Air conditioner maker Daikin Industries Ltd weighed more on the index with a 3.88% drop.

Japan Steel Works Ltd was the best performer, rising 6.08% even as the company cut its profit forecast for the current fiscal year.

Energy and financials were the only sectors to gain overall.

(Reporting by Sam Byford and the Tokyo markets team; Editing by Sherry Jacob-Phillips)



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