Fed’s Hawkish Hike to Pressure Asian Currencies, Strategists Say

(Bloomberg) — The US Federal Reserve’s hawkish hike is set to pressure Asian currencies, especially the yen ahead of the Bank of Japan’s monetary policy meeting on Friday, according to market strategists.

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The yen could weaken toward its 200-day moving average of about 158 per dollar, while bond yields will be dictated by moves in their US peers, strategists said. Stocks, particularly those sensitive to interest-rate movements, are under pressure.

“Nerves are likely to linger across Asian markets given the newfound level of hawkishness from the Fed,” according to Tim Waterer, chief market analyst at KCM Trade.

Read: Fed Raises Rates to Curb Inflation, Drawing Rebuke From Trump

Here is what market strategists said about the Fed rate hike:

ACCM Prime (Glenn Yin)

“Japan is certainly facing an enormous amount of pressure to both hike and deliver a hawkish message to minimize the damage, particularly the fact that Fed’s SEP shows another hike is on the way before year end”

Given that Japan has already intervened several times to prop up the yen, if the BOJ doesn’t deliver a hawkish message tomorrow along with a hike, the dollar-yen pair will start rising again. The 160 level in short order is not a risk you can write off

The Fed’s renewed tightening cycle is eroding Australian dollar’s attractiveness backed by RBA’s relatively high cash rate

“I think this, coupled with elevated energy prices and projected inflation outlook, will give RBA a concrete reason to hike by the end of the month”

AT Global Markets (Nick Twidale)

“We are going to see the dollar appreciate against the JPY as the day continues, although traders will be wary with long positions given the recent moves that we have seen”

“The major update now with regard to interest rate differentials will be how hawkish the BOJ is on Friday”

Sees yen USD/JPY pair testing the 200-day moving average around 158.40

With BOJ hike now being a certainty, “it will be all down to the detail in the statement and press conference. I do expect them to be hawkish and I think that will lead to some yen buying on Friday”

KCM Trade (Tim Waterer)

“With at least one more hike expected in this cycle, yields and the dollar have moved higher, while growth-sensitive assets such as stocks are on a less firm footing with the prospect of even tighter monetary conditions still in the pipeline”

“Nerves are likely to linger across Asian markets given the newfound level of hawkishness from the Fed and the potential for other central banks to follow suit”

Vantage Global Prime (Hebe Chen)

For the bond market, the Fed move is likely to cast a long shadow rather than create a short-lived storm. The storm can pass; the higher cost of money stays behind, and that is the part that can keep pressure on valuations well beyond today’s reaction

Asia sits directly inside that shadow. Higher Treasury yields and a firmer dollar can pull capital back toward the US, pressure regional currencies and local bond markets, and leave Asian central banks with less room to ease — while higher-duration equity markets such as Korea and Taiwan remain particularly sensitive through their heavy technology exposure. Further out, this does not necessarily mean a straight-line sell-off, but it does change the equation: the valuation cushion gets thinner, the cost of capital gets heavier, and earnings will increasingly have to carry the market on their own shoulders.”

Apostle Funds Management (Joe Unwin)

The Fed’s hawkish tone should put upward pressure on Australian government bond yields

“While the two markets don’t necessarily move in tandem, the Fed’s decision signals that the global rate cutting cycle is over and that a rate hiking cycle may have commenced. This makes it a more supportive environment for more RBA rate hikes, which will put upward pressure on Australia bond yields”

The Fed hike will be a headwind for all equity markets and Australia will be no exception. The interest-rate sensitive parts of the market would be likely to be impacted the most, such as REITs or highly valued growth companies

Rayliant Global Advisors (Phillip Wool)

The more aggressively the Fed tightens, the more pressure there is on the BOJ to quicken the pace of rate increases

On the face of it, Warsh’s hawkish signaling since Jackson Hole and now the FOMC’s updated projections showing a higher long-term policy rate would seem to be a negative

“The dollar might continue to strengthen here versus the yen, but policymakers are clearly attuned to the risk of a continued imbalance, so expect the BoJ to message hawkishly and slow the dollar’s momentum”

Fibonacci Asset Management Global (Jung In Yun)

Expects the BOK and BOJ to raise rates, and sees relative policy paths mattering more for currencies

“My stance is to stay invested selectively, favoring Korean tech companies with low valuation multiples and solid, sustainable earnings growth”

Aozora Bank Ltd. (Akira Moroga)

The BOJ is expected to follow the Fed’s lead and raise rates tomorrow, but it may not adopt a stance as hawkish as the Fed’s, which could serve as an immediate catalyst for yen weakness

The US’s strong commitment to curbing yen weakness is acting as a restraining factor, and a further decline to 160 yen is likely to be avoided

“We maintain our view that the yen will settle around 155 yen by year-end”

Pepperstone Group (Dilin Wu)

“For equities, the hawkish dot plot raises real discount-rate risk — and that’s exactly the pressure point for the high-multiple AI and tech names that have driven this year’s gains. If the Fed genuinely hikes again before December, that’s a meaningful medium-term headwind worth watching”

For bonds, the key thing to watch over the next few weeks is whether the 10-year genuinely retreats from that 5% area, or grinds right back toward it. That outcome will tell markets whether this hike was a credible inflation-fighting move, or the Fed chasing a bond market it can’t actually control

Fukuoka Financial Group (Tohru Sasaki)

The bar has been raised for the Bank of Japan to avoid disappointing the market’s hawkish expectations. If Governor Ueda makes remarks hawkish enough to meet market expectations, the dollar-yen rate could fall to around exactly 155 yen

On the other hand, if the Bank of Japan fails to meet market expectations, the dollar is likely to strengthen to the mid-158 yen range, where the 200-day moving average lies

–With assistance from Carmeli Argana, Youkyung Lee and Masahiro Hidaka.

(Adds more comments from analysts.)

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