Written by Jamie McGeever
(Reuters) - Outlook for the day ahead in Asian markets.
The Federal Reserve has spoken, and the message for investors has been clear — downright hawkish. The biggest and most important central bank policy decisions on Thursday came down to the Bank of Japan and the Bank of England.
Recent central bank meetings culminate on Thursday with decisions from Norway, Sweden and, most importantly, from Asia, Taiwan and the Philippines.
Asian investors were on the defensive on Thursday after the Fed cut interest rates by a quarter of a percentage point as expected, but signaled a slowdown in rate easing.
Fed officials raised their average long-term neutral interest rate forecast, significantly raised their inflation outlook for 2025, and continued to chart a course for further rate cuts next year.
Fed Chairman Jerome Powell said during a press conference that inflation continues to rise and fall. As he spoke to reporters, the sell-off in stocks and Treasuries accelerated and the dollar rallied even higher.
Wall Street ended the day sharply lower. The Nasdaq fell more than 3%, while the Dow fell for a tenth day, its longest decline in 50 years - the dollar hit a two-year high and bond yields rose above the curve.
As Janus Henderson's Dan Silyuk notes, next year could see a "prolonged pause" and the Fed is signaling that "we are in a structurally high inflation and interest rate environment."
Emerging market assets are bound to come under heavy pressure on Thursday.
All eyes in Asia are now on Tokyo. The BOJ is expected to keep interest rates on hold, giving investors cues from Governor Kazuo Ueda's press conference.
Japan's swap rate means there is a 60% chance the BOJ will raise rates by 25bps in January, up from around 70% a few weeks ago. A quarter-point increase isn't fully priced in until May, and the swap curve shows only a 45bps tightening expected by December.
The Philippine central bank is expected to cut interest rates by a quarter point to 5.75%, according to a Reuters poll, as it controls inflation and a weakening economy.
Inflation rose for a second straight month in November to 2.5%, but within the central bank's target of 2%-4%. It would be the third contraction in a row, and economists expect three more cuts next year.
Taiwan's policy makers, however, are expected to keep the policy rate at 2 percent for the next year due to the strong economic and inflation issues.
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