Asia Markets Dip, Tokyo Soars as U.S. Rate Talk Hits Yen

Japanese stocks rallied on a weaker yen but other Asian markets retreated Monday after Federal Reserve chief Janet Yellen hinted at a U.S. interest rate hike by the end of the year.

In a much-anticipated speech Friday Yellen said a pick-up in the world's top economy and an improvement in the jobs market meant "the case for an increase in the federal funds rate has strengthened in recent months".

While there is speculation rates could rise as early as next month, most experts had said that is unlikely and that December or February would be safer bets.

Yellen did not give a timeframe during her speech at the annual Jackson Hole symposium of global central bankers, but Fed vice chairman Stanley Fischer later said September was a possibility.

"After a week of guessing, Dr. Yellen left little to the imagination when she stated that the case of a Fed rate hike had strengthened, but remains very much data dependent," Stephen Innes, senior trader, OANDA, said in a note.

"Given the proximity of the granddaddy of all Fed data, the non-farm payroll, it is without question that this week's print will take on more importance than usual."

The labour department is due to release jobs figures on Friday.

Expectations for a rise sent the dollar soaring in New York, and it extended its gains on Monday.

It bought 102.38 yen, up from 101.77 yen in U.S. trade and well up from the 100.45 yen in Asia earlier Friday, while the euro was down more than a cent at $1.1192.

- Dollar rallies -Higher-yielding, or riskier, currencies were also hit, with South Korea's won losing 0.8 percent and the Indonesian rupiah off 0.5 percent, while Malaysia's ringgit shed 0.7 percent.

"Much will depend on the U.S. non-farm payroll data," said Richard Jerram, chief economist at Bank of Singapore.

"A soft number would be no surprise after two unusually strong months, which would put pay to the chance of a move in September. We think that a move in December is more likely, followed by two or three hikes next year."

The weaker yen boosted Japan's exporters, sending the Nikkei stock index ending 2.3 percent higher.

But while the the greenback and Japanese traders took heart from the comments, other regional markets turned negative on the prospect of borrowing costs rising.

Shares in Hong Kong, where monetary policy is linked to that of the United States, fell 0.4 percent in the afternoon, while Sydney closed 0.8 percent lower and Seoul eased 0.3 percent. Singapore was 0.8 percent lower in late trade, while Shanghai finished marginally lower.

The stronger dollar also weighed on oil prices as it makes the commodity more expensive for those using weaker currencies.

West Texas Intermediate fell 1.6 percent to $46.90 and Brent shed 1.3 percent to $49.26.

Analysts said prices were also being weighed by worries over the outcome of a meeting next month between OPEC and Russia aimed at addressing a global supply glut.

- Key figures at 0700 GMT -Tokyo - Nikkei 225: UP 2.3 percent at 16,737.49 (close)

Shanghai - Composite: DOWN 0.28 points at 3,070.03

Hong Kong - Hang Seng: DOWN 0.4 percent at 22,807.84

Euro/dollar: DOWN at $1.1192 from $1.1195 

Dollar/yen: UP at 102.38 yen from 101.77 yen Friday

Pound/dollar: DOWN at $1.3107 from $1.3135

New York - DOW: DOWN 0.3 percent at 18,395.40

London - FTSE 100: UP 0.3 percent at 6,838.5 points (close)

Photo source: businesstimes.com