TOKYO (Reuters) – Asian stocks edged higher on Thursday after the Federal Reserve delivered a much-anticipated interest rate hike but flagged caution about inflation, tempering expectations for future tightening, which weighed on the dollar and Treasury yields.
As widely expected, the Fed raised rates for the third time this year on Wednesday while sticking to its projection for three rate increases next year.
But the policy tightening was accompanied by concerns about low inflation, toning down expectations for policy tightening in 2018. The Fed projected inflation to remain shy of its goal for another year, giving policymakers little reason to accelerate the expected pace of rate increases.
“The key takeaway from the Fed meeting was the degree of concern shown towards low inflation, which likely led to two dissenting votes,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
“The 10-year Treasury yield fell sharply on the Fed’s stance and lackluster U.S. CPI, which shows that the markets don’t necessary see the Fed hiking rates three times in 2018.”
The 10-year Treasury yield US10YT=RR stood little changed at 2.3547 percent after dropping nearly 6 basis points overnight.
Data earlier on Wednesday showed U.S. core consumer prices, which excludes volatile energy and food prices, moderated to 0.1 percent in November from a 0.2 percent increase in October.
The dollar index against a basket of six major currencies was little changed at 93.409 .DXY after sliding about 0.7 percent on Wednesday to pull away from a one-month top of 94.219 set on Tuesday.
The Fed’s less hawkish statements supported MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which rose 0.3 percent.
Australian stocks added 0.2 percent and South Korea’s KOSPI .KS11 climbed 0.55 percent.
Japan’s Nikkei .N225 inched up 0.1 percent.
The dollar was a shade higher at 112.730 yen JPY= after losing 0.9 percent overnight.
The euro was steady at $1.1832 EUR= following gains of 0.7 percent the previous day.
Immediate focus for the euro was on the European Central Bank policy decision due later in the day. The ECB is expected to stand pat on monetary policy and the markets will be awaiting President Mario Draghi’s views on the euro zone economy for potential incentives.
In commodities, U.S. crude futures CLc1 rose 0.35 percent to $56.81, lifted by the weaker dollar.
Oil prices had slipped for a second straight day on Wednesday, as a slump in U.S. crude stockpiles was offset by a larger-than-forecast rise in gasoline inventories and as U.S. crude output continued to grow to record highs.