Asian Stocks Climb as Oil Slips; Yen Steadies Before BOJ Rate Call

Asian equity markets moved higher on Friday while the dollar held firm, as investors digested a week of aggressive signals from major central banks and positioned themselves for a policy decision from the Bank of Japan.

The BOJ is expected to lift interest rates to a 31-year high and signal that further tightening may follow, as policymakers confront persistent inflation risks. The yen traded at 156.23 per dollar in early dealings, giving back part of a rally built this month on bets for a faster pace of Japanese rate increases and early signs of repatriation by domestic investors.

Analysts said the hike itself is largely priced in, placing the burden on Governor Kazuo Ueda's communication. Michael Wan, a currency strategist at MUFG, noted that the market's focus is not merely whether the BOJ moves but how it moves and what guidance Ueda offers on the path ahead. Sarah Hammoud of Commonwealth Bank of Australia said a 25 basis point increase alone would do little to support the yen, adding that Ueda must convince markets the BOJ is prepared to tighten more quickly. Her firm expects another hike in December and sees a risk that Ueda falls short of hawkish expectations.

Oil prices retreated, with Brent crude futures down 1% at $103.77 a barrel, as hopes grew that alternative routes could carry Middle East supply to global markets. Concerns persisted over strikes between Saudi Arabia and Yemen's Houthis, and the war in the Middle East has kept crude above $100 a barrel, feeding inflation worries worldwide.

The rate backdrop has grown more restrictive. The Bank of England warned on Thursday it may need to hike further if the Middle East conflict drags on, while the Federal Reserve raised rates on Wednesday for the first time in three years and flagged more to come. The European Central Bank also cautioned last week that additional tightening may be necessary.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.55%, Japan's Nikkei gained 0.9% and South Korea's tech-heavy KOSPI surged 2%. The gains followed a Wall Street rally led by beaten-down technology stocks. Bond prices steadied after a sharp selloff that pushed the 10-year US Treasury yield above 5% to its highest since 2007; it was last at 4.936%.

Chris Weston, head of research at Pepperstone, said volatility could return quickly if bonds reverse and yields push higher again, though buyers have regained some control and the post-Fed risk-off move appears to have lost momentum.

The euro held steady at $1.148 but was on track for a weekly decline of about 1%, its largest since June. Spot gold rose 0.5% to $4,361 an ounce.