By Stella Qiu

SYDNEY (Reuters) – Japanese stocks jumped while the yen fell on Thursday as the likelihood of further tightening in monetary policy this year diminished. The rally in Hong Kong’s share market paused.

The euro experienced significant losses as market speculation grew that the European Central Bank would cut rates in its upcoming meetings in October and December. This followed comments from policy hawk Isabel Schnabel, who stated she anticipates inflation will revert to target.

MSCI’s broadest index of Asia-Pacific shares outside Japan declined by 1%, while the Nikkei rose 2.2%, fueled by a weaker yen that improved the outlook for Japanese exporters.

The dollar increased by another 0.3% to 146.84 yen, reaching approximately a monthly high. It had surged 2% overnight after Japan’s newly elected Prime Minister Shigeru Ishiba indicated that the country is unprepared for further rate hikes following discussions with central bank governor Kazuo Ueda.

Ueda emphasized a cautious approach by the central bank regarding potential rate increases. Dovish BOJ policymaker Asahi Noguchi also stressed the importance of maintaining loose monetary conditions.

Tony Sycamore, an analyst at IG, remarked, “This suggests a comprehensive boost for the dollar/yen, as it seems rate hikes are not anticipated until 2025.”

Sycamore added that the dollar/yen could continue to rise, potentially reaching 149.40, contingent on forthcoming U.S. jobs data.

Futures indicate less than a 50% likelihood of a 10 basis point hike from the BOJ by December, with rates expected to increase to 0.5% by the end of next year from the current 0.25%.

Meanwhile, China’s mainland markets were closed for a holiday. Hong Kong’s Hang Seng index fell 2.5%, after a remarkable daily gain of 6.2% the previous day, though it remains up 30% over three weeks due to a series of stimulus measures introduced by China to support its slowing economy.

In the U.S., Wall Street closed mostly flat, although Treasury yields rose following a robust private payrolls report that bolstered confidence in the labor market. This diminished concerns about a potential major decline in Friday’s non-farm payrolls data.

Bonds have attracted safe-haven investments amid rising geopolitical tensions in the Middle East, highlighted by Israel’s announcement of casualties during combat operations in Lebanon against the Hezbollah armed group.

Two-year Treasury yields remained stable at 3.648%, whereas ten-year yields held steady at 3.79%.

Markets ascertain a 36% likelihood that the Federal Reserve will implement a 50 basis point cut in November, down from 60% last week, with expectations of a total of 70 basis points by year-end.

In foreign exchange markets, the euro fell to $1.1040, just above crucial support at $1.10 and near a low of $1.10325 recorded on September 12.

Oil prices increased due to concerns that escalating Middle Eastern conflicts could disrupt supplies from major production areas. Brent futures rose by 1.1% to $74.68 per barrel.

Gold maintained a position near its record high at $2,655.90 an ounce.