SYDNEY (Reuters) - Japanese shares jumped on Thursday after the dollar vaulted to a six-year peak on the yen as the Federal Reserve’s outlook for rising rates underlined the diverging path between the United states and the rest of the rich world.
The euro skidded to a 14-month trough while gold hit an eight-month low as the dollar swept higher across the board, a move that many investors have been itching to wager on all year.
Indeed, the hawkish interpretation in currencies came despite the Fed maintaining language suggesting that rate hikes would not happen for a “considerable time.”
The reaction also overshadowed a surprisingly soft reading on U.S. inflation, even as Fed Chair Janet Yellen emphasised that policy would be highly dependent on how the economy actually performed in coming months.
“Overall, we feel that the forward guidance from the Fed is consistent with policy normalisation in 2015,” said Dylan Eades, an economist at ANZ.
“Whilst the timing of the first rate rise is data dependent, we continue to expect that the FOMC will begin the normalisation process in March next year.”
Futures markets <0#FF:> still lean more towards a move in June. But whatever the timing, U.S. rates do seem certain to be heading higher while central banks in the euro zone and Japan remain committed to super-easy monetary policy.
That stark contrast sent the euro sinking as far as $1.2833 EUR=, depths last visited in July 2013. Measured against a basket of currencies, the dollar climbed to 84.753, the highest in 14 months.
The dollar also flew to 108.69 yen JPY=, its highest since September 2008 and up from 107.00 before the Fed statement.
A weaker yen is generally viewed as positive for Japanese exports and company earnings, helping lift the Nikkei .N225 0.9 percent to its best since January.
The broad Topix index .TOPX climbed 1 percent to tread ground not visited since July, 2008.
The yen’s fall was timely as Reuters latest poll of Japanese manufacturers showed confidence dropping by the most in two years in September as a tax increase hit the economy harder than expected.
Elsewhere in Asia, the reaction in equities was more guarded as the prospect of rising U.S. yields could attract funds away from emerging markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.4 percent.
Wall Street seemed to find some relief in the fact that the Fed would not be hiking for a few months at least.
Bond investors reacted with more calm than those in currency markets, and nudged yields on the benchmark 10-year note US10YT=RR up a modest 2 basis points to 2.62 percent.
Still, a rise in two-year yields US2YT=RR to 0.57 percent widened their premium over German debt to 63 basis points, the fattest margin since early 2007.
With the Fed out the way, the next big test for markets will be the referendum on Scotland’s independence later Thursday.
Voting ends at 2100 GMT and exit polls are expected shortly after, giving Asian investors the first chance to react very early on Friday.
The latest opinion poll by Survation showed support for staying in the United Kingdom is at 53 percent, giving sterling a mild lift. The pound was at $1.6264 GBP=D4, having been as low as $1.6052 earlier in the month.
In commodities, the rise of the dollar was a dead weight on prices. Gold was down at $1,220.86 an ounce XAU= having touched an eight-month trough.
Oil prices were further pressured by a government report showed crude stocks rose sharply in the United States last week.
Brent crude LCOc1 was down 39 cents on Thursday at $98.56 a barrel, while U.S. crude Clc1 fell 46 cents to $93.96.
Editing by Eric Meijer