Asian shares dipped on Monday while the dollar held firm near seven-month high against a basket of major currencies after comments from Federal Reserve Chair Janet Yellen boosted long-dated U.S. bond yields.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent in early trade while Japan’s Nikkei rose 0.2 percent.
“Yellen’s remarks are likely to lift Japanese bond yields too, which should support financial shares. The Nikkei is likely to be supported by a weak yen as well on the whole,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
Yellen said on Friday the Fed may need to run a “high-pressure” economy in order to reverse damage from the global financial crisis that depressed output.
Her remarks were not addressing immediate policy concerns directly and did not change prevailing view that the Fed is likely to raise interest rates in December.
Yet speculation that she may prefer to keep easy monetary policy stance for a long time even if inflation exceeds its 2 percent target pushed up long-dated U.S. bonds, with the 30-year bond yield hitting a four-month high of 2.565 percent .
As higher U.S. bond yields could attract more foreign investors, they helped the dollar post its largest weekly rise against a basket of six major currencies in more than seven months last week.
The dollar index, which rose 1.4 percent last week, hit a seven-month high of 98.158 in early Monday and last stood at 98.115.
The euro slipped to 2 1/2-month low of $1.0967 early on Monday while the yen traded at 104.25 per dollar, near its 2 1/2-month low of 104.635 touched last Thursday.
There is a reason for investors to be concerned about inflation.
Inflation expectations in the U.S. have been rising in the past few weeks in part due to rising oil prices.
A gauge of investors’ inflation expectations, the breakeven inflation rate based on inflation-linked bonds, rose to its highest level in about five months.
Oil prices logged their fourth straight week of gains last week, extending their advance since the Organization of the Petroleum Exporting Countries announced last month its first planned output cut in eight years.
U.S. crude futures traded at $50.01 per barrel in early Monday trade, down 0.7 percent from last week. Brent crude futures stood at $51.71 per barrel, down 0.5 percent.
China also reported higher than-expected inflation in September for consumers and producers alike, with producer prices rising for the first time since January 2012.
Chinese economic data due on Wednesday, including July-Sept GDP, will be a key focus of this week.
China’s economy likely grew 6.7 percent in the third quarter from a year earlier, the same pace as in the previous quarter, as increased government spending and a property boom offset stubbornly weak exports, according to a Reuters poll of 58 economists.
But the expected rate of expansion in the third quarter would still be near the weakest since the global crisis, and analysts are increasingly worried that growth is becoming too reliant on government spending and a housing market that is showing signs of overheating.