Asian stocks surge ahead of BOJ policy decision

LONDON: Asian stocks rallied on Friday as strong corporate earnings helped lift sentiment even as worries over economic weakness lingered, while investors were also waiting on a policy decision from the Bank of Japan.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.94% higher but remained on course to end the month 1.4% lower. Japan's Nikkei rose 0.51% while Australia's S&P/ASX 200 index gained 0.33%. U.S. stocks closed sharply higher on Thursday thanks to upbeat results from bellwether tech firms, with Meta Platforms Inc, Microsoft Corp and Alphabet Inc soaring after reporting results.

China shares eased, while Hong Kong's Hang Seng index was 0.5% higher. Geopolitical tensions along with worries over the global economic outlook have crimped investor sentiment in recent weeks. Data overnight showed the U.S. economy slowed more than expected in the first quarter, even as price growth came in hotter than economists had projected.

Taylor Nugent, an economist at National Australia Bank, said the data showed "an unhappy combination" of softer-than-expected growth and stronger-than-expected prices increases in first quarter. The core PCE data, one of the measures of inflation tracked by the Federal Reserve, caught markets' attention, Nugent said. The core PCE price index jumped at a 4.9% rate after advancing at a 4.4% pace in the prior quarter.

Data also showed that initial claims for unemployment benefits fell, suggesting ongoing tightness in the labour market, a major driver of inflation. "Stubborn inflation data gives the Fed little breathing room to take heed of nascent slowing in activity and the labour market should it continue to develop," Nugent said.

Markets are pricing in an 85% chance of the Fed raising interest rates by 25 basis points at its meeting next week, the CME FedWatch tool showed. Traders expect the hike to be the last in the U.S. central bank's fastest monetary policy tightening cycle since the 1980s. Ahead of that, however, investor attention on Friday will be squarely on Japan's new central bank governor Kazuo Ueda at his debut policy meeting.

At the meeting Ueda chairs just three weeks into his term, the central bank is widely expected to maintain its short-term interest rate target of -0.1% and a pledge to guide the 10-year bond yield around zero. Investors have dialled down wagers on a policy shift, opening a window of calm that ironically affords governor Ueda a chance to move quickly.

The Nikkei newspaper reported that the BOJ will discuss on Friday conducting a comprehensive examination of its past monetary easing steps and revise its guidance on the future policy path. Core consumer prices in Japan's capital, Tokyo, rose 3.5% in April from a year earlier, government data showed on Friday.

"While no policy change is expected, the focus will be on the outlook/guidance and any potential review of the central bank's longer-term performance and monetary policy settings," said ActivTrades market analyst Anderson Alves. The yield on 10-year Treasury notes was down 0.8 basis points to 3.520%, after clocking their biggest intraday gain since March on Thursday as investors weighed the looming debt ceiling showdown in Washington.

The yield on the 30-year Treasury bond was at 3.754% in Asian hours. The currency market was a bit subdued ahead of policy decisions. The dollar index, which measures the currency against six rivals, rose 0.02%, with the euro up 0.03% to $1.103.

The Japanese yen weakened 0.03% to 133.99 per dollar. Sterling was last trading at $1.2495, up 0.06% on the day. U.S. crude was off 0.01% to $74.75 per barrel and Brent was at $78.23, down 0.18% on the day.

Spot gold dropped 0.1% to $1,985.39 an ounce. U.S. gold futures fell 0.15% to $1,986.90 an ounce.