Asia close: Japanese stocks out of favour on yen strength

Most Asia Pacific equity markets turned in a positive performance on Thursday, outside of Japan where shares fell back on yen strength against a backdrop of a flattening US interest rate curve.

By the close of trading, the Shanghai Stock Exchange's Composite Index was 0.63% higher at 3,296.38, but the Japanese Nikkei-225 was 0.56% lower to 22,783.98, alongside a 0.59% on the TOPIX to 1,819.03.

In parallel, dollar/yen fell 0.36% to 112.87.

Overnight, the spread between yields on two and 10-year US government debt narrowed to 51 basis points, almost the least in nearly a decade.

Commenting on that move in bonds on the other side of the Pacific, Craig Erlam, senior market analyst at Oanda, said: "The flattening of the yield curve has triggered concerns that investors are possibly pricing in a slowing of the economy or even a recession and while this has historically happened on such expectations, I'm not convinced this is the case this time.

"Given the current environment, it's possible that this is more a reflection of longer term interest rates and the low inflation environment than the economic prospects. Still, if yields on long term US debt don’t rise or even fall as the Fed raises interest rates, it could fuel fears of an impending recession."

On a related note, according to the Summary of Opinions for the BoJ's 20-21 December policy meeting, at that gathering one rate-setter hinted at a possible change in his bias. In any case, his remarks caught the attention of some market watchers.

According to that policymaker, once the economy and prices were expected to continue improving, then "the situation may occur" where the BoJ will need to consider adjustments, including the need to strengthen the "sustainability" of the framework for its policy of QQE with Yield Curve Control.

Elsewhere, Hong Kong's Hang Seng notched up gains of 0.90% to 29,863.71, alongside an advance of 1.26% on South Korea's Kospi to 2,467.49 and an advance of 0.77% to 10,567.64 for Taiwan's Taiex.