Asia: Yellen's speech sends stocks lower, Japan bucks trend as Abe pledges stimulus

Asian stocks were mostly in the red on Friday as investors were worried by the prospect of a hike in interest rates in the US.

Late on Thursday, Federal Reserve chairwoman Janet Yellen said the US central bank will start raising interest rates in the coming months, indicating inflation pressures will gradually increase over the next couple of years.

“The Fed chair appeared to provide a bit of much needed clarity, claiming that he majority of the Federal Open Market Committee, including Yellen, expect a 2015 lift-off,” said Spreadex’s financial analyst Connor Campbell.

“This leaves the announcement of a rate-hike in October or December on the cards, providing the kind of future anchoring event for the markets they have been sorely lacking this week.”

Higher interest rates means investors are likely to move capitals away from emerging markets to direct them into the US, as they search for better yields.

“Asian markets have recommenced their sell off and Janet Yellen has soured the mood by practically confirming that a rate hike will be coming before year end,” said Jonathan Sudaria from London Capital Group.

The Shanghai Composite Index lost 1.60%, while Hong Kong’s Hang Seng climbed 0.43%.

South Korea’s Kospi fell 0.22%, while Australia’s S&P/ASX 200 reversed earlier gains to decline 0.6%, bringing its decline since its late-April high to 15%.

Elsewhere, shares in Malaysia, Hong Kong, Taiwan and Indonesia were all down more than 3% for the week.

Japanese equity markets, however, bucked the trend and gained ground after Prime Minister Shinzo Abe pledged to increase the size of the country’s economy to 600trn yen from the 490trn yen reported last year.

“Creating a strong economy will continue to be my top priority,” Abe said.

Following Abe’s comments, the Nikkei Stock Average reversed earlier losses to close up 1.76%.

On the currency front, the yen fell 0.67% against the dollar, while the Australian dollar lost 0.30% against its US counterpart.

The Malaysian ringgit lost 0.13% to hit a new 17-year low against the greenback, while the Indonesian rupiah also hit a fresh 17-year low against the dollar, after losing 0.19%