Asian share markets rose on Tuesday even as global investors expect a US interest rate hikes in the next few months, after two years of pandemic-induced policy easing.

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MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.4 percent. The index is up 1.1 percent so far this month. Australian shares were up 0.29 percent, while in China the blue chip CSI300 Index rose 0.33 percent in early trading. The US market was closed overnight for the Martin Luther King Jr. holiday.

Hong Kong's Hang Seng Index was up by 0.61 percent. Japan's Nikkei stock index was trading 0.63 percent higher ahead of the Bank of Japan's decision due between 0230-0500 GMT.

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Dollar slips against yen, Bank of Japan in focus

The Japanese central bank is not expected to change its ultra low rates stance but its inflation forecasts are likely to be increased for 2022.

Ahead of the meeting's outcome, the dollar was trading against the yen at 114.51. It is still some distance from its low this year of 113.49 last week.

The US Federal Reserve is due to meet January 25-26 and while it is not expected to shift rates then, a growing number of investors think March will be the start of a tightening cycle.

Rate rises are generally seen as negative for riskier assets such as equities. "Investors' focus remains on the Fed and the pace at which they raise rates," John Milroy, adviser at brokerage Ord Minnett in Sydney, told Reuters.

"We think it will be faster than markets currently expect. Boom conditions remain in the U.S. with a tight labour market. Good for world growth but adds to the inflationary pressures."

The prospect of higher US rates was also playing out in fixed income markets on Tuesday, following the US market closure on Monday.

In Asian cash market trading on Tuesday, two-year yields rose above 1 percent for the first time since February 2020. Two-year yields track short-term rate expectations and were last up 3.7 basis points (bps) at 1.0054 percent.

Five-year yields rose 3.6 bps to 1.5960 percent, the highest since January 2020. Benchmark 10-year yields were up about 2 bps to 1.8108 percent in early Tokyo trade.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up at 95.254.

US crude ticked up 0.49 percent to $84.23 a barrel. Brent crude rose to $86.53 per barrel.

Gold was slightly lower. Spot gold traded at $1,818.2274 per ounce.

-With agency inputs

First Published:Jan 18, 2022 8:26 AM IST