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Asian stock markets: https://tmsnrt.rs/2zpUAr4

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Yen hits 5-month low as BOJ sounds dovish

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Ten-year Treasury yields up 40 bps over two weeks

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Dollar at two-year peak, up 7% this year

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China keeps lending rates steady

By Stella Qiu

SYDNEY, Dec 20 (Reuters) - Asian shares were pinned near

three-month lows on Friday as investors awaited key U.S.

inflation data that could either ease or worsen concerns about

price pressures, while the dollar towered at two-year peaks.

The closely watched inflation gauge - the U.S. Core Personal

Consumption Expenditures - is due later in the day. Forecasts

are centred on a monthly rise of 0.2% for November, and any

upward surprises there could lead markets to further scale back

bets for U.S. policy easing next year.

Futures imply just 37 basis points of rate cuts from the

Federal Reserve in 2025, less than two cuts, after the U.S.

central bank turned hawkish at its last meeting of the year. A

rate cut is not fully priced in until June.

Rates now are expected to bottom out at 3.9% by the end of

next year, much higher than just a few months ago. That outlook

took a heavy toll on the Treasury market, where the benchmark

10-year yields jumped 40 bps over the past two weeks to cross

above a key level of 4.5% for the first time since May.

In Asia, MSCI's broadest index of Asia-Pacific shares

outside Japan fell 0.4% on Friday and was headed

for a weekly drop of 2.6%. It is, however, up over 8% for the

year.

Japan's Nikkei rose 0.2% on Friday and is up a

whopping 16% for the year, in part due to the weakness in the

yen, which has depreciated 12% in 2024 and drew intervention

warnings again from Japanese authorities.

Global central banks have now wrapped up an eventful year of

rate decisions, with the UK, Japan, Norway and Australia holding

firm, and Switzerland and Canada implementing cuts of 50 basis

points at their last meeting of the year. Sweden's Riksbank

reduced its policy rate by 25 bps, as did the European Central

Bank last week.

"Taken together, it's clear how much central banks are

worrying about geopolitics and uncertainty in 2025," said James

Rossiter, head of global macro strategy, at TD Securities.

"They've nimbly set themselves up for more fluid policymaking in

2025.

"Ultimately, uncertainty is going to remain high, policy

shocks significant, and markets are going to twist and turn

potentially more than in the recent past. 2025 is going to be a

ride."

China's blue chips slipped 0.3% while Hong Kong's

Hang Seng edged up 0.2%. The People's Bank of China left

its benchmark lending rates unchanged on Friday, matching market

expectations.

In the currency markets, the dollar stood tall at a

two-year peak of 108.45 against its major peers, enjoying some

interest rate advantage.

It held near a five-month high at 157.5 yen,

having jumped 1.7% overnight as Bank of Japan held rates steady

and Governor Kazuo Ueda struck a dovish tone by saying it would

take some time to assess the wage outlook and the impact of

Trump's policies.

Data on Friday showed Japan's core inflation accelerated in

November, supporting the case of a near-term rate hike. Swaps

are split on the chance of a BOJ move in January, with 53%

priced in.

The euro is down 1.3% for the week at $1.0364,

threatening a key support level of $1.0331. Sterling

is set for weekly loss of 1% to $1.2489 and on the verge of

breaking a key level of $1.2484.

Treasuries look set for a fourth straight year of losses,

with the 10-year yields up a whopping 70 bps this

year. They climbed 17 bps this week to 4.57%.

The commodities market has also taken a hit because of a

strong U.S. dollar. Oil prices fell on Friday, with U.S. West

Texas Intermediate (WTI) down 0.5% to $69.06 and 2.7%

lower for the week.

Gold prices are set for a 1.9% fall this week to $2,598 per

ounce.