Tokyo - Asian stocks fell and the dollar surged to a three-week high versus the yen after the US Federal Reserve ended its massive quantitative easing programme, as expected, but laced its economic assessment with a tinge of optimism.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.6 percent.
In a statement on Wednesday after a two-day meeting, the Fed ended its quantitative easing programme of bond purchases. At its peak, the programme pumped $85 billion a month into the financial system.
The Fed did retain its basic guidance that overnight borrowing costs would remain near zero for a “considerable time”.
But it dropped the characterisation of the US labour market slack as “significant” in a show of confidence in the economy's prospects, the part markets perceived as containing a slightly hawkish bent by spelling a turn towards a new regime.
“The Fed was widely expected to end quantitative easing (QE) but barely anyone anticipated such a significant upgrade to their labour market assessment,” Kathy Lien, managing director at BK Asset Management in New York, said in a note to clients.
“The FOMC statement breathed new life into the US dollar and looking ahead, we anticipate further gains in the greenback,” she said.
Tokyo's Nikkei bucked the trend in Asia and rose 0.5 percent, taking heart from a significantly weaker yen and as participants focused on the potential positives of the Fed's stance.
“The market is relieved as the rates would remain low for some time while seeing a recovery in the US economy,” said Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo.
The dollar hovered near a three-week peak of 109.12 yen after surging nearly 0.7 percent in light of the Fed's statements, while the euro fetched $1.2624 after shedding 0.8 percent overnight.
The greenback benefited as US Treasuries surged, with the benchmark 10-year Treasury note yield spiking to a three-week high of 2.362 percent as market participants pulled forward expectations of when the Fed would eventually raise interest rates.
The strength of the US currency was a blow to the New Zealand dollar, which tumbled on a softening stance over future interest rate increases by the Reserve Bank of New Zealand.
New Zealand's central bank held its benchmark rate at a five-and-a-half year high on Thursday, but dropped its explicit tightening bias, as it renewed its attack on the high level of the currency.
The New Zealand dollar fell as low as $0.7769 from around $0.7820 before the announcement. The kiwi has slid about 10 percent against the dollar from its three-and-a-half year high in mid-July.
While New Zealand applied the brakes on monetary tightening, Brazil surprised late on Wednesday by hiking interest rates in a bold move that signals President Dilma Rousseff could make market-friendly policy changes after her narrow re-election victory on Sunday.
The rate hike is expected to add further lift later in the session to the Brazilian real. It fell to a nine-year low against the dollar on Monday after Rousseff defeated market-friendly challenger Aecio Neves, but has since pared some losses with investor pessimism subsiding.
In commodities, gold languished near a three-week low as the Fed's expression of confidence in the economic recovery dimmed bullion's safe-haven appeal.
Spot gold traded at $1,212.80 an ounce, not far from the three-week low of $1,208.26 hit overnight. - Reuters