Asian markets sank yesterday after Federal Reserve boss Janet Yellen sounded a warning over a possible British exit from the EU, while the yen soared to a 22-month dollar high as the Bank of Japan refused to pump up its stimulus.
The Fed on Wednesday lowered its growth forecasts for this year and the following two, and flagged interest rates rises to be lower and slower, highlighting increasing concern about the US and global economic outlook.
Her comments dragged New York stocks lower and sent the dollar tumbling against the yen and even the British pound despite fears of Britain leaving the EU.
In a news conference after the Fed kept interest rates unchanged, Yellen voiced confidence in the US economy but said there were concerns about the impact a British exit would have across the world.
“Clearly, this is a very important decision for the United Kingdom and for Europe,” she told reporters.
“It is a decision that could have consequences for economic and financial conditions in global financial markets.
If it does so, it could have consequences in turn for the US economic outlook.”
The news put downward pressure on the dollar, and that was compounded yesterday when Japan’s central bank held off boosting its stimulus programme, despite stuttering economic growth at home and uncertainty overseas.
The dollar fell to 103.72 yen after the BoJ wrapped up its two-day policy meeting – its lowest since August 2014.
The euro fell to 116.92 yen, a three-and-a-half-year low.
That hammered Japan’s exporters, sending the Nikkei stock index diving 3.1% at 15,434.14.
“People were expecting the BoJ to increase (monetary) easing...with growth deteriorating,” Tim Condon, head of Asian research at ING Groep NV in Singapore, told Bloomberg News.
Ryutaro Kono, chief economist for BNP Paribas in Tokyo, said policymakers may have taken a wait-and-see approach, blaming the high yen on EU vote jitters.
Among other markets Hong Kong was down 2.1%, Shanghai ended 0.5% lower, Seoul sank 0.9% and Sydney was also marginally lower.
Oil prices extended their losses as unrest in Nigeria and wildfires in Canada, which had helped limit output, begin to ease.
US benchmark West Texas Intermediate was down 1.3% at $47.39 and Brent also shed 1.3% to $48.35.
WTI is down 8% from last week’s 11-month high, while Brent has lost more than 6% from an eight-month peak.