SYDNEY: Asian stocks were muted as investors kept watch for possible intervention by Japanese authorities to stop the yen's decline and awaited US inflation data later on Wednesday for clues about future interest rate moves.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2%, after US stocks ended the previous session with mild gains. The index is up 0.2% so far this month.
The yield on benchmark 10-year Treasury notes was at 4.3636% compared with its US close of 4.366% on Tuesday. The two-year yield, which rises with traders' expectations of higher Federal Reserve (Fed) fund rates, touched 4.7426% compared with a US close of 4.747%.
Australian shares were up 0.3% in early trade, while Japan's Nikkei stock index was down 0.41%. The Nikkei is looking to test 40,000 points again, with the yen's slide seen helping fuel that push.
However, further weakness in the Japanese currency could prompt authorities to intervene, especially if the yen breaks 152 per dollar.
"Market participants will be on high alert for a potential foreign exchange intervention from Japan's Ministry of Finance today (Wednesday)," CBA economists said. They added that a strong US inflation report would prompt dollar-yen to rally, which could lead the Japanese government to begin buying yen.
In Asian trade, the dollar dropped 0.01% against the yen to 151.76. The currency is getting closer to its high this year of 151.97 on March 27.
Hong Kong's Hang Seng Index edged up 0.7% early while China's blue-chip CSI 300 index was flat.
The European single currency was flat at US$1.0856, having gained 0.64% in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 104.1.
US consumer price index (CPI) data due on Wednesday will be closely watched by investors as they seek direction on the next move in interest rates. The data is expected to show a rise in headline inflation to 3.4% year-on-year, from 3.2% in February.
"Markets are looking at the data to answer one question: is inflation sticky or is the disinflation progress in line with the Fed's expectations?" ANZ economists said.
"We think the data will suggest that inflation pressures are waning slowly."
The prospect of a US interest rate cut as early as June is now being considered by financial markets, with the inflation reading seen as key to the central bank's next move.
"The Fed funds futures market is currently pricing about a 60% chance of a June cut. A strong core CPI of 0.3% for the month or above can further dampen the case for a June rate cut, pressuring US yields and the US dollar sharply higher," said CBA economists in a note.
"But if the core CPI prints below 0.3% for the month, market pricing for a June cut may only rise modestly and the US dollar may edge slightly lower."
In the US, the Dow Jones finished down 0.02%, the S&P 500 gained 0.1%, while the Nasdaq Composite rose 0.3%.
US crude ticked up slightly to US$85.31 a barrel. Brent crude was flat at US$89.42 per barrel.
Gold was slightly higher. Spot gold traded at US$2,352.93 per ounce.
