Asian financial markets to take back seat

Asian financial markets to take back seat

SINGAPORE (AFP): Investors in Asian currencies and stock markets are expected to stay largely on the sidelines this week due to Indonesia's historic polls, expectations of more fiscal stimulus measures by Japan and jitters over possible U.S. interest rate rises.

Asian currencies traded rangebound in the past week to end steady against the U.S. dollar. Stock markets kept wary eyes on U.S. jobless data that could help point the direction of U.S. interest rates.

The focus this week will be on the conduct of Indonesia's first free elections in four decades Monday, analysts said, noting that campaigning had been relatively peaceful.

"We expect trade to be sidelined because results will not be known immediately," said Thio Chin Loo, currency strategist at Banque Paribas here.

Official results are not expected for around three weeks "so it's likely we could see some inactivity in the market," she added.

Currency players would also await an expected announcement on Friday by Tokyo of more fiscal stimulus measures.

"The markets could also be sidelined ahead of plans for fiscal stimulus measures to be announced by Japan on Friday," Thio Chin Loo said.

"We're not expecting anything specific, just a general outline of measures on employment and industrial revitalization."

Following the release of figures showing that the jobless rate in Japan remained at a high in April, analysts have said they expect an additional spending package by Japan later in the year.

Asia's stock markets may take their cue from Wall Street. The Dow last Friday closed 136.15 points higher at 10,799.84, as the U.S. announced that unemployment sank in May to its lowest level since 1970, but that the economy created far fewer jobs than in previous months.

Confusion ensued as traders on Wall Street tried to guess whether the figures would increase the prospects of the Federal Reserve raising interest rates to stave off inflation.

Some hoped the figures would encourage the Fed to leave interest rates alone when its policymaking board meets end-June.

There are fears that any rise in U.S. rates will trigger a round of similar rises in global markets, hampering Asia's economic recovery.

But Goldman Sachs' Asia economics research team said it did not expect a rise in short-term interest rates soon in the region.

"While we believe that short-term interest rates in most of non-Japan Asia have bottomed -- the notable exceptions being Indonesia, Taiwan and China -- we do not see this bottoming as giving way to an upturn in the near-term horizon," it said in a recent report.

It said it was "more confident" Asia "will be able to combine accelerating growth without material inflationary pressure."

"The large output gap remaining in the region, combined with corporate and financial restructuring, will keep the lid on inflation for quite some time," Goldman Sachs said.