Taipei - Asian stocks fell on Wednesday, as investors moved out of risky sectors after a spate of worrying US economic data, while the yen retreated from 15-year highs on views Tokyo may take steps to cap the currency's strength.
European stocks opened slightly lower, extending the previous session's sharp losses on mounting economic fears and after Standard & Poor's cut Ireland's credit ratings.
Even if Japan's government acts alone to halt yen strength, dealers were sceptical it could reverse the growing unwillingness among investors to take risks that has driven the yen's 10% rise so far this year to a 15-year high against the dollar.
"The consensus feeling is that intervention might not have much of an impact, but investors keep on expecting something - and all we have is talk," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo.
Japan's Nikkei share average fell 1.7% to the lowest close since April 2009 on disappointment over the lack of policy action by authorities to rein in the strong yen.
The yen may get another boost and equities may come under fire if US durable goods orders and new home sales for July due later fall short of forecasts. An unexpected plunge in existing home sales on Tuesday amplified fears the US economy could be sliding into a prolonged period of stagnation or even recession.
The dollar edged up 0.1% against the yen to
¥84.25. Caution on the yen initially stemmed from a Nikkei business daily report saying Japan's Ministry of Finance may consider unilateral yen-selling intervention without the blessing of other advanced economies if speculators drive up the currency.
Japanese officials voiced their concerns about yen strength but did not take any action, causing the yen to cut its losses on the day. The dollar hit a 15-year low of ¥83.58 on trading platform EBS on Tuesday.
"The dollar went to ¥83, so the chance of intervention has increased, but it would take more than intervention," said Kiichi Murashima, economist at Citigroup Global Markets in Tokyo.
"It has to be coupled with easing by the BOJ to have any impact," he said, referring to potential monetary policy action by the Bank of Japan.
The BOJ, like many other major central banks, has fewer options left to deal with economic sluggishness and the menace of deflation after cutting rates effectively to zero.
Shares of Japanese exporters such as Honda, which were down 3.1%, have been stung by the rising yen. The currency's strength has blown past many exporters' assumptions for the year, threatening to crimp profits at a time when global demand appears to be cooling.
The MSCI index of Asia Pacific stocks outside Japan fell 1.1% to a 1-month low, led by sectors most sensitive to business cycles such as raw materials and technology.
However, the index, which is down 4.3% on the year, has held up better than the all-country world index, which has fallen 7.2%.
Indeed, southeast Asian markets have been outperforming the region based on economic resilience. Indonesia's benchmark index, the best performing emerging Asian stock market this year, was up 0.1%, near a record high touched on Tuesday.
Rising yen
The euro rose 0.1% to $1.2640, mostly ignoring Standard & Poor's sovereign credit rating downgrade of Ireland.
The possibility of additional easing by the Federal Reserve has hurt the dollar's attractiveness, but persistent concerns about Europe's fiscal health have prevented investors from running to the euro en masse.
As a result, many investors to the dismay of Japanese officials have latched on to the rising yen trend. Finance Minister Yoshihiko Noda told reporters on Wednesday that recent yen moves were one-sided and Tokyo will respond appropriately when necessary.
Government bonds were the haven of choice for investors cutting their equities exposure, and they are also much more profitable so far this year.
Citi's world government bond total return index is up 3.6% in 2010, while the MSCI world stocks total return index is down 6%.
Japanese government bonds extended gains on Wednesday, pushing down the benchmark 10-year yield to a seven-year low while three-year South Korean bond futures rose to the highest since March 2009, when the global equity rally that is struggling to stay alive began.