Asian shares fall as oil lingers above $120, yen sinks

TOKYO — Shares were mostly lower in Asia on Thursday as investors watched for fresh signs of inflation and crude oil prices hovered above $120 a barrel, adding to price pressures.

Benchmarks declined across the region, except in Tokyo, where a weakening yen sent issues of some Japanese exporters higher. Nintendo surged 1.4% in morning trading, while Toyota Motor Corp.’s stocks gained 0.7%.

The Japanese yen continued its slide to new 20-year lows against the U.S. dollar, a trend the International Monetary Fund and other analysts expect to continue for a while because of higher interest rates in the U.S. and Europe, compared to Japan, where long-term interest rates remain at near-zero.

The dollar was at 134.22 Japanese yen early Thursday, up from 134.20 late Wednesday. The euro cost $1.0714, inching up from $1.0718.

The Governing Council of the European Central Bank is holding a monetary policy meeting later in the day. Comments from Christine Lagarde, head of the European Central Bank, have markets anticipating an interest rate hike in July, with possibly more to follow.

“Nonetheless, the economic recovery remains fragile and subject to down side risks from geo-political risks, eroding real incomes, supply chain constraints and limited fiscal support,” said Venkateswaran Lavanya of the Asia & Oceania Treasury Department at Mizuho Bank in Singapore.

“To that end, ECB will not want to throw the baby out with the bath water; calibrating monetary tightening in a more sustained, even if slow, pace,” she said in a commentary.

Japan’s benchmark Nikkei 225 was little changed, inching up 0.1% to 28,278.45. Australia’s S&P/ASX 200 slipped 1.1% to 7,045.00. South Korea’s Kospi fell 0.6% to 2,610.66. Hong Kong’s Hang Seng shed 0.4% to 21,926.78, while the Shanghai Composite lost 0.2% to 3,257.20.

The impact from inflation has worsened since Russia’s invasion of Ukraine, which has put more pressure on energy and food prices. U.S. crude oil prices rose 2.3% on Wednesday and are up 63% for the year, while wheat prices are up 39% in 2022. Supply chains have also gotten tighter following a series of lockdowns for Chinese cities fighting COVID-19 cases.

Early Thursday, benchmark U.S. crude was up 35 cents to $122.46 a barrel. It gained $2.70 on Wednesday.

Brent crude, the international standard for pricing oil, gained 51 cents to $124.09 a barrel.

“What investors need to realize is it’s going to be a long time until inflation numbers look good,” said Brian Levitt, global market strategist at Invesco. “What they need to focus on is whether it gets better or worse related to expectations.”

“As long as commodity prices remain elevated, its going to be more difficult to see headline inflation come down,” Levitt said.

Greater inflation pressure from the conflict in Ukraine and lockdowns in China prompted the Organization for Economic Cooperation and Development to cut its forecast for economic growth, following several other international groups, including the World Bank.

Treasury Secretary Janet Yellen, testifying before the the Senate Finance Committee on Tuesday, said she expects inflation to remain elevated and bringing that down is a top priority. The Fed is widely expected to raise its key short-term interest rate by half a percentage point at its meeting next week. That would be the second straight increase of double the usual amount, and investors expect a third in July.

Stocks fell broadly on Wall Street, erasing most of their gains for the week, as investors were discouraged to see more evidence of inflation’s impact on businesses and another gloomy outlook on the global economy.

The S&P 500 index fell 1.1% to 4,115.77. The Dow Jones Industrial Average shed 0.8% to 32,910.90 and the Nasdaq slipped 0.7% to 12,086.27.

Smaller company stocks fell more than the rest of the market. The Russell 2000 declined 1.5% to 1,891.01.

Bond yields rose. The yield on the 10-year Treasury, which banks use to set rates on mortgages and other loans, rose to 3.02% from 2.97% late Tuesday.

The big concerns on Wall Street remain rising inflation and whether the Federal Reserve’s shift to aggressively raise interest rates will help temper the impact or possibly push the economy into a recession.

Inflation continues to sting businesses. Lawn care products company Scotts Miracle-Gro slumped 8.9% after slashing its profit forecast for the year because retailers aren’t replenishing orders as expected.

Retailers have been warning that inflation is crimping sales.

The Fed’s goal is to slow economic growth enough to cushion inflation’s impact. Demand for goods had been outpacing supplies and production capacity through most of the post-pandemic recovery. But, investors worry the Fed could go too far too fast in raising rates, nudging the U.S. economy into a recession.

Wall Street is closely watching economic data for signals that could prompt the Fed to potentially ease up on the size of its rate increases. The next big update on inflation arrives Friday, when the U.S. government releases its latest reading on the consumer price index.

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AP Business Writer Damian J. Troise contributed.

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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama