Yen falls on rate cut talk; profits hit U.S. stocks

NEW YORK (Reuters) - Speculation that the Bank of Japan could effectively start paying banks to borrow its cash caused the yen to tumble on Friday, while U.S. stocks fell on disappointing profit reports from some top companies.

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Shares of Google’s parent, Alphabet, dropped 5.7 percent to $735.72, a day after it missed Wall Street targets for first-quarter profit and revenue, and shares of General Electric also were down following results.

A Bloomberg report that Japan’s central bank might go further with negative interest rates caused the U.S. dollar to hit its highest level against the yen in about three weeks. It rose 2.1 percent to 111.74 yen .

If the BOJ were to apply its negative rate policy to bank loans, it would allow the central bank to cut its deposit rates deeper into negative territory without acting as a headwind for the nation’s banks, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

“It gives the Bank of Japan more room to cut rates deeper into negative territory, and that’s what the yen is reacting to,” Esiner said. The Bank of Japan meets next week.

Nasdaq led losses in U.S. stocks, falling about 1 percent. Microsoft was down 6.9 percent after it reported results late Thursday.

The Dow Jones industrial average was up 14.38 points, or 0.08 percent, to 17,996.9, the S&P 500 had lost 1.92 points, or 0.09 percent, to 2,089.56 and the Nasdaq Composite had dropped 47.58 points, or 0.96 percent, to 4,898.31.

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The MSCI world stock index was down 0.5 percent, while the pan-European FTSEurofirst 300 index ended off 0.4 percent, weighed down by carmakers.

Daimler said it was investigating its U.S. emissions and PSA Peugeot Citroen said it had been raided by French anti-fraud investigators over its emissions.


The Federal Reserve also meets next week. Healthy markets and reassuring data over the past month have left many investors wondering whether they might have been too quick in pricing out an increase in U.S. rates this year.

U.S. Treasury yields held near three-week highs as investors focused on the upcoming Fed meeting.

Yields have fallen since the beginning of the year on concerns about weakening U.S. economic growth and on rising volatility in the oil and stock markets, which has led investors to lower estimates that further rate hikes are near.

Benchmark 10-year notes were last down 3/32 in price to yield 1.88 percent, up from 1.87 percent on Thursday.

In the energy market, oil prices jumped and were poised for a third week of gains as market sentiment turned more upbeat amid signs the global supply glut may be easing.

Brent crude futures rose 1.6 percent to $45.26 per barrel, while U.S. crude was up 1.6 percent at $43.87.

Additional reporting by Sam Forgione, Karen Brettell and Devika Krishna Kumar in New York, Marc Jones in London; Editing by Nick Zieminski and Dan Grebler