Stocks rise as oil dips, yen wobbles ahead of BOJ

Asian stocks lifted and the US dollar remained stable on Friday as investors grappled with global policymakers' efforts to curb inflation. Oil prices fell, boosting sentiment ahead of the Bank of Japan's anticipated interest rate increase. The ongoing war in the Middle East has kept oil prices above $100 per barrel and fueled inflation worries worldwide.

Hopes for alternative oil supplies from the region reaching markets helped Brent crude futures drop 1% to $103.77 a barrel, despite concerns over possible Saudi Arabia-Yemen Houthi strikes. Traders also reacted to a Wall Street rally driven by falling tech stocks, and US 10-year Treasury yields steadied after a significant week-long sell-off, reaching a 31-year high of 4.936%.

In Asia, MSCI's Asia-Pacific shares index outside Japan rose 0.55%, while Japan's Nikkei climbed 0.9% and South Korea's KOSPI surged 2%. The Bank of England hinted at possible rate hikes if the Middle East conflict continues, and the Federal Reserve had raised rates last week for the first time in three years, signaling more to come.

European Central Bank officials have also cautioned about the need for further tightening, having raised rates recently. If bond yields rise again, volatility could return swiftly, according to Chris Weston, head of research at Pepperstone. For now, buyers have regained control, indicating the post-Fed risk-off move has lost some momentum.

The yen weakened to 156.23 per US dollar as traders prepared for the Bank of Japan's policy decision, with the bank set to raise interest rates to a 31-year high and promise more action against inflation risks. Market focus is on the BOJ's hike magnitude and Governor Ueda's communication strategy. The yen has gained this month due to expectations of faster BOJ rate hikes and signs of Japanese investor repatriation, but has lost some gains this week as the US central bank hardened its stance.

With a 25 basis point hike already priced in, the hike alone should not significantly support the yen. BOJ Governor Ueda will need to convince markets that the bank is ready to hike at a faster pace. The forecast expects another BOJ rate hike in December, but the risk lies in Ueda failing to meet market hawkish expectations. The euro steadied at $1.148, on track for a 1% weekly decline, its steepest drop since June.