Asian stocks dip on worries of US tapering QE3

Pressure on Asian share markets increased today as investors worried that minutes of the Federal Reserve's July policy meeting would only add to suspicions of a winding down of stimulus from September.

Reports of the Japanese government increasing the severity of the latest leak at Fukushima to level 3, hit stocks hard with the Nikkei shedding 0.8 per cent.

Meanwhile, Bank of Japan governor Haruhiko Kuroda said he would not hesitate to expand the bank's already massive asset buying campaign in the event of the worsening of the economic outlook.

The selling spree spread through the region, pulling MSCI's index of Asia-Pacific shares outside Japan falling 0.5 per cent. Korean shares fell 1 per cent while the Shanghai market was down 0.4 per cent.

The development also fuelled a safe-haven demand for the yen, in particular against the Australian dollar. Investors have been selling to hedge against further weakness across Asia.

Emerging markets from India to Brazil have taken a hit on the prospect of the Fed tapering down, which increased US borrowing costs and cut down the supply of cheap dollar, that earlier supported domestic demand and helped fund current account deficits.

While benchmark 10-year Treasury yields were down again at 2.81 per cent today, analysts worry that Fed minutes could push them higher again.

According to Michelle Girard, chief US economist at RBS, the minutes would continue to reinforce the theme of tapering at the September meeting as long as the labour market held up.

According to commentators, there was a chance the Fed would try to reassure markets that an actual tightening in policy was still far distant. They point out though that the Fed itself was divided on the issue and the minutes of the last meeting would likely show differing opinions, which would likely leave the market as confused as ever.

The euro eased 0.2 per cent against the dollar to $1.3390, after touching a six-month high of $1.3452 yesterday. Traders have cited repatriation of funds by European investors from emerging markets as one reason for the uptick in the single currency euro.

Meanwhile, German bond yields remained range bound, ahead of the release of the minutes with investor attention focused on a two-year bond auction which had seen good demand.