SINGAPORE, LONDON Dec 8 (Reuters) - Japan's yen was on track for a fourth weekly gain on Friday as traders speculated the ultra-dovish Bank of Japan was moving closer to tightening monetary policy.
World stocks, meanwhile, teetered on their first weekly loss since October as a rally fuelled by hopes of the U.S. Federal Reserve and the European Central Bank cutting interest rates paused ahead of key U.S. jobs data.
The yen, at 144.2 per dollar on Friday following a rapid rebound after trading close to a 30-year low last month, was on track for a 1.75% rise this week after also gaining a similar amount the week before.
"The direction is not a surprise," said State Street's Tokyo branch manager Bart Wakabayashi. "But this move and the speed of this move have blown away my expectations."
The Bank of Japan has kept interest rates pegged below zero while other major central banks hiked, and used an unconventional yield curve policy to suppress domestic borrowing costs.
It has twice widened and then relaxed its tolerance band for 10-year yields and on Thursday BOJ Governor Kazuo Ueda forecast an "even more challenging" year ahead, which traders took as a sign of change in the offing. The BOJ will next set monetary policy on Dec. 19.
Tokyo's Nikkei was down 1.8% on Friday for a weekly drop of 3.6%, with exporters such as automakers falling hardest.
Outside of Japan, MSCI's broad gauge of world stocks traded flat, heading to a 0.2% weekly loss after five weeks of gains.
Europe's Stoxx 600 share index was 0.2% higher, set for its fourth straight week of increases. Futures indicated the U.S. S&P 500 would flatline in early New York trading.
COMPLACENT
Global markets have been anticipating rapid rate cuts by central banks as soon as March next year even though economic forecasters do not expect significant recessions in the United States or the euro zone.
The S&P 500 is more than 9% higher since early November. The 10-year Treasury yield which moves inversely to the price of the benchmark debt and tracks expectations for long-term borrowing costs, has dropped from more than 5% in late October to less than 4.2%.
"There's so much complacency in the market right now," said Olivier Marciot, cross-asset portfolio manager at fund manager Unigestion.
"You can't have a consensus calling for a soft landing and, at the same time, investors pricing in major cuts."
The VIX, a measure of implied volatility on the S&P 500 that broadly illustrates investor anxiety about stock market corrections, traded at 13.1 on Friday, almost its lowest since before the COVID-19 shock of early 2020.
PAYROLLS
On Friday, however, key U.S. employment data could shatter the market's calm. U.S. non-farm payrolls figures released later in the day are expected to show employers added 180,000 jobs last month. An upside surprise could drive traders to reverse predictions for more than 125 basis points of Fed rate cuts next year, analysts warned.
"If the Fed is going to cut aggressively, it will be due to a recession and a notable drop in inflation led by unemployment. The numbers game of NFP (non-farm payrolls) suggests we are still far from those levels," said BNY Mellon's head of markets strategy and insights, Bob Savage.
Some of this caution crept into government debt markets on Friday, with the 10-year Treasury yield rising 4 basis points (BPs) to 4.169%. Germany's equivalent Bund yield added 3 bps to 2.221%.
In currencies, the yen's surge had the dollar index set to
end the week steady at 103.7. The euro was lower for
the week at $1.078. Sterling
Brent crude, which touched a six-month low on Thursday on worries of sluggish demand, recovered slightly to $75.66 a barrel, still set for a a 4.2% fall this week.
Gold, having touched a record high early in the week before recoiling, was flat at $2,028 an ounce.
(Reporting by Tom Westbrook and Naomi Rovnick; Editing by Edmund Klamann and Emelia Sithole-Matarise)
