Asia stocks fall as yen surges, Iran warns US of retaliation

By Gregor Stuart Hunter

SINGAPORE, Sept 8 (Reuters) - A surge in the yen and mixed economic data sent Asian stocks lower on Tuesday, while fresh Iranian threats in the Gulf drove commodity prices and Treasury bond yields higher.

The yen jumped as much as 1% to 152.89, its strongest level since February 18, as investors unwound an estimated $2.35 trillion in yen-funded carry trades.

"The yen has rallied to its strongest level since February, driven by a sharp unwinding of short-yen and carry-trade positions as investors price in faster Bank of Japan tightening," said Joel Kruger, market strategist at LMAX Group in London.

"Speculation over capital repatriation by Japanese investors and the authorities' demonstrated willingness to support the currency through intervention have added momentum to the move."

Japan's Nikkei 225 share index fluctuated between gains and losses before lurching down 1.7%, as S&P 500 e-mini futures slid 0.3% after a holiday in the U.S. on Monday.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.5% lower, with regional declines led by a 1% fall in Australian shares after a measure of local consumer sentiment fell sharply in September.

Oil prices rose for a third day in Asia, with Brent crude futures climbing 1.4% to $98.34 a barrel, after Iran threatened to retaliate on Tuesday against the U.S. with "economic warfare" and said it had fired an advanced missile at U.S. warships.

"While U.S. Labor Day made for a somewhat quieter start to the week for trading volumes, the weekend’s tit-for-tat strikes between the U.S. and Iran continued to put upward pressure on oil prices, acting as a drag on risk sentiment more broadly," Westpac analysts said.

GROWTH PROSPECTS

Markets were also digesting other economic data released on Tuesday.

In China, data showed export growth quickened during August, buoyed by strong overseas appetite for high-tech and AI-related products.

"While the product breakdown looks ever more lopsided, the geographic picture is smoothing out as the U.S. slump recedes and demand across other markets remain firm," ING analysts wrote in a research note.

Japan's economy grew faster than initially estimated in the April-June quarter from the previous three months, supported by business spending, revised data showed, but the figure still lagged analysts' forecasts. 

Japanese government bonds surged after the data, with the yield on the 10-year note falling 4.5 basis points to 2.885%, providing further momentum to the yen's rebound just weeks after it hit a four-decade low and triggered a rare joint intervention by authorities in Tokyo and Washington.

Meanwhile, data showed Japanese real wages rose 2.4% in July from a year earlier, marking the biggest increase since May 2021.

"With wage growth going from strength to strength, the case for the Bank of Japan to hasten the pace of tightening is becoming increasingly compelling," Capital Economics analysts wrote in a research report.

The yield on the U.S. 10-year Treasury bond was up 1.6 basis points at 4.798%, resuming its climb and rising for a second session after a two-day retracement last week. Traders are still pricing an implied 60% probability of a 25-basis-points hike at the Federal Reserve's next two-day meeting ending on September 16, according to the CME Group's FedWatch tool, about the same chance as a week ago.

The dollar index, which measures the greenback's strength against a basket of six currencies, was trading flat around a two-week low of 98.83.

In commodities, copper prices hit an all-time high of $14,597 a metric ton as supply concerns grew, while gold was steady at $4,404.29.

In cryptocurrencies, bitcoin slid 1% to $78,458.04, while ether was 1.1% lower at $2,468.37.

(Reporting by Gregor Stuart Hunter; Editing by Shri Navaratnam and Susan Fenton)