TOKYO - Asian stocks were mostly lower and the dollar surged to a three-week high versus the yen as market participants pulled forward expectations of when the US Federal Reserve would eventually raise interest rates following its policy statement on Wednesday.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.6 per cent.
In a statement on Wednesday after a two-day meeting, the Fed ended its massive quantitative easing programme of bond purchases as expected, but laced its economic assessment with a tinge of hawkishness.
The Fed did retain its basic guidance that overnight borrowing costs would remain near zero for a "considerable time".
But it dropped the characterisation of the U.S. labour market slack as "significant" in a show of confidence in the economy's prospects, the part markets perceived as containing a slightly hawkish turn.
"The Fed was widely expected to end quantitative easing (QE) but barely anyone anticipated such a significant upgrade to their labour market assessment," Kathy Lien, managing director at BK Asset Management in New York, said in a note to clients.
Tokyo's Nikkei bucked the trend in Asia and rose 0.7 per cent, as investors took heart from a significantly weaker yen and outlook for exporters following the Fed's optimism over the U.S. economy.
"The market is relieved as the rates would remain low for some time while seeing a recovery in the U.S. economy," said Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo.
The US dollar hovered near a three-week peak of 109.145 yen after rallying nearly 0.7 per cent overnight in light of the Fed's statements, while the euro fell to a three-week trough of $1.2605.
"In the near-term, rates will likely move modestly higher from here, especially in the front end of the yield curve, as we assign a higher probability to the Fed beginning to hike in mid-2015,"said Erik Weisman, fixed income portfolio manager at MFS Investment Management.
With the Fed meeting out of the way the Bank of Japan's policy decision on Friday is next in the spotlight, with focus on whether the central bank continues to show confidence in meeting its inflation target even though growth is flagging.