On Friday, the final trading day of the quarter and the halfway point of the year, Asian markets are in a state of caution. Investors are likely to limit their risk exposure ahead of data on U.S. inflation later in the day and before the weekend. This skepticism might be reinforced by headlines from the late-night U.S. presidential debate between Joe Biden and Donald Trump, particularly those related to trade protectionism and Chinese import tariffs.
Top-tier releases on Friday’s Asian economic calendar include Tokyo inflation, Japanese unemployment and industrial production, retail sales and industrial output in South Korea, and trade and current account data from Thailand.
The most important one is probably Tokyo inflation, which will shed light on broader price pressures in Japan and the actions that the Bank of Japan might take at its policy meeting on July 30 and 31. In order to lift the yen from its 38-year low against the dollar this week and alleviate some of the selling pressure on the currency, pressure is mounting on the BOJ to either raise rates once more or reduce its bond purchases.
Policymakers have cautioned that fixing strategy a lot could hurt buyer spending and financial development. However, they continue to voice their displeasure with the unabated depreciation of the yen. They cannot have both options.
This time around, the Japanese government hasn’t done anything to help the yen, but traders will be on the lookout for it, especially during the least liquid parts of the global trading day.
According to Reuters polling of economists, core Tokyo inflation increased to 2.0% in June from 1.9% in May.
Officials probably wouldn’t mind that, but yen bears might too, and renewed selling is bound to raise concerns about intervention. China’s currency, on the other hand, also reaches the halfway point of the year in a defensive state, falling to a new year-low on Thursday. In a similar situation, Chinese stocks have performed significantly below their global and regional counterparts.
In Asia, the overall mid-year report card is mixed. Japanese bond yields have reached multi-year highs, while the specter of deflation has pushed Chinese bond yields to historic lows, both of which contributed significantly to Japan’s Nikkei’s massive outperformance. Although not nearly as much as the yen, the majority of currencies are declining against the US dollar.
The Indonesian rupiah is at long term lows, while India’s rupee is at a record low yet saved further shortcoming by true intercession.
Thursday’s snapshot of mergers and acquisitions activity may reveal more about investor sentiment across the continent. According to LSEG data, M&A fees decreased to $1.5 billion and the value of announced transactions decreased by 25% year-over-year to $317.5 billion. Both are the most minimal in 11 years.
