Japan CPI a distraction amid thickening global fog

March 24 (Reuters) – Asian markets round off the week with Japanese inflation and PMI data likely to be the main local drivers on Friday, offering direction that is unlikely to come from yet another choppy day in US markets on Thursday.

Wall Street rose – although ended up off its highs – but bank stocks slumped to the lowest since 2020; key parts of the US yield curve steepened, but the three month/10-year segment is its flattest and most inverted since 1981; market-based inflation expectations fell, but so did Fed rate expectations.

Rates markets are now pricing in around 100 basis points of Fed easing this year, something Fed Chair Jerome Powell said on Wednesday is definitely not the central bank’s base case scenario.

The uncertainty is rooted in what impact the banking crisis will have on US credit conditions in the coming months, and by extension on economic activity and inflation. As Powell stated baldly on Wednesday: “We simply don’t know.”

Treasury Secretary Janet Yellen did know that she had a second chance on Thursday to soothe concerns among investors and the wider public about whether authorities will move towards guaranteeing all bank deposits.

She told a House committee she is prepared to take further actions to ensure bank deposits are safe, a day after telling a Senate committee blanket insurance was not on the agenda. It might not be on a par with Powell’s assurances – bank stocks still fell – but perhaps sentiment will improve on Friday.

So Asia opens on Friday to firmer world stocks, lower yields, mix US yield curves, higher global rates after the UK and Swiss hikes – but a growing sense that the world policy peak is in sight – a rising dollar, and a notably stronger yen.

Japanese annual core inflation in February is expected to have fallen sharply to 3.1% from a 41-year high of 4.2% the month before, thanks to government subsidies for gas and electricity bills to cushion rising living costs.

But many economists say broader price pressures remain strong throughout the economy, which could force the Bank of Japan to phase out or scrap its yield curve control policy soon.

Here are three key developments that could provide more direction to markets on Friday:

– Japan consumer price inflation (February)

– Japan flash PMIs (March)

– Australia flash PMIs (March)

(By Jamie McGeever)