Tokyo inflation, scores on the first half doors

June 28 – A look at the day ahead in Asian markets.

A mood of caution hangs over Asian markets on Friday, the last trading day of the quarter and half-way point in the year, with investors likely to keep risk exposure to a minimum ahead of U.S. inflation data later in the day and ahead of the weekend.

That wariness may be enforced by headlines from the U.S. presidential debate between Joe Biden and Donald Trump late on Thursday, particularly on trade protectionism and tariffs on imports from China.

Friday’s Asian economic calendar is packed with top-tier releases, including: Tokyo inflation, Japanese unemployment and industrial production, South Korean industrial output and retail sales, and trade and current account figures from Thailand.

Top among them is probably Tokyo inflation, which will give an insight into wider price pressures in Japan and what the Bank of Japan might do at its July 30 to 31 policy meeting.

Pressure is mounting on the BOJ to raise rates again or taper its bond purchases, if for no other reason than to cool some of the selling pressure on the yen and lift the currency from the 38-year low it hit against the dollar this week.

Policymakers have warned that tightening policy too much could harm consumer spending and economic growth. But they also continue to express their displeasure with the yen’s relentless depreciation.

They can’t have it both ways.

Japanese authorities have not yet intervened to support the yen this time around, but traders will be on high alert for action, especially in the least liquid parts of the global trading day.

Economists polled by Reuters reckon core Tokyo inflation edged up to 2.0% in June from 1.9% in May. Officials would probably be comfortable with that, but so might yen bears, and renewed selling is bound to sound the intervention alarm.

China’s currency, meanwhile, also reaches the mid-year point on the defensive, and on Thursday slipped to a new low for the year. Chinese stocks are in a similar boat, hugely underperforming their regional and global peers.

The wider mid-year report card in Asia is mixed. Japan’s Nikkei massively outperformed, in large part thanks to the weak yen, Japanese bond yields have hit multi-year highs, but the specter of deflation has pushed Chinese bond yields to historic lows.

Most currencies are down against the U.S. dollar although nowhere near as much as the yen. The Indonesian rupiah is at multi-year lows, while India’s rupee is at a record low but spared further weakness by official intervention.

A snapshot of M&A activity in the January-June period on Thursday may be more revealing about investor sentiment across the continent. LSEG data shows that the value of announced transactions dropped 25% year-on-year to $317.5 billion, and M&A fees fell to $1.5 billion.

Both are the lowest in 11 years.

Reporting by Jamie McGeever; Editing by Josie Kao