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June 24 – A look at the day ahead in Asian markets.

The final trading week of the first half of the year gets underway on Monday, with Asia’s scorecard looking reasonably positive from an equity perspective, mixed through a currency and bond lens, and more bleak from a Chinese market angle.

Chinese stocks will be looking to stop the rot and halt the recent decline that has extended their underperformance against regional and global peers this year.

Investors in Japanese assets, meanwhile, are on high FX intervention alert after the yen fell on Friday for a seventh straight day towards 160.00 per dollar, the level that triggered the first of Tokyo’s yen-buying forays into the market nearly two months ago.

With the Bank of Japan‘s next policy meeting not until July 30-31, it may require verbal or direct intervention again to halt the yen’s slide. The BOJ’s summary of opinions from its June 13-14 policy meeting, to be released on Monday, will be closely watched.

The regional calendar on Monday also includes the latest trade figures from New Zealand, inflation from Singapore, and unemployment and industrial production from Taiwan.

Asian stocks go into the last week of June in decent shape, supported by subdued volatility and falling inflation globally, lower U.S. bond yields, and buoyant equities worldwide.

With the end of the first half in sight, however, some investors will want to lock in profits and square positions. The slide in Nvidia shares last week – their first weekly decline in nine – could be a sign of how this week will play out.

Japanese stocks are up around 15% year to date, and the MSCI Asia ex-Japan, India’s Sensex and South Korea’s Kospi are all up around 7%.

The outlier is China.

The Shanghai Composite is barely in positive territory for the year, has lost 5% in the last month, and is on its worst weekly losing streak in six years.

The news flow isn’t particularly encouraging – trade tensions between China and the West are increasing by the day it seems, and on Friday, Washington issued draft rules for banning or requiring notification of certain investments in artificial intelligence and other technology sectors in China.

Capital flows aren’t particularly supportive either. Foreign direct investment into China in the January-May period fell 28% to $49.7 billion from the same period last year, and some $4.5 billion has left the mainland this month via the Northbound leg of the Stock Connect Scheme, snapping four months of net inflows.

But Barclays analysts say the selloff is overdone, and the bar is low for market-friendly positive surprises from next month’s ‘plenum’ – a key meeting of the Communist Party’s central committee. They recommend positioning for a rebound.

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

– BOJ summary of opinions from June meeting

– Singapore inflation (May)

– Taiwan industrial production (May)

(Reporting by Jamie McGeever)

WASHINGTON – The US Treasury on Thursday said no major trading partner appeared to have manipulated its currency last year, but it added Japan to a foreign exchange “monitoring list,” alongside China, Vietnam, Taiwan, Malaysia, Singapore and Germany, which were on the previous list.

The Treasury’s semi-annual currency report found that none of the countries examined met all three criteria triggering “enhanced analysis” of their foreign exchange practices during the four quarters through December 2023.

Countries are automatically added to the list if they meet two of the three criteria: a trade surplus with the US of at least $15 billion, a global account surplus above 3% of GDP and persistent one-way net foreign exchange purchases of at least 2% of GDP over 12 months.

The Treasury said Japan, Taiwan, Vietnam and Germany all met the criteria for trade surpluses and an outsized current account surplus.

Singapore met the criteria for engaging in persistent foreign exchange intervention and a material current account surplus, and Malaysia only met the current account surplus criteria, but once on the list, it takes two currency report cycles to be dropped off.

China was kept on the monitoring list because of its large trade surplus with the US and because of a lack of transparency surrounding its foreign exchange policies.

“China’s failure to publish foreign exchange (FX) intervention and broader lack of transparency around key features of its exchange rate mechanism continues to make it an outlier among major economies and warrants Treasury’s close monitoring,” the Treasury said in the report.

The report also raises questions about China’s reporting of data on its current account balance, which showed its surplus fell to 1.4% of GDP in 2023 from 2.5% in 2022. The Treasury said China’s balance of payments data published by the State Administration of Foreign Exchange on the country’s trade surplus appear to be at odds with China’s own customs data and that of other trading partners.

A US Treasury official said the department was trying to understand such “anomalies.”

JAPAN’S INTERVENTIONS

The official said Japan’s recent foreign exchange interventions to prop up the value of the yen were not a factor in deciding to add the country to the currency monitoring list. The official cited Japan’s high 2023 trade surplus of $62.4 billion with the US and its global current account surplus of 3.5% of GDP, up from 1.8% in 2022.

But the Treasury report said that Japan had intervened in April and May 2024 – outside the period covered by the report – for the first time since October 2022, buying yen and selling dollars to strengthen the yen’s value.

The Treasury said Japan was transparent in its foreign exchange operations but added: “Treasury’s expectation is that in large, freely traded exchange markets, intervention should be reserved only for very exceptional circumstances with appropriate prior consultations.”

Speaking to reporters on Thursday, Japan’s top currency diplomat, Masato Kanda, said he did not see a problem with Japan being included on the US currency monitoring list, adding that it was assessed according to mechanical criteria.

The report said most foreign exchange interventions in 2023 focused on selling dollars — actions that strengthen a currency’s value against the dollar. The dollar has strengthened over the past two years as the Fed has raised interest rates sharply to cool inflation.

The greater concern in the Treasury report is on interventions to buy dollars and thus weaken other currencies.

“Thus, it is not a surprise that in the four quarters through December 2023, no trading partner was found to have manipulated the rate of exchange between its currency and the US dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade,” the Treasury said.

Vietnam’s current account surplus jumped to 5.8% of GDP in 2023, while its goods and services trade surplus with the US was $103 billion, meeting criteria for the monitoring list.

Vietnam, which is seeking US recognition as a market economy, has “credibly conveyed” to Treasury that it made net purchases of foreign exchange equivalent to 1.5% of GDP, below the Treasury’s 2% threshold, in 2023.

The Treasury said it “remains satisfied” with Vietnam’s progress in modernizing the transparency of its monetary policy and exchange rate management and will continue to engage closely with the State Bank of Vietnam.

(Reporting by David Lawder; Additional reporting by Andrea Shalal in Washington and Takaya Yamaguchi in Tokyo; Editing by Andrea Ricci, David Gregorio and Leslie Adler)

The dollar struggled for direction on Wednesday while the euro remained close to its recent lows on concerns that a new government in France could weaken fiscal discipline, increasing the debt risk premium across the euro area.

Meanwhile sterling rose after data showed British service inflation was stronger than expected.

US markets are closed on Wednesday, which is likely to result in muted trading.

The greenback dropped overnight as US retail sales suggested that economic activity remained lackluster and the Federal Reserve will cut rates sooner.

The euro rose 0.1% to USD 1.0746; it hit on Friday a 1-1/2-month low at USD 1.07.

The yield gap between French and German government debt, which is now seen as a gauge of risks of a budget crisis at the heart of Europe, eased slightly since Monday but remained close to its seven-year highs hit last week.

Analysts flagged that the single currency was far from pricing any serious threat to the financial stability of the euro area bloc.

“The very limited move in forex in contrast to the OAT (French government bond yield) spread move does underline the fact that the reaction is more about a reappraisal of fixed income risks,” said Derek Halpenny, head of research global markets at MUFG.

National Rally’s (NR) leader, Marine Le Pen, said she sought cohabitation with President Emmanuel Macron and would be respectful of institutions, triggering expectations that NR could backtrack on fiscally expensive pledges if it should win the elections in early July.

The European Central Bank could also buy French bonds to avoid “unwarranted and disorderly” yield spread widening. Still, ECB chief economist Philip Lane said recent market turmoil was “not disorderly”.

The European Commission on Wednesday proposed widely expected disciplinary steps against France, Italy and five other European Union countries over running excessive budget deficits.

The dollar index was flat at 105.20.

Markets are now pricing in an around 65% chance the Fed will begin easing rates in September, according to the CME FedWatch tool, with nearly 50 basis points worth of cuts expected this year.

Sterling rose 0.1% against the euro to 84.43 pence per euro and 0.13% against the dollar to USD 1.2725 after British data showed underlying price pressures remained strong.

“What matters now is how much stock the Monetary Policy Committee puts on the spot – and arguably backward-looking – data,” said said Sanjay Raja, chief U.K. economist at Deutsche Bank Research, recalling that survey figures have been “more encouraging.”

Markets priced an around 25% chance of a Bank of England rate cut in August, down from 50% before data, and 44 basis points of monetary easing in 2024, down from almost half a percentage point before figures.

The BoE holds its policy meeting on Thursday.

The Swiss Franc hit a seven-month high against the euro at 0.9479, and was last down 0.1% at 0.9503.

The single currency has weakened constantly against the Swiss currency since the end of May when it hit 0.9930 per franc, its highest since April 2023.

“Some observers see this as a renewed threat of intervention or as an implicit put that (Swiss National Bank Chairman Thomas) Jordan is offering to all market participants who hold long Swiss Franc positions, especially against the euro,” said Ulrich Leuchtmann head of forex strategy at Commerzbank, recalling a speech by Jordan at the end of May.

Jordan argued that inflation risks would likely be associated with a weaker Swiss franc, which the SNB “could counteract by selling foreign exchange.”

BofA expects the SNB to deliver its second 25 bps cut next week and to state a willingness “to be active in the foreign exchange market as necessary”.

The Australian dollar rose 0.29% to USD 0.6675 against the US currency, also helped by a hawkish message from Reserve Bank of Australia Governor Michele Bullock after the central bank’s rate decision on Tuesday.

The yen was little changed at 157.925 per dollar, as it continues to be pressured by stark interest rate differentials between Japan and the US, in particular.

Analysts said Bank of Japan monetary tightening was on the horizon, but the BOJ would take a slow approach.

(Reporting by Stefano Rebaudo; Editing by Angus MacSwan and Nick Zieminski)