A preview of the day ahead in Asian markets.
Asian markets are focused on the Bank of Japan policy announcement on Friday, as the cat-and-mouse game of when or if Tokyo intervenes in the currency market continues, and investors digest the latest earnings reports from major US technology companies. The BOJ’s decision and advice from Governor Kazuo Ueda tops the regional calendar, which also includes consumer price inflation in Tokyo for April, producer price inflation in Australia and industrial production in Singapore. Investor sentiment and overall risk appetite in early Asian trading on Friday will be determined largely by results from Microsoft, Alphabet and Intel announced after Wall Street closes on Thursday.
Microsoft and Alphabet, Google’s parent company, have had resounding successes. Alphabet shares jumped 14% and Microsoft shares jumped 6% in after-hours trading, while Intel shares fell 7%.
Risk appetite was badly dented on Thursday by surprisingly high US inflation and weak GDP growth figures, and the jump in bond yields to new highs for the year will do little to improve the mood in Asia and across emerging markets. On the other hand, U.S. stocks closed at record lows on Thursday and after-hours results were mostly positive. If Asian stocks hold up on Friday, they will record their best week since July last year.
All eyes, however, are on Tokyo, where the Bank of Japan is expected to maintain its key interest rate and forecast that inflation will remain close to its 2% target in the coming years, given the prospects of a steady increase salaries.
But the yen’s fall to a 34-year low against the dollar means Mr Ueda will have to walk a delicate line in maintaining a steady, calibrated path out of ultra-light policy, while tackling the enormous pressure weighing on the currency.
Too dovish an stance could risk fueling yen sales, while too hawkish a stance could threaten GDP growth and trigger unwanted volatility in financial markets.
According to the Jiji news agency, one of the options being considered by policymakers is to weigh measures to reduce the central bank’s purchases of government bonds. This would likely lower the BOJ’s bond holdings, paving the way for a phase of quantitative tightening, according to Jiji.
The yen is at a 34-year low, well below 155.00 to the dollar and down 9% this year. Once again, it is on the defensive against other Asian currencies, much to the dismay of policymakers in the continent’s capitals.
In an interview with Reuters on Thursday, U.S. Treasury Secretary Janet Yellen sidestepped the question of Japanese intervention, but said such cases should ideally be rare and only come in response to excessive volatility.
Here are the main developments that could guide the markets on Friday:
– Bank of Japan policy announcement
– Inflation in Tokyo (April)
– PPI inflation Australia (Q1)
