Prime Highlights
- Asian stocks tracked US markets higher as retail sales improved and rate anxiety faded.
- Japanese yen pulled back as political stress rises ahead of Sunday’s upper-house election.
Key Facts
- Japan’s core inflation dropped modestly to 3.3% in June but remained above central bank target.
- Taiwan’s TSMC reported record profit, pushing its shares higher by more than 2% amid tariff concerns.
Key Background
Asian stocks rebounded Friday on investor sentiment after the U.S. market’s recent record highs. Wall Street was supported by improved-than-anticipated retail sales and falling jobless claims that set off expectations the Federal Reserve could loosen interest rate increases earlier than anticipated. This upbeat sentiment carried over to Asia, with the MSCI Asia-Pacific index (excluding Japan) increasing by 0.8%, a 2021 high and up for the week by nearly 1.7%.
Other than the regional optimism, however, the Japanese stock market had a calmer demeanor. The Nikkei slid marginally, with investors eagerly awaiting Sunday’s pivotal upper-house elections. Prime Minister Shigeru Ishiba’s coalition government is poised to lose majority command, a possibility sure to usher in political instability. The uncertainty maintained the Japanese yen under pressure, dropping around 0.7% on the week and trading at 148.8 to the U.S. dollar. Traders are watching closely, with analysts predicting that the yen could go through 149 if election results are disappointing to markets.
At home, Japan continues to battle deeply rooted inflation. Core consumer prices rose 3.3% in June compared with a year earlier, a subdued deceleration from May but well above the 2% target of the Bank of Japan. Exorbitantly expensive living is hurting consumers and can erode support for the ruling government, especially as food and utility prices creep higher.
Elsewhere in Asian bourses, the blue-chip index of Taiwan rebounded after TSMC, the globe’s largest chipmaker, posted record profits for a quarter. The stock climbed over 2%, even though there were warnings about the impact of fresh global tariffs from executives. Chinese and Hong Kong markets registered moderate gains, with investor focus split between central bank policies and geopolitical tensions.
Expectations of U.S. rate expectations also influenced overall investor sentiment. Though some Federal Reserve members expressed support for lowering the rate, futures markets showed rare possibilities of action in July but priced in extremely high probability by September. Treasury yields softened in Asia, while gold prices dropped modestly for the week. Oil prices remained steady with ongoing geopolitical uncertainty.
