Asia report: Markets mixed as inflation slows in Japan

Markets in the Asia-Pacific region finished with a mixed performance on Friday, influenced by a range of factors including Japan's latest inflation figures.

The data, marking the final key release ahead of the Bank of Japan's inaugural monetary policy meeting in 2024, showed Japan’s inflation rate recording its lowest level since June 2022.

“Asian stocks mainly gained momentum from the tech-driven advances on Wall Street, where sentiment was boosted by the lowest initial jobless claims since September 2022,” said TickMill market analyst Patrick Munnelly.

“Tech stocks were also lifted by TSMC's earnings, which drove the company's shares up by over 6% and supported other chipmakers like Samsung Electronics.

“The Nikkei 225 was supported and briefly surpassed 36,000 handle after Japanese CPI data continued to soften, and a source report indicated no pressure for the Bank of Japan to rush towards the exit.

“On the other hand, the Hang Seng and Shanghai Composite were subdued due to concerns about the uneven recovery in the Chinese economy, and a restriction on short sales by China's largest brokerage failed to stimulate a recovery.”

Japan leads risers on mixed day for region

In Japan, the Nikkei 225 index rose by 1.4% to close at 35,963.27, while the Topix index saw a more modest gain of 0.72%, reaching 2,510.03.

Leading the gains on Tokyo’s benchmark was Advantest, up 8.2%, followed by a 6.03% rise for Tokyo Electron and a 5.87% jump for Dainippon Screen Manufacturing.

Conversely, China's markets experienced a downturn, with the Shanghai Composite slipping by 0.47% to settle at 2,832.28, and the Shenzhen Component declining by 0.68% to finish at 8,787.02.

Companies like Dalian Sunasia Tourism Holding and Daqian Ecology & Landscape led the losses in Shanghai, with both finishing down 10.01%.

Hong Kong's Hang Seng Index dipped by 0.54%, closing at 15,308.69, with Hansoh Pharmaceutical Group down 3.89%, Xinyi Glass Holdings off 3.83%, and Sino Biopharmaceutical closing down 3.62%.

South Korea, however, recorded gains, with the Kospi index climbing by 1.34% to reach 2,472.74.

Leading the way were companies like HD Korea Shipbuilding & Offshore Engineering and LG Innotek, with rises of 7.8% and 7.69%, respectively.

Australia's S&P/ASX 200 rose 1.02% to finish at 7,421.20, with notable performers including The Lottery Corporation, up 6.02%, and Yancoal Australia, which added 4.94%.

In New Zealand, the S&P/NZX 50 index experienced a slight decline of 0.18%, closing at 11,666.07.

Pacific Edge led the losses in Wellington with a decline of 6.36%, and Tourism Holdings was off 2.7%.

Currencies in the region saw minor fluctuations, as the dollar dipped 0.05% against the yen to trade at JPY 148.09.

The greenback was mixed against the downunder dollars, falling 0.25% on the Aussie to AUD 1.5176, while it strengthened 0.07% against the Kiwi to change hands at NZD 1.6362.

On the commodities front, Brent crude futures were last 0.68% firmer on ICE at $79.64 per barrel, while the NYMEX quote for West Texas Intermediate added 0.82% to $74.69.

Inflation slows in Japan, as expected

In economic news, Japan's headline inflation rate declined to 2.6% in December, marking a drop from November's 2.8% and reaching its lowest point since June 2022.

At the same time, Japan's core inflation rate, which excludes fresh food prices, also saw a decrease, settling at 2.3% compared to November's 2.5%.

Both of those figures aligned with the expectations of economists polled by Reuters.

The closely monitored ‘core-core’ inflation rate, which excludes both fresh food and energy prices, registered at 3.7% for December.

That represented a slight dip from November's figure of 3.8%.

“The Bank of Japan is likely to stay put next week, with core inflation excluding food prices falling 0.2 percentage points to 2.3%, slightly above the 2% target,” said Duncan Wrigley at Pantheon Macroeconomics.

“Governor [Kazuo] Ueda last month said the BoJ is in no hurry to unwind easy monetary policy, with a low risk of inflation staying well above 2% and accelerating.

“Domestic demand remains soft, with the tertiary sector index dipping 0.7% month-on-month in November, missing market expectations for a slight rise.”

Wrigley said cooling inflation and mediocre growth prospects for 2024 could lead the central bank to delay making changes until its monetary policy review was concluded.

“On balance, the most likely scenario remains for the Bank to exit negative interest rates in the second quarter using the results of the spring wage negotiations as cover.”

Reporting by Josh White for Sharecast.com.