Asia report: Nikkei leads gains as Tokyo inflation cools

Asia-Pacific markets rebounded on Tuesday, recovering from the previous session's sell-off as Tokyo’s benchmark index reached a 33-year high, largely driven by gains in the tech sector.

Investors were also digesting December’s inflation figures for Tokyo, considered a leading indicator for nationwide inflation in Japan.

“Stocks in Asia traded higher, taking cues from the positive performance of Wall Street,” said Patrick Munnelly at TickMill.

“The tech sector stood out, driven by a growing appetite for risk in a low-yield environment and a decline in oil prices.”

Munnelly noted that the Nikkei 225 reached its highest level since March 1990, rallying close to the 34,000 handle before facing resistance.

“Initially, the Hang Seng and Shanghai Composite benefited from the overall positive sentiment as anticipation was building in Beijing following a statement from a People’s Bank of China official, who was quoted by state media as saying that policy tools would be utilised to bolster the credit growth within reasonable limits.

“However, the upside was limited after the PBoC reduced liquidity, and Chinese oil companies came under pressure due to the recent declines in oil prices.”

Most bourses rise as Japan leads the pack

In Japan, the Nikkei 225 rose by 1.16% to close at 33,763.18, while the Topix index increased by 0.82% to 2,413.09.

Leading the gainers in Japan were DeNA, up by 9.13%, Omron, rising by 6.22%, and Advantest, which saw a 6.05% increase.

In China, the Shanghai Composite edged up by 0.2% to reach 2,893.25, and the Shenzhen Component also showed a slight gain of 0.27%, closing at 8,971.72.

Heilongjiang Transport Development and Chongqing Fenghwa Group both posted substantial gains in Shanghai, with increases of 10.07% and 10.03%, respectively.

Hong Kong's Hang Seng Index, however, faced a slight decline, dropping by 0.21% to 16,190.02.

Among the top losers in Hong Kong were Orient Overseas International, down 7.2%; Meituan, off 4.6%; and JD.com, which was 3.16% weaker.

In South Korea, the Kospi index slipped by 0.26% to 2,561.24, with HMM and Samsung Electronics seeing declines of 4.78% and 2.35%, respectively.

Australia's S&P/ASX 200 performed well, gaining 0.93% to reach 7,520.50.

Alumina and Star Entertainment Group were among the notable gainers in Sydney, with increases of 7.69% and 6.73%, respectively.

New Zealand's S&P/NZX 50 also showed a positive trend, rising by 0.93% to 11,844.39.

Manawa Energy and Arvida Group stood out as top performers, recording gains of 5.39% and 5.22%, respectively.

In currency markets, the dollar was last down 0.08% on the yen, trading at JPY 144.12.

The greenback meanwhile strengthened 0.36% against the Aussie, reaching AUD 1.4935, while it increased 0.14% on the Kiwi, changing hands at NZD 1.6021.

Oil prices were in the green, with Brent crude futures last up 1.76% on ICE at $77.46 per barrel, and the NYMEX quote for West Texas Intermediate increasing 1.79% to $72.04.

Inflation in Tokyo eases in December, Australian retail sales rise

In economic news, Tokyo's headline inflation rate eased to 2.4% in December, marking a decline from the previous month's 2.6%.

It made for the second consecutive month of decreasing inflation and brought it to its lowest point in the last 18 months.

Meanwhile, Tokyo's core inflation, which excludes fresh food prices, remained stable at 2.1% in December, aligning with market expectations.

“Governor [Kazuo] Ueda on 27 December said the Bank of Japan is in no hurry to unwind easy monetary policy, with a low risk of inflation staying well above 2% and accelerating,” said Duncan Wrigley at Pantheon Macroeconomics.

“The Tokyo inflation data support his view, with core inflation excluding food prices falling to 2.1%, basically in line with the 2% target; national core inflation excluding food prices probably dropped 0.2 percentage points to 2.3%.”

Wrigley said domestic demand remained soft, with real household spending falling 2.9% year-on-year in November, after a 2.5% drop in October, dragged down by falling services consumption.

“Softening inflation data and mediocre economic prospects for 2024 could lead the Bank of Japan to delay making changes until its monetary policy review is concluded, but on balance the most likely scenario remains for the BoJ to exit negative interest rates in the second quarter, using the results of the spring wage negotiations as cover.”

In Australia, the retail sector saw a substantial boost in November, with sales surging by 2% compared to the previous month.

The growth surpassed the expectations of economists polled by Reuters, who had anticipated a more modest 1.2% increase.

It also marked a stark contrast to the 0.2% decline seen in October.

Reporting by Josh White for Sharecast.com.