Asia report: Most markets fall as Tokyo inflation slows

Meanwhile, traders in Australia enjoyed a day off for the sunburnt country's national holiday.

“Asian markets have experienced broad declines following a recent period of gains,” said TickMill market analyst Patrick Munnelly.

“The negative sentiment follows disappointing projections from chipmaker Intel, despite a strong finish to trading on Wall Street.

“US markets were lifted by a robust GDP report, showing annualised growth of 3.3% in the fourth quarter, further bolstering hopes for a soft landing of the economy.”

Munnelly noted that Japan reported a sharper-than-expected decline in Tokyo consumer inflation to 1.6% from 2.4%, as the Bank of Japan mulled over potential interest rate increases later in the year.

“The Hang Seng and Shanghai Composite experienced fluctuations as the impact of recent Chinese support measures diminished.”

Most markets fall after week of broad gains

In Japan, the Nikkei 225 index declined by 1.34% to close at 35,751.07, while the Topix index also fell by 1.35% to 2,497.65.

Leading the decliners on Tokyo’s benchmark was Advantest, down 5.51%, followed by Sumco, down 4.54%, and Tokyo Electric Power, down 3.96%.

China's markets showed a more diverse picture, as the Shanghai Composite edged up by 0.14% to 2,910.22, while the Shenzhen Component dropped 1.06% to 8,762.33.

Among the gainers in Shanghai were Arcplus Group, up 10.07%, China Aluminum International Engineering, up 10.04%, and China Reform Culture Holdings, up 10.03%.

Hong Kong's Hang Seng Index experienced a decline of 1.6%, settling at 15,952.23.

Key losers in the special administrative region included WuXi Biologics, down 18.17%, WuXi AppTec, down 16.43%, and Lenovo Group, down 9.94%.

South Korea's Kospi index managed to post a modest gain of 0.33% to reach 2,478.56.

Notable gainers in South Korea were Mirae Asset Daewoo Securities, up 7.56%, Kumyang, up 6.52%, and Hyundai Doosan Infracore, up 6.38%.

Australian markets remained closed for the Australia Day holiday.

In New Zealand, the S&P/NZX 50 index declined by 0.12% to 11,875.03, with NZX, Meridian Energy, and EBOS Group all posting losses of 2.78%, 2.61%, and 2.3%, respectively.

In currency markets, the dollar was last up 0.01% on the yen to trade at JPY 147.68, while it dipped 0.23% against the Aussie to AUD 1.5151, and saw a marginal decrease of 0.03% on the Kiwi to change hands at NZD 1.6358.

Oil prices also experienced a modest decline, with Brent crude futures last down 0.5% on ICE to $82.02 per barrel, and the NYMEX quote for West Texas Intermediate falling 0.8% to $76.74.

Inflation in Tokyo slows more than expected in January

In economic news, the inflation rate in Japan's capital city of Tokyo dipped to 1.6% in January, down from December's 2.4%.

Tokyo's inflation rate is a key indicator often used to gauge nationwide inflation trends in Japan.

The core inflation rate, which excludes fresh food prices, also surprised economists, coming in at 1.6%, lower than the 1.9% anticipated by Reuters polling and down from December's 2.1%.

Additionally, the ‘core-core’ inflation rate, closely monitored by the Bank of Japan, fell to 2.2% in January, down from 2.7%.

“Looking ahead, we expect price growth for the national CPI to cool at a similar rate, as the Tokyo measure is a precursor for national prices which will be released later next month,” said Kelvin Lam at Pantheon Macroeconomics.

“Note that Tokyo CPI fell just 0.1% on a monthly basis - the outsized fall on the annual measure was partly due to the higher base from last year.

“Another core inflation measure, which excludes both food and energy items, still came in elevated at 3.1% year-on-year in January, after dropping 0.4pp, showing signs of sustainable inflation.”

Lam said Friday’s downside surprise in the headline Tokyo CPI could complicate the Bank of Japan’s timing to normalise policies somewhat, while weak growth prospects could lead it to delay making changes until its monetary policy review was concluded.

“On balance we expect Governor [Kazuo] Ueda to stay on course and unwind negative rates in the second quarter, should the Shunto wage round come in favourably.”

On a separate note, Japan's services producer price index (PPI) remained steady at 2.4% year-on-year in December, matching the revised reading from November.

That indicated that Japan's service prices achieved their fastest growth since March 2015.

For the entire year of 2023, the services PPI recorded a 2% year-on-year increase, surpassing the previous year's 1.8% and 2021's 0.9%.

Looking at the Bank of Japan's monetary policy, the central bank clarified that it would not make abrupt changes to its negative interest rate and yield curve control (YCC) policy based on specific numerical values, including those tied to wage negotiations.

The minutes from its December meeting revealed that board members believed decisions on exiting the negative rate policy and YCC would be determined based on ongoing data and information at each meeting.

Some members emphasised that there was no urgency to raise policy interest rates, and even if a decision was to be made after wage negotiations conclude in spring, it would not be considered too late.

Reporting by Josh White for Sharecast.com.