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Marketmind: Yen nears 150 per dollar crossroads

Published 13/02/2024, 08:59 am
© Reuters. FILE PHOTO: Fireworks explode over the Victoria Harbour on the second day of the Lunar New Year of the Dragon, in Hong Kong, China February 11, 2024. REUTERS/Lam Yik/File Photo

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets.

Most of Asia is open on Tuesday although activity and trading volumes will be lighter than usual due to the Lunar New Year holiday and China being closed this week, which may continue to limit the upside across the region's stock markets.

For the most part, the global 'risk-on' party rolls on - the S&P 500 is further above 5000 points, the Nasdaq and MSCI World index are homing in on new record highs, and Bitcoin is above $50,000. But Japan aside, Asia is not fully joining in.

The MSCI Asia ex-Japan index has fallen three days in a row, albeit the losses on Friday and Monday were only around 0.1%. Wall Street may be swatting to one side the relative buoyancy of the dollar and U.S. bond yields, but emerging and Asian stocks are finding it more difficult.

The economic calendar in Asia is light on Tuesday - Australian consumer sentiment and Japanese wholesale price inflation are the main releases - while Philippine central bank governor Eli Remolona will speak to mark the release of 2023 Financial Stability Report.

Japan's wholesale inflation figures could move the yen, which is within sight of 150 per dollar for the first time since mid-November, as debate surrounding the Bank of Japan's exit from ultra-loose policy intensifies.

Annual wholesale price inflation in December was flat, slowing for a 12th consecutive month and indicating that consumer price inflation pressure will soon dissipate.

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All else equal, this takes pressure off the BOJ to 'normalize' policy and phase out its massive monetary stimulus soon. But as the International Monetary Fund noted on Friday, current inflation is broad-based across goods and services for the first time in three decades.

As Japan's economy continues to recover, domestic demand is replacing rising costs as the main driver of inflation with the output gap closing and labor shortages intensifying, the IMF said.

In an interview with Reuters on Friday, IMF First Deputy Managing Director Gita Gopinath said the BOJ should consider ending its yield curve control and massive asset purchases now, then gradually raise interest rates.

For their part, money markets are pricing in a one-in-three chance that the BOJ raises rates by 10 basis points next month, thereby bringing its negative interest rate policy to an end.

But Japan is in something of a sweet spot right now - growth is humming along nicely and the weak yen is fueling a stock market boom that has lifted markets to 34-year highs. And if cooling wholesale inflation does bring down consumer inflation, will the BOJ want to rock the boat so soon?

Here are key developments that could provide more direction to markets on Tuesday:

- Japan wholesale inflation (January)

- Australia consumer confidence (February)

- Philippine central bank chief Remolona speaks

(By Jamie McGeever, editing by Deepa Babington)

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