Market Overview for Asia

By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.

A day of general calm across world markets on Thursday saw the dollar and U.S. bond yields soften, with stocks consolidating. This bodes well for markets in Asia on Friday as attention focuses on political and economic events in Japan.

Key Events in Japan

Voters will head to the polls in Sunday's general election, and several recent polls suggest that the ruling coalition could lose its parliamentary majority. From a market perspective, this outcome could deprive the Bank of Japan (BOJ) of the political stability needed to manage a smooth transition from near-zero interest rates.

Economic Indicators

Tokyo's consumer inflation, a key indicator of nationwide price trends, will be the main highlight of Asia's economic calendar on Friday and might provide insights for the BOJ ahead of its policy meeting next week.

Inflation in Tokyo likely fell below the central bank's price target for the first time in five months, according to a Reuters poll, coming in at an annual rate of 1.7%. This follows a 2.0% rise in September and marks the first miss of the BOJ's 2% target since May.

A senior International Monetary Fund (IMF) official stated on Thursday that any further rate hikes in Japan should occur at a "gradual pace," noting the potential impact BOJ moves could have on global financial markets—especially where Japanese investors hold large positions.

Krishna Srinivasan, the director of the IMF's Asia and Pacific Department, indicated that most Asian central banks have the capacity to cut rates, as the beginning of the U.S. easing cycle reduces concerns about weakening currencies.

Currency and Market Movements

The Japanese yen made some gains on Thursday, recording its largest rise in a month and pushing the dollar down to 151.50 yen from a recent three-month high above 153.00. However, the yen’s recent weakness has attracted overseas investors into Japanese markets. Figures released Thursday showed that foreigners purchased Japanese stocks for the fourth consecutive week through October 19. Nonetheless, caution ahead of Sunday's election and upcoming corporate earnings tempered these inflows.

Despite the modest reversal, the spike in the dollar and U.S. bond yields to three-month highs has put Asian stocks on track for a third consecutive weekly loss. The recent weakness of the yen and foreign investor inflows have not prevented Japanese stocks from declining, with the Nikkei index down over 2% so far this week.

Other Economic Data

In Singapore, industrial production figures are expected to reveal a significant slowdown in September following unusually strong activity in August. Economists forecast year-on-year growth of 3.5%, a decrease from 21%, which was the fastest since 2021 and among the strongest in the past 15 years.

Key Developments to Watch on Friday:

• Tokyo CPI inflation (October)
• Japan services PPI inflation (September)
• Singapore industrial production (September)