Marketmind: A tale of two Japans

A look at the day ahead in European and global markets from Rae Wee

Japan’s benchmark was partying like it was very nearly 1989 to trade within a whisker of a record high by the early Asian afternoon on Friday.

The Nikkei charged to a 34-year peak at 38,865.06 points, with its all-time high of 38,957.44 points hit on Dec. 29, 1989 in range. Asia’s darling stock market is up 15% for the year thus far, extending its 28% rally of 2023.

The surge has come even as Japan slipped into recession and lost its title as the world’s third-largest economy to Germany, and as a sliding yen is back on traders’ radars.

To be sure, a weak yen is typically good for the stock market, given it boosts profits of large Japanese companies with global operations which in turn helps the export-reliant economy.

But on the flip side, a soft yen raises the prices of food and energy imports, hurting consumers whose pay cheques are barely keeping up.

That’s all the more a headache for the Bank of Japan (BOJ), which is walking a tightrope between ending years of negative interest rates and keeping monetary policy accommodative.

BOJ Governor Kazuo Ueda said on Friday the central bank will examine whether to maintain its various monetary easing measures when sustained achievement of its inflation target comes into sight.

Over in the United States, it’s a busy day on the data calendar, which sees the release of January’s producer price index (PPI) along with the University of Michigan survey of consumer sentiment.

A high PPI would mean upside risks to the personal consumption expenditures (PCE) price index, which markets and Wall Street, in particular, wouldn’t like.

Like the Nikkei, U.S. stocks have also been on a tear and notching record highs this year, fuelled by the prospect of U.S. rate cuts later this year.

Juiced by the ongoing tech and AI boom, and strength in recent earnings, the has risen 14 out of the last 15 weeks, something it last did in 1972.

    The index is now largely flat on the week, leaving it finely poised to register a 15th-out-of-16-weeks winning streak on Friday. It has only managed this seven times in its history, the last occurrence also being in 1972.

Key developments that could influence markets on Friday:

– UK retail sales (January)

– US PPI figures (January)

– University of Michigan survey

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