Japan Inflation in Focus as Yen and Yuan Decline

Japanese Inflation Under Scrutiny Amid Economic Strains

Japanese inflation figures are set to attract significant attention on Friday, as multiple economic variables put pressure on the country's economy. With the yen nearing historic lows, oil prices on the rise, and the Bank of Japan's cautious stance regarding monetary policy normalization, these factors are under critical observation. The broader sentiment across Asian markets might be overshadowed by Thursday's decline in U.S. stocks and bonds, alongside a stronger dollar, which may prompt investors to secure gains amidst one of the more robust weeks for Asian and global stocks.

China's Market Struggles Continue

China remains a stark contrast in the economic landscape, with blue chip shares tumbling to a two-month low on Thursday. This marks a fifth consecutive week of losses, as the yuan weakens to its lowest point against the dollar since November. Ongoing trade tensions between China and Western nations continue to unsettle investors. German Economy Minister Robert Habeck, while in Seoul, remarked that both South Korea and Germany plan to diversify away from China, aiming to widen their sources of raw materials and lessen dependence on critical products.

Rising Oil Prices and Central Bank Concerns

Oil prices have maintained an upward trajectory, with U.S. WTI and Brent crude futures reaching their highest levels since April 30. Specifically, WTI has surged 13.5% from its June 4 low, increasing in nine out of the last 11 trading sessions, while Brent has climbed 12%, rising in eight sessions during the same period. The potential inflationary impact of prolonged higher oil prices is on the radar for central banks, particularly the Bank of Japan, given Japan's heavy dependence on imported energy. The yen's depreciation to 159.00 per dollar falls squarely into the 'intervention' zone, raising questions about potential market tests of Tokyo's resolve if it nears the 160.00 mark.

U.S. Treasury and Currency Monitoring

The U.S. Treasury recently reported that no major trading partner manipulated its currency last year, yet it included Japan in its foreign exchange "monitoring list" along with China, Vietnam, Taiwan, Malaysia, and Singapore. This move signals a vigilant stance on currency practices across key Asian economies.

Upcoming Economic Indicators

Forecasts for Japan's latest inflation figures suggest a rebound in annual core inflation, excluding food and energy, to 2.6% in May from 2.2% in April. Headline inflation is also expected to have increased, with economists from Goldman Sachs projecting a rise to 2.9% from April's 2.5%. The Asia/Pacific regional calendar will also feature the release of preliminary June PMI reports, encompassing factory and services activity data from Japan, Australia, and India. Additionally, Softbank Group is slated to hold its annual general shareholders meeting.

Key Developments to Watch

Japan's May inflation figures June PMIs for Japan, Australia, and India Softbank's annual general meeting

These developments could provide further insights and direction for market movements as the week concludes.