Asia stocks slip as Japan eyes policy shift, US inflation data looms

December 18, 2023 (MLN): Asia stocks slipped today in a subdued start to a week where Japan’s central bank might edge further away from its uber-easy policies, while a key reading on US inflation is expected to underpin market pricing of interest rate cuts there, as Reuters reported. 

The Bank of Japan (BoJ) meets tomorrow amid much chatter that it is considering how and when to move away from negative interest rates. None of the analysts polled by Reuters expected a definitive move at this meeting, but policy makers might start laying the groundwork for an eventual shift, it added.

April was favoured by 17 of 28 economists as the kick-off for negative rates to be scrapped, making the BoJ one of the few central banks in the world actually tightening, it further noted.

“Since the last meeting in October, 10-year JGB yields have fallen and the yen has appreciated, giving the BoJ little incentive to revise policy at this stage,” said Barclays economist Christian Keller.

“We think the BoJ will wait to confirm the result of the ‘shunto’ wage negotiations next spring, before moving in April.”

In addition to it, Japan’s Nikkei lost 1.2 per cent, weighed in part by a firm yen. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.5%.

South Korea’s main index was flat, showing no obvious reaction to reports North Korea had fired a ballistic missile off its east coast.

Chinese blue chips edged up 0.2 per cent, but that follows five straight weeks of falls.

S&P 500 futures inched up 0.1 per cent, while Nasdaq futures were near flat. EUROSTOXX 50 futures slipped 0.4 per cent and FTSE futures 0.2 per cent.

Over in the United States, a reading on core personal consumption expenditure (PCE) index is forecast by analysts to rise 0.2 per cent in November with the annual inflation rate slowing to its lowest since mid-2021 at 3.4 per cent.

Analysts suspect the balance of risk is on the downside and a rise of 0.1 per cent for the month would see the six-month annualised pace of inflation slow to just 2.1 per cent and almost at the Federal Reserve’s target of 2 per cent.

Markets reckon the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising, and are wagering on early and aggressive action.

New York Fed President John Williams did try to rain on the parade on Friday by saying there was no talk of easing by policy makers, but markets were disinclined to listen.

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