Asia mixed; Nikkei ends week 3% lower on strong yen

Asia mixed; Nikkei ends week 3% lower on strong yen

Can Japan actually hit its 2% inflation target?

Masayuki Kichikawa, MD & Chief Japan Economist at the Bank of America Merrill Lynch discusses the latest inflation numbers from Japan and the state of the economy.

Nikkei skids 3%

A strong currency weighed on Japan’s benchmark index, offsetting gains from positive economic data, leading the index to its lowest levels since July 9.

The yen hit a new two-week high at 98.6 against the greenback, leading to a steep sell-off in various sectors. Banks declined with Mitsubishi UFJ down 4.7 percent while Sumitomo Mitsui Financial lost 3.9 percent. Automakers Toyota Motor and Mitsubishi Motor fell nearly 4 percent each.

In earnings news, Advantest tanked 10 percent after the chip maker reported an operating loss of $ 33 million for the April-June quarter. Steelmaker JFE Holdings fell 8 percent after providing disappointing profit guidance.

Core consumer prices rose 0.4 percent in June from a year earlier, logging its fastest pace of growth in five years, Reuters reported.The results suggest the Bank of Japan’s (BOJ) aggressive monetary stimulus policies are helping lift inflation and puts it on track to meet a 2 percent inflation target.

“Investors generally struggle to interpret Japanese data as solid readings generally support the currency, but in this case a stronger yen is a negative. Overall this proves that Abenomics is working, but then implies the BOJ won’t need to increase the current rate of stimulus which is a bit of a dampener to a stimulus driven market,” wrote Stan Shamu, market strategist in a note.

Shanghai slips 0.5%

China’s benchmark index traded in a narrow 20-point range as investors shrugged off the government’s latest measures to boost a slowing economy.

The People’s Bank of China governor Zhou Xiaochuan said that the central bank will continue to operate a prudent monetary policy and help improve financing conditions for small firms. Despite the comments, money market rates continued to rise and that added pressure on financials.

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