Morning news: World market, political eyes turn to Japan

Morning news: World market, political eyes turn to Japan

May 19 (Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

Japan takes center stage on Friday, with the April consumer price inflation report grabbing data in the spotlight and the Group of Seven leaders’ summit in Hiroshima stealing the global political and economic spotlight.

These events come amid rapidly improving international investor sentiment toward the world’s third-largest economy, reflected in Japanese shares rising to their highest level in 33 years.

The broad Topix index hit that milestone this week, and the Nikkei 225 index came within 0.5% of reaching it on Thursday. A final push on Friday – a reasonable assumption given Wall Street’s gains on Thursday – and it will be a watershed day for Japan’s benchmark index.

The Nikkei is on the rise. Thursday’s 1.6% gain was its best day in two months, it is up 4% this week and on track for its best week since October, and a sixth straight weekly gain would mark its best run in five years.

As Phil Suttle, a former World Bank economist, wrote Thursday: “Japan is back!”

Inflation in Japan is also back. After decades of fighting deflation, the Bank of Japan faces the unknown problem of sticky inflation while insisting it will stick to ultra-loose monetary policy. Something has to give.

The annual core CPI is expected to edge back to 3.4% from 3.1% in March, which would raise the forecast that the BOJ would start unwinding its “yield curve control” policy sooner rather than later.

As the week draws to a close, the broader global market sentiment is characterized by optimism and bullishness – optimism that a US debt default will be avoided and bullish that markets can withstand the rise in bond yields triggered by the latest wave of hiked Fed numbers . .

Wall Street, Treasuries, implied US interest rates and the dollar all rose on Thursday.

G7 leaders begin a three-day summit in Hiroshima on Friday, with the world’s attention focusing mostly on what they say about China.

The G7 is divided over China, with some countries struggling over how to warn against what they see as China’s threat to global supply chains and economic security without completely alienating a powerful and important trading partner.

Leaders will discuss concerns over China’s use of “economic coercion” in its trade abroad. Washington has proposed tight restrictions on investment into China, but these have not been universally welcomed.

The main G7 statement at the weekend is set to include “a section specific to China,” sources have told Reuters.

Here are three key developments that could give more direction to the markets on Friday:

– Japan CPI inflation (April)

– G7 Leaders Summit (Japan)

– Fed Chairman Jerome Powell speaks

By Jamie McGeever; editing by Deepa Babington

Our standards: Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is bound by the fiduciary principles of integrity, independence and freedom from bias.

Jamie McGeever

Thomson Reuters

Jamie McGeever has been a financial journalist since 1998 and has reported from Brazil, Spain, New York, London and now back in the US again. Focus on the economy, central banks, policy makers and global markets – especially currency and interest rates. Follow me on Twitter: @ReutersJamie

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