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Asian equities traded within a narrow range on Friday, largely reflecting the region’s cautious sentiment as global and domestic economic uncertainties dampened risk appetite. While Japan’s markets found some respite, most other major Asian indices either edged lower or remained flat, concluding a week marked by steep losses.
Japanese Markets Find Support Amid Strong Inflation Data
Japan’s Nikkei 225 and TOPIX rose 0.2% on Friday, outperforming their regional peers despite the week’s declines of 1% to 1.4%.
- Consumer Inflation Surprise: November’s consumer price index (CPI) readings exceeded expectations, with core inflation continuing above the Bank of Japan’s (BOJ) 2% target, supported by robust private spending.
- Rate Hike Speculations: While inflation bolstered the case for higher interest rates, the BOJ remained cautious, leaving rates unchanged during its Thursday meeting. BOJ Governor Kazuo Ueda indicated that future hikes would be influenced by wage growth, particularly insights from spring wage negotiations, signaling potential increases in 2025.
These developments provided a near-term boost for Japanese equities, even as the broader outlook hinges on domestic and global economic trends.
Chinese Stocks Steady Despite Economic Weakness
China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indices edged higher on Friday, making them relative outperformers in Asia this week with modest declines.
- PBOC Holds Rates: The People’s Bank of China (PBOC) kept its benchmark loan prime rate unchanged, constrained by the yuan’s weakness and the limited efficacy of prior monetary easing measures.
- Fiscal Stimulus Expectations: Confidence grew that Beijing will adopt fiscal expansion in 2025, with reports suggesting an increase in the deficit to 4% of GDP to spur growth.
Hong Kong’s Hang Seng index gained 0.1% on Friday but recorded a weekly loss of 1%, reflecting the broader challenges facing China’s economy.
Broader Asian Markets Under Pressure
Other major Asian indices struggled under the shadow of hawkish signals from the Federal Reserve, which tempered the appeal of risk assets.
- Australia’s ASX 200: The index dropped 1.3%, driven by a sharp 3.7% decline in Wesfarmers Ltd after the conglomerate announced the sale of its industrial gas unit for A$770 million.
- Regional Sentiment: Rising U.S. Treasury yields and a stronger dollar added to the pressure, curbing inflows into riskier Asian assets.
Hawkish Fed and Global Sentiment
The Federal Reserve’s slower-than-expected pace of interest rate cuts in 2025 emerged as a key driver of global market sentiment this week. Wall Street’s losses weighed heavily on Asian markets, with futures extending declines during Friday’s Asian session amid concerns over a potential U.S. government shutdown following the rejection of a Trump-backed spending bill.
Outlook
Asian markets remain under significant pressure due to the interplay of domestic headwinds and global monetary tightening. While Japan’s equities may find temporary support from delayed BOJ rate hikes, concerns over the U.S. Fed’s hawkish stance and China’s persistent economic weaknesses are likely to weigh on regional sentiment into the coming weeks.
