Asia: Stocks mixed after Japan inflation, before Jackson Hole

Asian stocks were mixed on Friday as traders digested worse-than-expected core Japanese inflation data and awaited the Federal Reserve’s Jackson Hole conference.

Japan’s Nikkei 225 closed down 1.18% to 6,360.71 points after official data showed core consumer prices in the nation fell for a fifth consecutive month in July.

The consumer price index, excluding food and energy prices, fell 0.5% year-on-year in July compared to a 0.4% decline in June. Analysts had expected no change.

The headline CPI dropped an annualised 0.4% in July, the same rate of decline as the previous month and in line with analysts’ estimates.

Economists said the weak inflation data adds to the case for further stimulus measures by the Bank of Japan, which has said it would not rule out another rate cut.

Ipek Ozkardskaya, senior market analyst at London Capital Group, said: “The market is being tough to the BoJ regarding its capacity to further loosen its monetary policy, or stay loose. Although the pool of sovereign bonds in Japan is drying up, the BoJ’s shift toward alternative asset classes, as the ETFs, somewhat didn’t satisfy the market expectations.

“The monetary game in Japan has become very challenging given that the BoJ has gradually lost credibility and support from the market. It is time for the BoJ to surprise the insatiable market, yet Mr. Kuroda is running out of resources.”

BoJ Governor Haruhiko Kuroda is speaking at the Jackson Hole conference on Saturday as part of the Overview Panel, with the market hoping he’ll hint on monetary policy.

In the meantime the spotlight is on Federal Reserve chair Janet Yellen who is due to speak at Jackson Hole at 1500 BST. While many would like to hear her offer clues on the timing on the next interest rate hike, most economists expect Yellen will keep her cards close to her chest.

“As we look ahead to this afternoon’s Jackson Hole speech it would be surprising if Mrs Yellen was either dovish or hawkish, though given the odds currently assigned to the prospect of a move in September the risk is likely to be towards the hawkish side, for no other reason than the Federal Reserve will want to keep markets guessing in the event we see an improvement in the economic data between now and 21 September,” said Michael Hewson, chief market analyst at CMC Markets.

“The ability of the Fed to move also continues to be constrained by other central banks and potential future policy moves on their part as they look to ease further, with the Bank of Japan expected to come under further pressure after Japanese CPI fell further into deflationary territory. “

Meanwhile, the Shanghai composite closed broadly flat at 3,070.47 points and the Hang Seng index edged up 0.41% to 22,909.54.

The People's Bank of China is set to inject 95bn yuan into money markets through seven-day reverse bond repurchase agreements and an extra 50bn yuan through 14-day reverse repos, Reuters reported.

The central bank earlier this week re-introduced the 14-day reverse repos for the first time since February. The move renewed concerns about the availability of sufficient cash in the money market.

Elsewhere, oil prices retreated ahead of Yellen’s speech. If the Fed chair hints towards an interest rate rise this year, the dollar is likely to strengthen, sending oil prices lower as it makes crude imports more expensive for holders of other currencies.

At 1052 BST, Brent crude fell 0.81% to $49.27 per barrel and West Texas Intermediate dropped 0.40% to $47.14 per barrel.

On the company front, energy and mining stocks fell on the drop in oil prices.

Shares in Japanese exporters were also lower on a stronger yen against the dollar with automakers Toyota, Nissan and Honda in the red.