Nikkei Nears Record Peak, Calm in Asia Before US Inflation Data

Japanese shares soared to a 34-year peak on Tuesday, rising 2.9% while stock markets in China were all closed again for the Lunar New Year holiday.

In Jakarta the JSX fell by 1.2% prior to the national election on Wednesday, while stocks on the ASX in Sydney edged down by 0.16%, and the BSE Sensex was up by 0.7%.

Later, European stocks and S&P 500 futures slipped as investors waited for a US inflation report that could shape Federal Reserve policy.

Treasuries and the dollar were little changed before the inflation numbers. Bitcoin remained just above $50,000 after crossing the threshold for the first time in over two years, thanks to inflows into exchange-traded funds backed by the digital asset.

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Japan’s Nikkei continued to advance, climbing to 38,010 on Tuesday, not far from the record high of 38,957 the benchmark touched on December 29, 1989. The Nikkei has gained more than 13% so far this year, after rising 28% in 2023.

Other markets, such as Shanghai, Shenzhen, Hong Kong and Taiwan were all closed on Tuesday for the Lunar New Year break.

Foreign investors have flocked to the market in Tokyo, attracted by low valuations, changes in corporate governance, and a weak yen that has made Japanese companies’ products more attractive globally.

“US yields have moved up year to date,” said Max Kettner, chief multi-asset strategist at HSBC. “In the absence of any kind of meaningful tightening from the Bank of Japan that really hurts the Japanese yen, (which) helps the export-sensitive Japanese equity market.”

Europe’s continent-wide Stoxx 600 index slipped 0.33% in early trading, after rising 0.54% on Monday, as investors turned cautious before the US data. Germany’s DAX stock index was 0.72% lower.

Britain’s FTSE 100 slipped 0.15% while the pound climbed 0.1% after data showed wage growth was stronger than expected in the last three months of 2023.

Futures for the US S&P 500 fell 0.32%, while Nasdaq futures were down 0.4%.

All eyes on US inflation data

January US inflation data could jolt markets at 1330 GMT (8.30am ET). Economists polled by Reuters expect the consumer price index (CPI) to rise 2.9% year-on-year, down from 3.4% in the previous month.

A higher-than-expected number could nudge yields higher and further strengthen the dollar, Charu Chanana, head of currency strategy at Saxo, said.

Market pricing shows investors think there’s currently a 70% chance of an interest rate cut by May, “and there appears room to push that further to June with markets remaining sensitive to hawkish surprises for now,” Chanana said.

Investors have lowered their bets on rate cuts from the biggest central banks in recent weeks as US data has come in stronger than expected. They now see roughly 110 basis points of cuts by the end of the year, down from around 145 basis points at the start of February.

The yield on 10-year Treasury notes was up very slightly at 4.19%. The dollar index, which measures the US currency against six rivals, was little changed at 104.24. The euro was roughly flat at $1.0761.

The Japanese yen, which is sensitive to US rates, was last down around 0.2% at 149.67 per dollar, not far from the closely watched 150 level that analysts said would likely trigger further comments from Japanese officials in an attempt to support the currency.

Japan’s currency has fallen around 6% against the dollar this year as investors have pushed back their expectations for when the BOJ will end its ultra-loose monetary policy.

In commodities, Brent crude oil futures were at $82.06, up 0.1% on the day.