Asia Day Ahead: BoJ meeting to take centre stage

Asia Open

The Asian session saw a mixed open, with Nikkei -0.37%, ASX -0.37% and KOSPI +0.40%. Market gains seem to be more restrained, following a recovery in the US dollar overnight from its post-consumer price index (CPI) dip. While the Federal Reserve (Fed) meeting is behind us, markets are well aware that they are not out of the woods yet, with the Bank of Japan (BoJ) meeting providing the last hurdle for markets this week.

The central bank is widely expected to keep its short-term interest rate unchanged at 0.0% - 0.1%, but with broad expectations looking for the central bank to hike rates further as soon as July, eyes will be on whether policymakers will still be united in their dovishness this time round.

More clarity is also expected to be provided at the upcoming meeting in terms of the timing and scale of its bond-purchases tapering. Any reduction may likely be taken with caution however, potentially with some reservations over slowing inflation and sluggish consumption in its economy. The central bank may also continue to guide for a high degree of data-dependency to retain some policy flexibility.

Overnight economic data offers mixed view for Fed’s policy path

Following a hawkish hold in the recent Fed meeting, a series of economic data overnight seems to provide more questions than answers for the Fed’s policy path. Weaker-than-expected US pricing pressures for May is further reinforced with the producer price index (PPI) overnight, while jobless claims came in at its highest level in nine months, overall rooting for a quicker policy-easing process.

Market rate expectations took the cue. Two rate cuts through 2024 is the broad consensus, with market participants effectively looking beyond the recent Fed’s dot projections and putting the Fed’s credibility at stake. Higher sensitivity to incoming data versus any Fed’s guidance seems to remain the story ahead.

What to watch: Nikkei 225

The Nikkei 225 index continues to trade in a state of indecision, with an attempt to break above a trendline resistance at the 39,000 level failing to sustain. Buyers may be looking for a more gradual pace of policy normalisation at the upcoming Bank of Japan (BoJ) meeting to support a move back above its trendline resistance.

For now, the index has struggled to cross above the upper edge of its daily Ichimoku Cloud, while its daily relative strength index (RSI) has been hovering around the mid-line without much of a clear direction. On the downside, immediate support may be at the 38,400 level, where the lower base of its current consolidation stands.