Japan’s Stock Market Rises at End of an Epic Quarter

While Chinese stocks remain mostly beaten down, it has been a different story for the Nikkei, with the Japanese benchmark gaining 20% since the start of the year to notch its best quarter since 2009.

Japanese stocks have been on a hot streak—a rally from which Warren Buffett has benefited hugely—with equities running even higher in recent weeks amid signs that the Bank of Japan will keep monetary policy supportive.

Despite limited global stock trading on Friday, there will still be economic data released in the U.S., where the core personal-consumption expenditures (PCE) price index is due. Core PCE is the Federal Reserve’s preferred measure of inflation and the release could affect expectations of when and by how much the central bank could cut interest rates in the coming months. 

With traders having to wait until Monday to express their views in the stock market, it will likely be currencies and possibly cryptocurrencies that could absorb most of the impact of the inflation data release.

If inflation is hotter than expected, it could increase bets that the Fed will keep rates higher for longer and add upward pressure on the dollar and weaken the

yen.

The Japanese currency is already trading above the critical 150 yen-per-dollar level—hovering at 151.4—which has previously triggered government intervention to prop up the currency.

“Due to thin liquidity conditions, foreign exchange volatility may be higher than usual. Another round of dollar buying may push dollar/yen above the critical ceiling of 152.00 and perhaps trigger intervention,” wrote Charalampos Pissouros, an analyst at broker XM.

“Even if officials do not press the intervention button immediately, they could intensify their warnings about one-sided speculative moves in the Japanese currency and perhaps scare yen sellers out of the market,” he added.

Write to Jack Denton at jack.denton@barrons.com