Japan’s Nikkei 225 slid on Friday, erasing its gains for the week and diverging from mostly positive Asian markets as investors turned cautious ahead of a crucial U.S. inflation reading that could influence the Federal Reserve’s next move. European markets pointed to a muted open, with EURO STOXX 50 and FTSE futures largely unchanged, while Nasdaq and S&P 500 futures posted modest gains.
The Nikkei fell 1.3% after weaker household spending data underscored persistent inflation pressures and fueled expectations of a Bank of Japan rate hike later this month. The index was poised to finish the week flat. Japan’s 10-year government bond yield briefly touched 1.94%—its highest level since 2007—before easing to 1.93%. The benchmark yield was on track for its sharpest weekly rise since March, though solid auction demand signaled that cheaper bond prices continue to attract buyers. Market strategist Nigel Green noted that capital flows are shifting and long-held assumptions about the yen are being challenged as Japan edges toward policy normalization.
Investors now see a 75% probability of a quarter-point BoJ rate hike, supported by comments from Governor Kazuo Ueda, who said the central bank would evaluate the “pros and cons” of tightening. Reuters sources also indicated government tolerance for a December hike. The yen strengthened, pushing the dollar down 0.3% to 154.61.
Across Asia, the MSCI Asia-Pacific index outside Japan rose 0.4% and was on pace for a 1% weekly gain, buoyed by a 1.4% climb in South Korean equities.
The U.S. dollar extended its recent weakness, pressured by expectations of a Fed rate cut next week. Markets are pricing a 90% chance of a quarter-point reduction despite deep divisions among policymakers. Investors now await the Fed’s preferred inflation gauge—the PCE price index—with forecasts pointing to a 0.2% rise in core inflation.
Treasury yields edged lower after Thursday’s increase, while oil prices dipped and gold ticked higher, though both were set for mixed weekly performance.


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