Trends in the dollar continued to have an important focus during Friday with the US currency’s inability to sustain gains undermining support for the Nikkei index ahead of the long US weekend.
The dollar was again unable to gain any sustained support from strength in US data and expectations that the Federal Reserve would continue the process of rate normalisation. USD/JPY was blocked below 114.00 and retreated to test support near 113.00. The weaker dollar was a significant factor in curbing support for Japanese equities.
US equities continued to find solid support on dips as underlying sentiment held firm, although the S&P 500 index did decline 0.1% on the day. There was some disappointment that there were no significant references to economic policy during President Trump’s press conference.
Lower US bond yields had some impact in curbing demand for financial stocks which had some negative impact on the Japanese index.
The Nikkei index opened lower on significant pressure for a correction, but there was support below the 19,200 level and stocks rallied into the session break without being able to regain positive territory. Narrow ranges prevailed during the afternoon session with caution the main feature.
There was some further speculation that the Japanese Finance Ministry would look to curb underlying USD/JPY gains to the 120.00 area, especially given a need to placate the US Administration, and an informal dollar cap would tend to limit the scope for medium-term equity gains.
At the corporate level, further heavy losses for Toshiba had a wider negative impact on market sentiment.
At the close, the Nikkei index closed down 112.91 points and 0.58% at 19,234.62.
Dollar trends will tend to dominate in the short term with a further focus on President Trump’s economic policies with markets waiting for further evidence on tax policies.