Markets Unmoved by Japan Inflation Peak, China Stimulus as Tech Stocks Tumble

Japan's inflation picture shifted on Friday, with the underlying measure that the Bank of Japan watches most closely slowing for the first time in eighteen months. The headline numbers came in as expected, but the deeper reading suggested price pressures were finally beginning to ease—a development that would normally prompt relief in financial markets. Instead, Asian investors barely registered the news. The real weight on the day came from technology stocks, which were in freefall after Tesla and Netflix both reported disappointing earnings the night before. By Friday morning in Asia, the tech-heavy index excluding Japan was tracking toward its worst day since February, and no amount of good inflation news seemed capable of reversing that momentum.

The Bank of Japan's preferred inflation gauge had been accelerating steadily since early 2022, and this week's slowdown marked a meaningful turn. A Reuters poll suggested the slowdown would deepen further when Tokyo's core inflation figures arrive next week. That outlook gave Bank of Japan Governor Kazuo Ueda room to hold steady on his ultra-loose monetary policy when the central bank meets next Friday. The yen, which typically strengthens when Japan tightens policy, remained under pressure as a result—a dynamic that could persist if the BOJ signals no imminent shift in course.

China, meanwhile, was attempting to stir economic activity through consumption-focused measures announced earlier in the week. The announcements provided a modest lift to mainland stocks, but the market's real attention was fixed on next week's Politburo meeting, where officials are expected to unveil more substantial stimulus. The piecemeal nature of what Beijing has rolled out so far left investors bracing for the possibility that the bigger announcements might still disappoint. One area where Chinese policy was having clearer effect was the yuan, which held most of Thursday's gains after the central bank set a stronger-than-expected midpoint for the currency on Friday.

The economic calendar for the day was sparse. Britain's retail sales figures for June were the main data point, arriving against a backdrop of weakening consumer sentiment. The GfK confidence gauge for July had dropped sharply, falling below even the most pessimistic forecast in a Reuters poll. That suggested June's retail sales reading would likely come in soft. The U.S. Federal Reserve and European Central Bank were both in blackout periods ahead of rate decisions scheduled for Wednesday and Thursday of the following week, meaning no major policymakers were expected to speak.

The day's earnings calendar included reports from Thales, Evolution, Danske Bank, American Express, and Schlumberger, but none carried the market-moving weight of the Tesla and Netflix misses that had already set the tone for the week. What emerged was a portrait of markets caught between competing currents: inflation finally showing signs of retreat in major economies, and central banks signaling they might hold course as a result, yet investors spooked by corporate earnings weakness and waiting to see whether China's stimulus would prove sufficient to offset a global slowdown. The tech selloff was the story that mattered most on the day, overshadowing the inflation relief that would normally have commanded attention.