Asian shares took a downturn on Friday, with the yen on track for its strongest weekly performance in four months. This followed Tokyo’s core inflation data for November, which revealed persistent price pressures and fueled speculation about a potential rate hike by the Bank of Japan (BOJ) in December.

With U.S. equity and Treasury markets closed on Thursday for the Thanksgiving holiday, Asian markets found little direction from Wall Street. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3% on Friday, marking a weekly loss of 0.5%.

Japan’s benchmark Nikkei 225 Index fell 0.7%, as the yen surged in reaction to local inflation data. The market’s focus has increasingly shifted towards the BOJ’s policy outlook, which could see a shift from its historically dovish stance.

Tokyo Inflation Data

Data released on Friday showed that core consumer prices in Tokyo rose at a faster pace in November, remaining above the BOJ’s 2% target for the 18th consecutive month. This sustained inflation, coupled with signs of a strengthening Japanese economy, has led traders to revise their expectations for monetary policy.

The yen rose sharply, with the U.S. dollar falling 0.9% to 150.17 yen, bringing its weekly decline to 3% — its steepest since late July. Analysts now place a 60% probability on a December rate hike by the BOJ, up significantly from earlier forecasts.

ING analysts noted, “The acceleration in inflation, combined with the solid recovery in monthly activity, increases the odds of another BOJ rate hike in December.”

Global Markets

• Wall Street Futures and Treasury Yields

With the U.S. cash market reopening in Japan, Treasury yields eased, reflecting a cautious sentiment in global markets. Ten-year yields dropped 2 basis points to 4.240%, their lowest level in a month, and marked a weekly decline of 17 basis points — the sharpest since early September.

Wall Street futures showed a slight increase of 0.1%, signaling subdued investor activity as many traders extended the Thanksgiving holiday.

• European Markets

European markets saw more activity overnight. French bond yields declined, providing some relief to the government after a turbulent week. On Wednesday, the spread between French and German borrowing costs hit its widest point since 2012, raising concerns over fiscal stability.

In a significant political concession, French Prime Minister Michel Barnier dropped plans to raise electricity taxes in the 2025 budget. This move came after threats from far-right lawmakers to topple the government over the burden on working-class citizens.

Meanwhile, German inflation figures for November fell short of expectations, raising the possibility of softer eurozone inflation data. Traders continue to anticipate a 25-basis-point rate cut from the European Central Bank (ECB) in December. However, ECB board member Isabel Schnabel emphasized the need for gradual rate reductions to avoid destabilizing the economy.

Commodities

• Oil Prices

Oil markets remained volatile, with prices showing slight gains on Friday but on course for weekly losses. The Israel-Hezbollah ceasefire deal in Lebanon has eased geopolitical risks in the region, contributing to a drop in oil prices earlier in the week.

• West Texas Intermediate (WTI) crude futures rose 0.1% to $68.76 per barrel but were down 2.5% for the week.
• Brent crude followed a similar trajectory, reflecting a cautious market outlook.

Gold Prices
Gold has struggled amid shifts in global market sentiment. Prices declined 2.7% this week, with the precious metal trading at $2,638.29 per ounce on Friday. The prospect of monetary easing in major economies has dampened the appeal of safe-haven assets like gold.

Monetary Policy

• U.S. Federal Reserve
  The dollar faced significant pressure this week, declining 1.4% against major peers. Market participants have rekindled hopes for a potential rate cut by the Federal Reserve in December. Futures data now indicate a 63% probability of a quarter-point rate cut, up from 55% a week ago, according to the CME Group’s Fed Watch Tool.
• European Central Bank
  The ECB’s path remains less clear. Despite signs of slowing inflation in Germany, Isabel Schnabel’s comments underscore a cautious approach. “Gradual rate cuts are crucial to avoid disrupting fragile economic recovery,” Schnabel remarked.
• Bank of Japan
  The spotlight remains on the BOJ, with Tokyo’s inflation data bolstering expectations for another rate hike. Analysts believe that a hawkish move in December could mark a pivotal shift for Japan, a country long associated with ultra-loose monetary policy.