Mitsubishi UFG Comments on Yen After Japan CPI Data

The latest Market Talks covering Equities. Published exclusively on Dow Jones Newswires throughout the day.

0647 GMT - Japanese stocks ended higher as concerns about borrowing costs ebb for now. Auto and pharmaceutical stocks led the gains. Chugai Pharmaceutical gained 4.5% and Subaru climbed 3.1%. The 10-year Japanese government bond yield dropped 2 basis points to 1.420% after Bank of Japan Gov. Kazuo Ueda promised to respond to abnormal rises in bond yields. The Nikkei Stock Average rose 0.3% to 38776.94. Investors are focusing on any developments in U.S. trade and foreign policies. USD/JPY is at 150.43, compared with 149.62 as of Thursday 5 p.m. Eastern time. (kosaku.narioka@wsj.com; @kosakunarioka)

0632 GMT - The long-term outlook for Chinese stocks has turned more positive, Daiwa analysts write in a note. China's tech breakthroughs and pro-business policy pivot are game-changers for Chinese stocks, coming as concerns over a lack of long-term growth drivers and private-sector crackdowns ease, they say. In terms of fundamentals, China's prolonged property downturn will likely show structural improvements in 2H, Daiwa adds. Trump's reciprocal tariffs on other trading partners could take some of the heat off of China, while the discord between the U.S. and its European allies may present an opportunity for Beijing to repair its relations with the EU and explore new trade opportunities, they say. Daiwa raises its year-end target for the benchmark Hang Seng Index to 22000 from 20300. HSI last at 23314.40 (jiahui.huang@wsj.com; @ivy_jiahuihuang)

0619 GMT - Indian non-banking finance companies' credit costs seem to have peaked, setting the stage for improved profitability in the coming quarters, Nomura analysts say, noting the companies' 3Q FY 2025 earnings performance. With valuations having moderated, risk-reward dynamic for the sector appears more favorable now, the analysts say. A combination of stable asset quality, easing margin pressures, and better liquidity conditions could drive a re-rating in select names going forward, the analysts add. With easing liquidity conditions and more accommodative requlatory stance in India, these companies' loan disbursement growth trends should also improve in coming quarters. Nomura's top sector picks are Shriram Finance, Bajaj Finance, and Aadhar Housing Finance. (ronnie.harui@wsj.com)

0612 GMT - Samsung Electro-Mechanics is set to benefit this year from demand for its high-end chip package substrates for AI devices, Heungkuk Securities analyst Heechul Park writes in a note. Demand for the company's high-performance flip-chip ball grid array substrates should rise as the supply of cost-efficient AI servers increases, Park says. Its FC-BGA substrates for AI accelerators will start generating revenue from 2025, he adds. He expects operating profit at the company to jump 27% in 2025, following 14% growth in 2024. Heungkuk raises its target price for the stock by 12% to KRW190,000 and keeps a buy rating. Shares are 0.5% lower at KRW143,200. (kwanwoo.jun@wsj.com)

0609 GMT - Chinese equities may face a short-term pullback although the outlook remains positive in the long term, Daiwa analysts write in a note. They suggest investors take a breather after the recent rally, which was fueled by the rise of DeepSeek and China's recent symposium with business leaders to support the private sector. Sentiment-wise, Daiwa warns that stimulus measures announced at China's Two Sessions meeting in March may disappoint investors due to elevated expectations. Additionally, the completion of U.S. reviews on reciprocal tariffs and the U.S.-China phase-one trade deal by April 1 could reignite concerns over a potential trade war, they add.(jiahui.huang@wsj.com; @ivy_jiahuihuang)

0548 GMT - China's electric-vehicle sector could see consolidation accelerating as more autonomous driving features are adopted in mass market cars, HSBC Global Research analysts write in a note. BYD's aggressive autonomous driving push makes higher level autonomy functions more accessible for its mass market models with price tags below CNY100,000, they add. Other Chinese automakers are likely to follow BYD's autonomous driving adoption, they say. The availability of higher-level autonomy in mass market and budget models could raise the bar in EV competition, and boost consolidation in the industry, they add. The companies with stronger AD features and higher in-house software capabilities are likely to better expand its market share, HSBC says.(jiahui.huang@wsj.com; @ivy_jiahuihuang)

0546 GMT - Alibaba's cloud business revenue is expected to accelerate due to a strong uptick in AI demand, according to HSBC Global Research analysts. They note that the core business revenue for the December quarter was a positive surprise, driven by better-than-expected customer management, commission growth and cloud expansion. As a result, the brokerage lifts its fiscal year 2026 cloud revenue growth forecast to 17%, up from the previous 12%. Analysts also highlight the potential for upside catalysts in Alibaba's AI cloud revenue, with a surge in demand observed from January to February. Approximately 60% to 70% of new customer demand is related to AI inference, they add. HSBC maintains a buy rating for Alibaba's ADR and raises the target price to $160.00 from $128.00. The ADRs last closed at $135.97. (jiahui.huang@wsj.com; @ivy_jiahuihuang)

0539 GMT - Alibaba's customer-management revenue growth should remain strong for the next three to four quarters, driving a rerating of the company's Taobao and Tmall group, Daiwa analysts write in a note. Alibaba's 3Q results were better than expected, especially in terms of customer-management revenue, cloud revenue, they say. Since the company's higher capital expenditure compared with peers will enable it to gain stronger market share in the cloud business over the next few years, Daiwa sees scope for a rerating of Alibaba's cloud sector.It maintains buy rating for the stock and raises its target price to HK$165.00 from HK$140.00. Shares last at HK$136.90.(jiahui.huang@wsj.com; @ivy_jiahuihuang)

0519 GMT - The Hang Seng Index may consolidate in the near term after a more than 20% rally since mid-January, say BNP Paribas analysts in a note. The analysts see event risk around earnings season for the index heavyweight and the National People's Congress meeting in early March. The current positioning in China onshore equities is close to a three-year high, showing a potential risk of profit-taking, they add. Investors may consider replacing long delta-1 holdings with a short-dated call spread or call ratio on the Hang Seng Index, which offer limited downside exposure while allowing investors to maintain upside participation within a range, they say.(jiahui.huang@wsj.com; @ivy_jiahuihuang)

0502 GMT - Alibaba could be one of the winners in the China AI arms race, WedBush analysts say in a research note. GameStop CEO Ryan Cohen recently boosted his Alibaba stake to $1 billion to bet on the tech giant's AI potential. "With Apple and Alibaba set to partner up we believe Alibaba could start to get the gateway for more strategic investors to make a bet on the China market," the analysts say. They think that it's "a smart move" that investors like Cohen are looking past U.S.-China trade tensions to grow their exposure to Alibaba and the China tech market, they say. WedBush thinks Alibaba is worth $500 billion and could expand its growth ecosystem with AI in the center over coming years.(sherry.qin@wsj.com)

Japanese stocks ended higher as concerns about borrowing costs ebb for now. Auto and pharmaceutical stocks led the gains. Chugai Pharmaceutical gained 4.5% and Subaru climbed 3.1%. The 10-year Japanese government bond yield dropped 2 basis points to 1.420% after Bank of Japan Gov. Kazuo Ueda promised to respond to abnormal rises in bond yields. The Nikkei Stock Average rose 0.3% to 38776.94. Investors are focusing on any developments in U.S. trade and foreign policies. USD/JPY is at 150.43, compared with 149.62 as of Thursday 5 p.m. Eastern time. (kosaku.narioka@wsj.com; @kosakunarioka)

Japanese government bond yields and the yen fall in the Tokyo session, weighed by Bank of Japan Gov. Kazuo Ueda's pledge to respond to abnormal bond yield surges, signaling potential intervention in the Japanese government bond market to curb excessive yield rises. "In exceptional cases where long-term interest rates rise sharply in a way somewhat different from normal movements, we will flexibly increase purchases of government bonds to promote stable formation of interest rates in the market," Ueda told a parliamentary committee earlier. The 10-year JGB yield is 1.5 bps lower at 1.425%; USD/JPY is 0.4% higher at 150.26. (ronnie.harui@wsj.com)

The Japanese yen fell below 150 per dollar on Friday, retreating from 11-week highs, even as hotter-than-expected inflation figures strengthened the case for a hawkish outlook on Bank of Japan monetary policy.

Data showed core inflation in Japan rose to 3.2% in January, up from 3% in December, exceeding forecasts of 3.1%.

Headline inflation also increased to 4%, up from 3.6%, marking the highest level in two years.

Meanwhile, Bank of Japan Governor Kazuo Ueda commented on Friday that "from a long-term perspective, rising interest rates will help improve financial institutions' profits." He emphasized that the central bank is prepared to respond swiftly to market shifts, including through market operations if abnormal moves occur.

Additionally, BOJ board member Takata noted on Wednesday that real interest rates remain deeply negative, suggesting that the central bank may need to further adjust its policy if economic conditions continue to evolve as expected.

The US dollar fell against its major trading partners early Thursday before a busy schedule of economic data releases.

Weekly jobless claims data and the Philadelphia Federal Reserve's manufacturing reading for February are both due at 8:30 am ET, followed by leading indicators data for January at 10:00 am ET.

Weekly natural gas stocks inventory data are set to be released at 10:30 am ET and weekly petroleum stocks inventory data are due at 11:00 am ET.

Chicago Fed President Austan Goolsbee is due to speak at 9:35 am ET, followed by Federal Reserve Vice Chair for Supervision Michael Barr at 2:30 pm ET and Fed Governor Adriana Kugler at 5:00 pm ET.

A quick summary of foreign exchange activity heading into Thursday:

rose to 1.0438 from 1.0426 at the Wednesday US close and 1.0425 at the same time Wednesday morning. Eurozone construction output was flat in December, according to data released earlier Thursday. Eurozone consumer confidence data for February are due to be released at 10:00 am ET. The next European Central Bank meeting is scheduled for March 5-6.

rose to 1.2614 from 1.2587 at the Wednesday US close and 1.2582 at the same time Wednesday morning. UK manufacturing expectations deteriorated further in February according to data released earlier Thursday. The next Bank of England meeting is scheduled for March 20.

fell to 150.0598 from 151.4685 at the Wednesday US close and 151.7915 at the same time Wednesday morning. There were no Japanese data released overnight, turning the focus to January consumer price data and February business conditions data to be released Friday. The next Bank of Japan meeting is scheduled for March 18-19.

fell to 1.4216 from 1.4226 at the Wednesday US close but was up from a level of 1.4211 at the same time Wednesday morning. Canadian industrial products, raw materials and home price data for January are due to be released at 8:30 am ET. The next Bank of Canada meeting is scheduled for March 12.

The yen (JPY) has continued to outperform this week resulting in falling back to within touching distance of the 150.00 level overnight Wednesday, said MUFG.

The pair is moving closer to the lows from early December when found support between 148.60 and 150.00, wrote the bank in a note to clients. The yen has extended its position as the best-performing G10 currency so far this year. It has strengthened by around 4.8% against the US dollar (USD) and by 4.0% against the euro (EUR) year to date.

The yen is continuing to benefit from the ongoing narrowing of yield differentials between Japan and other major economies, stated MUFG. The yield differential between 10-year United States Treasury bonds and Japanese government bonds has narrowed by around 50bps from a peak of 3.57% in mid-January to the lowest level since before the U.S. election.

The sell-off in the JGB market has accelerated over the past month resulting in the 10-year JGB yield rising to a fresh high of 1.45% overnight Wednesday and it has now more than doubled over the past year, pointed out the bank. The ongoing adjustment higher for Japanese yields has been encouraged by hawkish comments from Bank of Japan officials signaling strongly that further rate hikes will be delivered.

It follows last month's decision to raise rates for the third time in the current tightening cycle up to 0.50%, added MUFG. It was reported overnight Wednesday that BoJ Governor Kazuo Ueda held a regular meeting with Prime Minister Shigeru Ishiba to exchange views on financial and economic developments.

According to reports, the topic of rising yields in Japan wasn't discussed. The focus on the sharp rise in yields in Japan may begin to attract more attention if the current pace of sell-off in the JGB market continues, noted the bank. It's one risk alongside the timing of the Upper House election which could challenge building market expectations for the BoJ to hike rates again as soon as the July policy meeting.

According to Bloomberg, there are currently around 21bps of hikes priced in by the July policy meeting and 15bps by the June meeting.

The case for further rate hikes has been supported by evidence showing that Japan's economy expanded more strongly than expected during the H2 of last year even after the BoJ started to raise rates. The gross domestic product grew by 2.8% quarter over quarter in Q4 following on from growth of 1.7% in Q3.

At the same time, the BoJ has become more confident that stronger wage growth will be sustained in the upcoming fiscal year helping to sustain inflation at its 2.0% target. The BoJ's preferred measure that excludes distortions from sample changes has shown that full-time base pay was increasing by around 3.0% toward the end of last year which Governor Ueda has indicated is consistent with their inflation target.

The next focus points for the BoJ and market participants will be when Rengo (the Japanese Trade Union Confederation) releases the first tabulation results for the 2025 Shunto (spring wage negotiations) on March 14. In advance, Rengo's summary result of wage requests is expected to be released on March 6 providing an insight into what the first tabulation figures may look like, according to MUFG.