Asian Stocks Climb with U.S. Momentum; Eyes on Japan’s Election, Yen Slides

U.S. Economic Strength Fuels Global Risk Appetite
Global risk sentiment remained upbeat on Friday, buoyed by stronger-than-expected U.S. retail sales and jobless claims data that reinforced confidence in the health of the world’s largest economy. The S&P 500 and Nasdaq both closed at record highs for a second straight session, as investors priced in a potential delay in further Federal Reserve rate cuts to monitor the inflationary impact of tariffs.

Netflix topped earnings forecasts, supported by a weaker dollar. However, its shares dipped 1.8% in after-hours trading—an indication that much of the positive news had already been priced in.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8% to its highest level since late 2021, bringing weekly gains to 1.7%. The advance reflects growing regional momentum despite lingering trade and tariff uncertainties.

Japan Lags on Political Jitters, Yen Weakens
In contrast, Japan’s Nikkei 225 edged down 0.2%, and the yen weakened to 148.54 per dollar—marking a 0.7% weekly decline. Markets grew uneasy after polls indicated Prime Minister Shigeru Ishiba’s ruling coalition may fall short of a majority in Sunday’s upper house election.

TD Securities warned that a loss could push the yen beyond 149.7 per dollar, especially if Ishiba resigns. Conversely, a coalition victory coupled with swift progress on a U.S. trade deal may offer the yen temporary support.

Domestic inflation data showed core price growth slowing due to short-term utility subsidies. Still, inflation remained above the Bank of Japan’s 2% target, with rising costs for essentials like rice eroding consumer confidence and voter support.

China, Taiwan Extend Gains Amid Tech Strength
Chinese blue-chip stocks rose 0.3%, and Hong Kong’s Hang Seng added 1.2%, extending a broader rebound. In Taiwan, TSMC shares climbed 2.2% after reporting record quarterly profits driven by AI chip demand. However, the company cautioned that ongoing U.S. tariffs could weigh on future revenues, as global supply chains remain vulnerable to shifting trade dynamics.

Dollar Remains Firm on Economic Data and Fed Outlook
The U.S. dollar slipped slightly on Friday but posted a second straight weekly gain of 0.6%, supported by robust economic figures and reduced expectations for near-term Fed rate cuts. Fed Governor Christopher Waller reiterated support for a rate cut by month-end, though broader sentiment within the Fed appears more cautious.

Futures markets currently price in a 62% chance of a rate cut in September, but see little likelihood of a move at the July 30 FOMC meeting—helping to sustain dollar strength amid fluctuating expectations.

Stable Treasuries, Mixed Commodities Reflect Balanced Risk Sentiment
In bond markets, U.S. Treasury yields eased slightly. The 10-year yield slipped 2 basis points to 4.445%, and the 2-year yield declined to 3.8981%, reflecting confidence in the current policy trajectory and muted inflation risks.

Oil prices held steady after recent gains spurred by regional unrest. U.S. crude edged up to $67.66 per barrel, while Brent reached $69.68. Both benchmarks ended the week down about 1%, as drone attacks on oil infrastructure in Iraqi Kurdistan kept geopolitical risks in focus.

Spot gold traded at $3,337 an ounce, on track for a 0.5% weekly loss, as a strong dollar and resilient equity markets dampened demand for safe-haven assets.

Outlook: All Eyes on Japan’s Pivotal Vote
The rally in Asia underscores investor optimism around U.S. economic resilience, even amid ongoing uncertainty over tariffs and Fed policy. However, Japan’s political landscape presents a critical inflection point. Sunday’s upper house election could either calm markets or usher in fresh volatility—particularly for the yen and Japanese equities—as traders prepare for heightened sensitivity to political developments and potential shifts in policy direction.