The Nikkei 225 index registered its sixth consecutive rise on Monday through 36,000 points. The cumulative gain in those six sessions is almost 10%, so perhaps a hotter-than-expected producer price report will be the catalyst for some profit-taking.
On a longer-term horizon, the market may be ripe for a correction too. Otavio Costa at Crescat Capital notes that Japanese stock market cap is around 150% of GDP, which he reckons makes it one of the most overvalued in the world.
In China, meanwhile, the central bank on Monday surprised markets by keeping its medium-term policy rate steady, dashing hopes for a cut to shore up the country’s uneven post-pandemic recovery.
The People’s Bank of China disappointed market expectations for a cut as it held the rate on almost 1 trillion yuan worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50%. The MLF was last cut in August 2023, from 2.65%.
The PBOC is in a tight spot. The economy needs stimulus but cutting rates will probably push the already weak yuan even lower, which could risk domestic capital flight and deter investment from overseas.
The onshore yuan weakened anyway on Monday, sliding to a one-month low of 7.1813 per dollar, an indication of just how delicate the PBOC’s task is.
