Anna 
Japanese markets experienced significant turbulence on Friday, with the Nikkei index poised for its most substantial weekly decline in a year. Simultaneously, bonds faced a battering, and the yen eyed its most significant weekly gain in five months, reflecting a swift exit of investors from bets on Japan’s interest rates remaining low.
Beyond Japan, the MSCI’s broadest index of Asia-Pacific shares ex-Japan rebounded by 0.8%, while Treasuries experienced a slight sell-off. The Nikkei, down 1.8% on the day, recorded a weekly drop of 3.6%, with exporters, particularly automakers, facing the brunt of the decline.
Investors adopted a cautious approach as they awaited U.S. labor data scheduled for later in the day, contributing to more modest movements in other markets.
The yen, which had surged over 2% on Thursday, remained well-supported on Friday. Short sellers expressed concerns that a long-anticipated rally might be underway. The yen reached its strongest position against the dollar in four months at 141.6 on Thursday and stabilized at 144 to the dollar on Friday, reflecting an impressive 5% gain over three weeks.
Bart Wakabayashi, State Street’s Tokyo branch manager, remarked, “The direction is not a surprise. But this move and the speed of this move have blown away my expectations.”
Over the past year, the Bank of Japan (BOJ) has adjusted its tolerance band for 10-year yields twice. On Thursday, Governor Kazuo Ueda hinted at an “even more challenging” year ahead, leading traders to speculate about impending changes. The BOJ is scheduled to set policy rates on December 19, with Nomura analysts deeming the meeting as a ‘live’ one, signifying increased significance.
Japan’s bond market remained under pressure, witnessing higher yields along the curve, and the shorter end tracking towards its most substantial weekly selloff since the onset of the pandemic in March 2020. Complicating the central bank’s outlook, data revealed a faster-than-estimated contraction in Japan’s economy in the third quarter.
In broader markets, focus shifted to U.S. non-farm payrolls figures following jobless claims meeting expectations. Economists anticipated the addition of 180,000 jobs last month, with potential market reactions hinging on whether traders would adjust bets on more than 125 basis points of Federal Reserve rate cuts next year.
The Australian gas producer Santos saw a 6% rise in shares as it entered talks for a potential merger with larger rival Woodside, whose shares dipped 0.5%.
In currency markets, the yen’s surge left the dollar index steady at 103.62 for the week, while the euro retreated to $1.0785. The Australian dollar, influenced by a slowing economy and perceptions of a dovish central bank, was poised for a 0.9% weekly drop to $0.6613.
Brent crude futures, which touched a five-month low on Thursday, recovered slightly to $75.17 a barrel in Asia trade, marking a 4.6% weekly decline. Gold, after reaching a record high earlier in the week, clung on at $2,032 an ounce.
Bitcoin was on track for an eighth consecutive weekly gain, buoyed by expectations that U.S. interest rates have peaked and anticipation surrounding a potential approval of a bitcoin ETF. It was last traded at $43,437.
