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This largely held true for most markets, except for the Nikkei which had a “bad news is good news” rally on hopes that the Bank of Japan (BoJ) may step up stimulus next week. US dollar strengthened overnight off the better-than-expected US housing starts which saw most currencies in the region weaken.
The Japanese trade balance came in noticeably below expectations, which prompted a big rally in the Nikkei on expectations the BoJ may step up easing at its meeting next week. The unadjusted trade balance was -114.5 billion yen compared to consensus expectations of +87.0 billion yen, and the seasonally adjusted trade balance came in at -355.7 billion yen, compared to expectations of -63.4 billion yen. This is likely to be a further drag on Q3 GDP from net exports, and given the poor run of industrial production as well, Japan is likely to see a consecutive quarter-on-quarter GDP decline and enter a technical recession in Q3.