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Nikkei falls early; falling consumer prices adds pressure on Abe, BOJ

CNBC logo CNBC 26-08-2016 Saheli Roy Choudhury

Asia opened lower on Friday, after most local markets remained relatively flat throughout the week as traders stayed on the sidelines, waiting for clues about U.S. interest rates from Jackson Hole. 

In Australia, the ASX 200 (.AXJO) was down 0.2 percent, with most sectors falling in early trade.

Japan's Nikkei 225 (.N225) sold off 0.84 percent, after government data released before market open showed the country's consumer prices for July fell, prompting concerns over the effectiveness of government stimulus. Across the Korean Strait, the Kospi (.KS11) declined 0.58 percent.

Chinese markets will be in focus today when they open at 9:30 a.m. HK/SIN, after major mainland indexes sold-off on Thursday due to concerns over the amount of spare cash in the banking system, as well as fears of an overheating property market.

Stateside, major indexes closed lower, with the Dow Jones industrial average (.DJI) falling 33.07 points, or 0.18 percent, to 18,448.41. The S&P 500 (.SPX) dropped 2.97 points, or 0.14 percent, to end at 2,172.47, while the Nasdaq (.IXIC) slipped 5.49 points, or 0.11 percent, to 5,212.20. 

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U.S. Federal Reserve Chair Janet Yellen is scheduled to speak at an economic policy symposium in Jackson Hole, Wyoming, on Friday local time - an address that has been the only big talking point among traders this week.

Market-watchers will be looking for clues from her speech on when the Fed might raise rates further, with some expecting Yellen's tone to be hawkish, which would likely move Treasurys, gold and equities.

"Traders are not going to be that much happy that easy money is leaving town, so we may see a sell-off for the equity market and for gold as well," Naeem Aslam, chief market analyst at ThinkMarkets, said.

On Thursday, Beat Wittmann of Swiss investment advisory firm Porta Advisors told CNBC that a September Fed hike would provide a boost for the rest of the world and allow for a further hike this year.

But others suggested there was little to no possibility of the Fed raising rates before the U.S. presidential elections in November.

Kenneth Polcari, director at O'Neil Securities, told CNBC's "Squawk Box" that the earliest possibility of a Fed raising rates was in December, although he expects it might also happen after a new U.S. president in inaugurated in January 2017. He added that he didn't expect Yellen to say anything out of the ordinary in her Friday speech.

"She's going to keep the door open, she's going to continue to talk about the data, about how we're making slow and steady progress," Polcari said. "She's not going to say ever that rates are not going to go up in 2016, because that would be a huge admission of failure, considering all year long, they've been telling us that rates are going to go [higher]."

In the currency market, the dollar slightly edged down against a basket of currencies, with the dollar index (=USD) at 94.660, compared to its last close at 94.772.

The Japanese yen (OSEJPY=) remained relatively flat against the dollar, close to the key 100 handle, trading at 100.43 as of 8:26 a.m. HK/SIN. Earlier, the yen strengthened from levels near 100.55 to as high as 100.40 after the government released its July inflation data.

Data from the country's Statistics Bureau showed Japan's core consumer prices, which excludes fresh food, fell 0.5 percent on-year in July, versus a Reuters forecast that expected a 0.4 percent decline. The so-called core-core consumer prices, which excludes food and energy items, rose 0.3 percent on-year in July, but fell 0.2 percent from the previous month.

The preliminary August core consumer prices in Tokyo, released a month in advance compared to the nationwide consumer prices, also fell 0.4 percent on-year.

The decline in consumer prices in Japan is expected to put further pressure on both the government and the Bank of Japan in their bid to prop up growth in the country's moribund economy. In late July, Prime Minister Shinzo Abe had announced a government stimulus package worth 28 trillion yen ($265.30 billion), and in early August, the government approved 13.5 trillion yen in fiscal measures that included 7.5 trillion yen in spending by the national and local governments.

Elsewhere, oil prices were relatively flat during Asian trade on Friday. U.S. crude traded at $47.34, similar to its last closing level, while global benchmark Brent was a touch lower, down 0.04 percent at $49.65 a barrel.

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