Markets mostly rose Friday after a largely negative day on Wall Street despite growing confidence of a US interest rate cut, while the yen saw big swings as speculation swirled that Japan had stepped into forex markets to support the currency.
A smaller-than-expected read on the June consumer price index ramped up bets on the Federal Reserve lowering borrowing costs in September, and possibly again before January.
The news came after the central bank's boss Jerome Powell said decision-makers would not wait until inflation had hit the bank's two percent target before loosening monetary policy, warning that "if you waited that long, you've probably waited too long".
On Thursday, San Francisco Fed chief Mary Daly said: "I do think with the incoming information on inflation, growth and the labour market, some policy adjustments are likely to be warranted."
However, while the figures appeared to give the all-clear for a cut in two months, the S&P 500 and Nasdaq tumbled from record highs, with observers blaming a shift from big-name tech titans such as Amazon and into smaller, largely overlooked stocks.
But most of Asia extended Thursday's rally.
Hong Kong climbed more than two percent, while there were also advances in Singapore, Sydney, Wellington, Mumbai, Bangkok, Jakarta and Manila. London, Paris and Frankfurt were all slightly higher.
However, Tokyo sank with Seoul and Taipei. Shanghai was flat.
Analysts, meanwhile, said the softer US inflation print provided Japanese authorities the perfect opportunity to step into forex markets to provide support to the yen, which surged against the dollar Thursday.
The Japanese currency spiked from around 161.50 per dollar to as strong as 157.44, fuelling talk that officials had intervened again, having done so in April when the yen hit a 38-year low.
"The pronounced move in the yen appears to be coming on the back of combined impact from US inflation and intervention by Japanese authorities," Charu Chanana at Saxo Markets told AFP.
"There seems to be a new playbook for Japanese interventions, coming in along with supportive fundamentals, making the strength in yen somewhat more durable."
And National Australia Bank's Ray Attrill told Friday's "NAB Morning Call" podcast that the "outsized move" makes it "fairly inconceivable that it hasn't had a helping hand".
The Bank of Japan has "been pretty smart here... pushing on an open door rather than the idea that they would just intervene and do anything other than just gift speculators the opportunity to resell the yen at better levels".
While speculation swirled about official involvement, Japan's top currency diplomat Masato Kanda told reporters late Thursday that authorities were "not in a position to comment on whether they intervened in the market", according to public broadcaster NHK.
"Objectively speaking, there have been quite rapid fluctuations, which has affected people's lives."
There was little major reaction to data showing Chinese exports surged more than expected last month but imports confounded estimates to increase and fell.
The figures came ahead of next week's Third Plenum, a key meeting of leaders in Beijing that traders hope will see announcements aimed at kick-starting lacklustre economic growth.
The gathering will kick off the same day China is expected to release its gross domestic product figures for the second quarter.
"The success of the Third Plenum hinges on lifting household spending," said Harry Murphy Cruise and Sarah Tan at Moody's Analytics in a note.
"And that means reforms targeting housing, labour markets and tax. To be clear, policy changes are likely to be modest because of budget constraints and fears of reinflating a property bubble."
Tokyo - Nikkei 225: DOWN 2.5 percent at 41,190.68 (close)
Hong Kong - Hang Seng Index: UP 2.6 percent at 18,293.38 (close)
Shanghai - Composite: FLAT at 2,971.30 (close)
London - FTSE 100: UP 0.4 percent at 8,252.60
Dollar/yen: UP at 159.29 yen from 158.86 yen on Thursday
Pound/dollar: UP at $1.2927 from $1.2912
Euro/dollar: UP at $1.0874 from $1.0870
Euro/pound: DOWN at 84.12 pence from 84.15 pence
West Texas Intermediate: UP 1.0 percent at $83.44 per barrel
Brent North Sea Crude: UP 0.9 percent at $86.14 per barrel
New York - Dow: UP 0.1 percent at 39,753.75 (close)
New York - S&P 500: DOWN 0.9 percent at 5,584.54 (close)
New York - Nasdaq Composite: DOWN 2.0 percent at 18,283.41 (close)
