LONDON (AP) -- The mood in financial markets was subdued Friday after a surprisingly big fall in Japanese prices and ahead of the first estimate of first-quarter economic growth in the U.S.
At the end of what's been a largely positive week, investors are gearing up for the growth figures. Despite a run of disappointing U.S. economic news, investors are relatively hopeful that the world's largest economy will post annualized growth of a little over 3 percent, well up on the previous quarter's 0.4 percent rate.
"Given the gains seen this week, an element of caution appears to be creeping into investor's mindset after a week of predominantly poor economic data," said Michael Hewson, senior market analyst at CMC Markets.
In Europe, the FTSE 100 index of leading British shares was down 0.7 percent to 6,400 while Germany's DAX fell the same rate to 7,784. The CAC-40 in France was 1.2 percent lower at 3,794.
Wall Street was poised for a lower opening with both Dow futures and the broader S&P 500 futures down 0.2 percent. How they will actually though will likely hinge on those GDP figures which are due for release an hour before the bell.
The dollar's fortunes over the day will likely hinge on the GDP figures too. Ahead of the release, the euro was up 0.1 percent at $1.3013.
Friday's session has also been dented by the news that prices in Japan are falling at their fastest rate in two years — deflation is considered a bad thing as it can weigh on economic activity by giving consumers the incentive to hold off make purchases and by keeping a lid on wages. It also raises the relative value of a country's debt and for a country like Japan that's another problem.
The news that consumer prices in Japan fell by 0.9 percent in the year to March highlighted the scale of the challenge facing the Bank of Japan, which has been tasked to get inflation of 2 percent. In its attempt to do so, it announced a massive monetary stimulus package this month. It did not announce any new measures after its latest meeting Friday.
The prospect of more money in Japan has hit the yen hard to the likely benefit of the country's powerhouse exporters. And that's one reason why Tokyo's Nikkei 225 stock index has performed so strongly over the past few weeks.
However, the fall in prices weighed on Japanese stocks and gave the Asian session a soft tone. The Nikkei, which in the morning hit its highest intraday level in five years at 13,983.87, fell 0.3 percent to close at 13,884.13. The yen, however, clawed back some ground after the BoJ announcement of unchanged policies. The dollar was 0.8 percent lower at 98.59 yen.
"I think if there is anything to take from today's BoJ policy meeting it is the fact that the BoJ believes it has made all the announcements necessary in order to achieve its more aggressive inflation target," said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ.
Elsewhere in Asia, Hong Kong's Hang Seng rose 0.7 percent to 22,547.71 while South Korea's Kospi fell 0.4 percent at 1,944.56. Benchmarks in mainland China and India fell.
Benchmark oil for June delivery was down 62 cents to $93.02 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.21 to close at $93.64 on the Nymex on Thursday.
In currencies, the euro rose to $1.3027 from $1.3002 late Thursday in New York. The dollar fell to 98.72 yen from 99.31 yen.
- Budget, Tax & Economy