Asian shares mixed on weak Japan manufacturing data

Asian shares were mixed Friday after another day of gains on Wall Street amid a deluge of news about the economy, interest rates and corporate profits.

Tokyo, Shanghai and Hong Kong gained while Sydney and Seoul declined. U.S. futures edged lower while oil prices rose.

A preliminary reading on factory activity for Japan showed output and new orders contracting to their worst levels in months. Companies blamed shortages of raw materials and rising costs, but demand may be weakening as the country endures yet another wave of coronavirus outbreaks, economists said.

July's purchasing manager indexes “suggest that the manufacturing sector is slowing as demand weakens, while the latest COVID-19 is starting to hit the service sector," Marcel Thieliant of Capital Economics said in a commentary.

Japan reported its inflation rose at a slower pace in June, with food prices growing 6.5% year-on-year compared to 12.3% in May and the increase in energy costs falling to 16.5% from 20.8%. Core inflation excluding volatile energy and food prices rose to 2.6% from 2.2% the month before.

The Bank of Japan has indicated that unlike the Federal Reserve and other central banks, however, it does not intend to raise its minus 0.1% benchmark interest rate to counter the trend given that wages are not rising in tandem with prices, constraining consumer demand.

Tokyo's Nikkei 225 index gained 0.4% to 27,914.66, while the Hang Seng in Hong Kong added 0.3% to 20,624.18. Australia's S&P/ASX 200 lost less than 0.1% to 6,791.50.

In South Korea, the Kospi declined 0.6% to 2,393.14. The Shanghai Composite index edged 0.1% higher to 3,274.15.

Much of the focus this week has been on Europe. The European Central Bank opted, as expected, to raise its key interest rate Thursday, ending a yearslong experiment with negative interest rates. It was its first increase in 11 years.

A key pipeline carrying Russian natural gas into the region reopened, though at 40% of capacity as worries persisted that Moscow may restrict supplies to punish allies of Ukraine. In Italy, Premier Mario Draghi resigned after his ruling coalition fell apart. That adds more uncertainty as Europe contends with the war in Ukraine, high inflation and the potential for trouble in Europe’s bond markets.

On Wall Street, the S&P 500 climbed 1% to 3,998.95 on Thursday, returning to its highest level in six weeks. The Dow rose 0.5% to 32,036.90 and the Nasdaq rose 1.4% to 12,059.61.

The Russell 2000 gained 0.5%, at 1,836.69.

Stocks briefly lost ground after President Joe Biden tested positive for COVID.

The Federal Reserve is set to raise rates next week for a fourth time this year, once again trying to tamp down high inflation without pulling the economy into a recession.

Some parts of the U.S. economy already have begun to soften.

The number of workers who filed for unemployment benefits last week was the highest in eight months, though it remains relatively low. A separate report released Thursday showed manufacturing in the mid-Atlantic region weakened much more than economists had expected.

Strong profits from big U.S. companies have driven gains on Wall Street this week.

Tesla climbed 9.8% in the first trading after the electric-vehicle maker reported results for the spring that were better than analysts expected. It was the biggest gainer in the S&P 500.

Stocks of energy companies also fell as the price of U.S. crude oil settled 3.5% lower.

Early Friday, U.S. benchmark crude oil was up $1.40 at $97.75 per barrel in electronic trading on the New York Mercantile Exchange.

Brent crude, the pricing basis for international trading, advanced $1.31 to $100.79 per barrel.

In currency trading, the U.S. dollar bought 137.85 Japanese yen, up from 137.41 late Thursday. The euro slipped to $1.0199 from $1.0230.