Hong Kong stocks decline and anticipation of the Trump-Xi summit, and the Japanese Finance Minister confirms Trump’s concern about the weakness of the yen

Hong Kong stocks fell, on Friday, in weak trading due to the holidays, and technology and artificial intelligence companies led the losses, while investors remained awaiting more clarity about the results of the summit between US President Donald Trump and his Chinese counterpart Xi Jinping in Washington.

The standard Hang Seng Index fell 1.7 percent to close at 24,343.19 points, recording the lowest level in two months, while the Hang Seng Chinese Enterprises Index, which tracks the performance of mainland companies listed in the city, lost about 2 percent.

The pressure was most evident in technology stocks; The Hang Seng Technology Index fell by more than 2 percent to its lowest level in three months, while shares in the artificial intelligence sector fell by about 3 percent.

The losses came amid limited trading volumes ahead of the Mid-Autumn Festival holiday in Hong Kong, while financial markets on the Chinese mainland remained closed on Friday, and trading will resume on Monday.

Markets in Taiwan and South Korea were also closed for holidays, while the broader MSCI index of Asia-Pacific stocks outside Japan remained little changed.

Investors' attention has shifted mainly to Xi's visit to the United States and his talks with Trump, in light of the continuing disagreements between the world's two largest economies over trade, technology, artificial intelligence, and other geopolitical issues.

There have been no major breakthroughs in key files so far, which has kept investors cautious about increasing their exposure to Chinese assets. The markets entered the summit with limited expectations about the possibility of reaching broad settlements, especially after years of mutual trade and technological restrictions.

Khun Goh, head of Asia research at ANZ, said that the markets were not expecting a major breakthrough, but the importance lies in setting a “floor” for relations between Washington and Beijing that limits the possibility of them deteriorating further.

He added that relations are moving in the right direction, considering that providing greater stability in the bilateral relationship represents in itself a development that the markets can welcome. Friday's losses are an extension of the state of caution that dominated Chinese assets in the previous session. On Thursday, mainland stocks recorded their largest daily decline in a month. The CSI 300 Index fell by 1.7 percent, while the Shanghai Composite Index lost 1.2 percent. The sharpest decline in technology stocks reflects the sector's particular sensitivity to any developments in US-Chinese relations, given the continued US restrictions on exporting chips and advanced technologies to China, in addition to the escalating competition in the field of artificial intelligence.

At the same time, the holidays contributed to amplifying the state of caution, with low liquidity and the absence of a number of major regional markets from trading, prompting investors to avoid building large positions before the results of the talks in Washington became clear.

Thus, the Hong Kong market ended the week under double pressure from the decline in technology stocks and the lack of clarity on the next path of relations between China and the United States. Although the continuation of the dialogue between Trump and Xi provides a degree of stability, investors are awaiting concrete steps in the files of trade, artificial intelligence, and technology before risk appetite returns stronger to Chinese stocks.

Japanese Finance Minister Satsuki Katayama revealed on Friday that US President Donald Trump raised the issue of the weak yen during his meeting with Japanese Prime Minister Sanae Takaichi, an indication of growing common concern in Tokyo and Washington about the continued decline of the Japanese currency and its repercussions on inflation and bond markets.

Katayama said, during a regular press conference, that Trump expressed during the recent Japanese-American summit his concern about the weakness of the yen, adding that she was revealing the details of this dialogue for the first time after consulting with the Prime Minister’s Office.

She explained that Takaichi informed Trump, “as a general principle,” that the decline in the value of the yen to levels below its fair value represents a problem. Detailed disclosure of the two countries' leaders' discussions on exchange rates is unusual, given that governments usually avoid announcing the details of these talks.

Takaichi met Trump in New York on Tuesday, on the sidelines of the United Nations General Assembly meetings. She later said that the two sides held “timely” discussions on China, ahead of the scheduled summit between Trump and Chinese President Xi Jinping.

According to Katayama, the exchange discussions reaffirmed the common position between the United States and Japan that underpinned the coordinated intervention in the currency market on July 31, including a commitment to confront excessive volatility and disorderly movements in the yen price.

The Finance Minister added that she will continue close communication with US Treasury Secretary Scott Besent on a range of issues, including exchange markets.

The statements came at a time when the dollar continues to achieve gains against the yen and other major currencies, supported by strong US economic data, the tightening of the Federal Reserve and the rise in US Treasury bond yields.

The yen improved slightly after Katayama's statements, rising from about 158.60 yen to the dollar to about 158 ​​yen.

The weak yen poses an increasing challenge to the Japanese economy, because it raises the cost of energy imports, which have already increased due to the US-Israeli war on Iran, which fuels fears that inflation will exceed target levels. Washington is also monitoring developments for fear that the repercussions of the Japanese bond sale will spread to the US Treasury bond market.

Concern about the currency coincided with a continuing sharp rise in Japanese government debt yields. The ten-year bond yield rose on Friday to 3.115 percent, the highest level in about 30 years, affected by a strong selling wave in the American market.

Katayama declined to clarify whether the global rise in bond yields was discussed during Trump and Takaichi's meeting.

In another indication of the change in Japanese economic policy trends, Economic Revitalization Minister Minoru Kiyoshi, an ally of the movement that supports Takaichi’s economic policies, said that the phase of “Abenomics”-style stimulative policies, which relied on monetary easing and flexible fiscal spending, has ended.

His statements came after implicit criticism from Besant, who recently indicated that Japan's priority should be combating inflation rather than stimulating growth, in light of fears that some elements of previous economic policies will continue within the current government's directions.

Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking, said that Katayama and Kiyoshi's statements reflect escalating official concern about the weakness of the yen, especially after the Japanese authorities conducted checks on exchange rates in the market on Friday, a step usually seen as a possible indication of readiness to intervene.

These developments place the yen at the heart of Japanese economic policy calculations, as Tokyo faces at the same time inflation pressures, rising bond yields, and tightening monetary policy. Katayama's statements also show that currency movements have become the subject of direct attention at the highest political level in both Japan and the United States.