Events in the world's biggest economy will likely take center stage in Asia's financial markets this week, with the Federal Reserve 's monetary policy decision and the U.S. second-quarter growth report card on tap.
"The key event is without dispute the FOMC [Federal Open Market Committee] decision on Wednesday. While almost no one is expecting the Fed to raise interest rates in its July meeting, everyone is watching for their comments, particularly on the economic and inflation outlook," IG's market strategist Bernard Aw wrote in a note released on Friday.
Aw believes that the world's most influential central bank is poised to raise rates from near zero this year, as U.S. jobs data improve and global risk events, namely Greece and China, subside. However, caution may be warranted with inflation remaining stubbornly lower than the central bank's targeted 2 percent rate.
"There are some concerns that the strengthening dollar (Exchange:.DXY) is dampening inflationary pressure, which would cloud the Fed's judgement on when to raise rates. Nonetheless, Fed chair Yellen remains adamant that the central bank will start normalizing interest rates this year, although increases will be gradual," the Singapore-based strategist added.
The release of U.S. second-quarter gross domestic product (GDP) on Thursday will also be a key swing factor for risk appetite. According to economists polled by Reuters, the world's top economy likely grew 2.50 percent in the April-June period, regaining strength after expanding a meager 0.2 percent in the first three months of 2015 on the back of bad weather and softer energy prices.
In Asia, a slew of economic data from the region's second-biggest economy will likely top the watch-list of investors, especially after the International Monetary Fund called on Japan to speed up structural reforms and prepare for further monetary easing.
Scheduled for release on Friday, the closely-monitored consumer price index (CPI) - which excludes volatile food prices - will likely be flat in June from a year ago, according to estimates from Moody's Analytics. This compares to a muted rise of 0.1 percent in the prior month and a 0.3 percent advance in April.
"Japan's inflation rate has weakened markedly as the effects of the April 2014 tax hike fade... The Bank of Japan (BOJ) may need to ease monetary policy further to reach its 2 percent inflation goal by mid-2016," Moody's analysts wrote in a note.
Also due on Friday, the jobless rate likely rose to 3.4 percent in June, Moody's estimated, a tick-up from 3.3 percent in the prior two months, as "labor demand wasn't strong enough to absorb new entrants" into the workforce.