Stock markets in Japan and South Korea both surged to fresh all-time highs during Thursday's early trading session, while the Japanese yen weakened to its lowest level since July 2024, as the broader Asia-Pacific region digested the mixed signals from a hawkish Federal Reserve and a positive geopolitical development regarding Iran.
Japan's Nikkei 225 index extended its gains to 2%, breaking through the 71,000-point barrier for the first time in history to set a new record. South Korea's benchmark Kospi index similarly climbed to a new peak.
A key factor lifting market sentiment was the signing of a provisional agreement with Iran by former President Trump, which announced the reopening of the Strait of Hormuz. This immediately pressured oil prices, with Brent crude falling over 1% to below $79 per barrel, easing some concerns about inflationary pressures.
However, the Federal Reserve's signaling of potential future interest rate hikes continued to weigh on bond markets, and the persistent weakness in the yen has heightened market focus on whether Japanese authorities might intervene.
Divergent Moves in Asia-Pacific Markets with Tech Leading Gains
Within equity markets, Japan and South Korea stood out. The Nikkei 225's 2% gain propelled it past 71,000 points, while the Topix index rose 1.6%.
South Korea's Kospi gained 0.89%, reaching an intraday high of 8,975.52 points as it approaches the 9,000-point level. Key heavyweight SK Hynix Inc surged 3.45% to a new record, and Samsung Electronics Co Ltd advanced 1.23%. The smaller-cap Kosdaq index underperformed, falling 0.5%.
Australia's S&P/ASX 200 index was largely flat. Hong Kong's Hang Seng Index futures were indicated at 24,200 points, below the previous close.
In U.S. markets, all three major indices closed lower on Wednesday following the Federal Reserve meeting. The Dow Jones Industrial Average fell 507.12 points, or 0.98%, the S&P 500 dropped 1.21%, and the Nasdaq Composite declined 1.34%. The Dow had earlier hit an intraday record high before giving up all gains due to the Fed's hawkish tone.
However, U.S. stock futures subsequently rebounded, with S&P 500 futures up 0.8% and Nasdaq futures gaining over 1%. Spot gold also recovered, rising about 1% to touch $4,300 per ounce.
Yen Slides to Near Two-Year Low, Raising Intervention Concerns
The yen weakened to 160.7 against the U.S. dollar, its lowest level since July 2024, intensifying market concerns that Japanese authorities might intervene in the currency market.
Bank of Japan Deputy Governor Kazuo Ueda stated that exchange rates are crucial to the economic outlook but are not a direct policy target. Investors reacted coolly, with widespread concern that the pace of policy tightening by the BOJ may be insufficient to effectively curb inflation and stabilize the yen—despite the central bank raising its benchmark rate earlier this week to its highest level since 1995.
The yield on Japan's 10-year government bond rose 2.5 basis points to 2.620%, tracking a sell-off in U.S. Treasuries. Australia's 10-year bond yield also increased by 3 basis points to 4.80%.
Fed's Hawkish Pivot, Dot Plot Hints at Rate Hike This Year
The Federal Reserve concluded its policy meeting on Wednesday, leaving the benchmark interest rate unchanged in the 3.5% to 3.75% range. However, the latest "dot plot" projections indicated that several officials anticipate a rate increase within 2026. The median forecast for the year-end rate was raised to 3.8% from 3.4% in March, bringing at least one rate hike this year into view.
This was the first policy meeting chaired by Fed Chair Kevin Warsh. In a press conference, Warsh emphasized that inflation has remained above the Fed's 2% target for several years and reiterated the central bank's commitment to restoring price stability but declined to provide specific guidance on the next policy steps. Notably, Warsh himself chose not to submit a rate forecast, adding uncertainty to the interpretation of the dot plot.
Approximately half of the Federal Open Market Committee members projected a rate hike this year. Traders have fully priced in an October rate increase and see a high probability of action in September. The policy-sensitive two-year U.S. Treasury yield jumped 13 basis points to 4.18% on Wednesday.
"Half the committee projecting a hike this year is a real wake-up call for the market," said Bob Michele, Chief Investment Officer and Global Head of Fixed Income at J.P. Morgan Asset Management. "I think they are preparing the ground for a hike."
U.S.-Iran Deal Boosts Risk Sentiment, Oil Extends Losses
Former President Trump signed a memorandum of understanding with Iran at the Palace of Versailles in France on Wednesday, announcing an end to hostilities and the reopening of the Strait of Hormuz. A U.S. official stated the agreement is formally effective, though it remains unclear if Iran has taken immediate, comprehensive steps to reopen the strait.
"The signing of the MOU by Trump after the G7 meeting is another significant step in the process to reopen the Strait of Hormuz," said Rajeev De Mello, Global Macro Portfolio Manager at Gama Asset Management. "This will further compress energy risk premiums, ease inflation worries, and provide support to bond and equity markets following the initial reaction to the Fed."
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