Financial markets across Asia exhibited a mixed performance as investors adopted a guarded stance ahead of a pivotal interest rate decision by the U.S. Federal Reserve. The prevailing caution was further compounded by escalating geopolitical friction between Japan and China.
Market indices reflected this uncertainty. Tokyo’s Nikkei 225 remained virtually flat, closing at 50,491.53. In a contrasting movement, South Korea’s Kospi edged up 0.2%, while Taiwan’s benchmark index saw a more substantial gain of 0.8%. Australia’s S&P/ASX 200 retreated by 0.3%. Chinese markets presented a divergent picture: the Shanghai Composite index advanced 0.6%, whereas Hong Kong’s Hang Seng declined by 1%.
The economic landscape was clouded by revised data from Japan, revealing a deeper-than-expected economic contraction. The nation’s economy shrank at an annualized rate of 2.3% in the July-September quarter, a significant downward revision from the initially reported 1.8% decline. This downturn was attributed to the adverse effects of U.S. tariffs on Japanese exports and a reduction in public investment.
Geopolitical tensions intensified following a concerning military incident. Japanese Defense Minister Shinjiro Koizumi formally protested after Chinese military aircraft locked radar on Japanese fighter jets—an act he described as ‘extremely regrettable’ and a ‘dangerous’ escalation. This event occurred amidst existing strain prompted by recent remarks on Taiwan from Japanese Prime Minister Sanae Takaichi, prompting calls for calm from both Japan and Australia.
In the U.S., futures and oil prices registered modest gains. This followed a quiet yet positive end to the previous week on Wall Street, where the S&P 500 closed just below its record high. Corporate movements also captured attention, with Netflix’s announcement of a $72 billion acquisition of Warner Bros. sending ripples through related stocks.
All eyes are now fixed on the Federal Reserve’s upcoming meeting. The widespread market expectation is for an interest rate cut, which would be the third of the year, aimed at bolstering a slowing U.S. job market. Recent inflation data, showing the Fed’s preferred core measure at 2.8%, aligned with economist forecasts, reinforcing these anticipations. However, the persistent risk remains that lower rates could potentially re-ignite inflationary pressures.