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Asia Markets Sink Amid Fed’s Caution & BOJ Hold On Rates

Image: Prisma By Dukas | Universal Images Group | Getty Images
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Asian markets tumbled Thursday as investors reacted to a sell-off on Wall Street, triggered by the U.S. Federal Reserve’s cautious outlook after its third consecutive rate cut. The Bank of Japan’s decision to keep its policy rate steady also weighed on market sentiment.

Fed Signals Fewer Rate Cuts Ahead
The Federal Reserve reduced its overnight borrowing rate by 25 basis points to a range of 4.25% to 4.5%, a move widely expected by markets. However, Fed Chair Jerome Powell’s indication that only two rate cuts are likely in 2025, fewer than the previously anticipated four, rattled investor confidence.

“We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower,” Powell said during a press conference.

The cautious tone sparked a steep sell-off on Wall Street, with the Dow Jones Industrial Average plunging 1,123.03 points, or 2.58%, to 42,326.87. The S&P 500 slid 2.95% to 5,872.16, and the Nasdaq Composite dropped 3.56% to 19,392.69.

Asian Markets React
The ripple effect from Wall Street’s sell-off spread across Asia-Pacific markets.

  • Japan: The Nikkei 225 fell 0.69% to 38,813.58, while the broader Topix index edged down 0.22% to 2,713.83. The Japanese yen weakened 0.74% to 155.94 per U.S. dollar, reaching a one-month low after Bank of Japan Governor Kazuo Ueda hinted at further rate hikes if economic conditions align with forecasts.
  • South Korea: The Kospi index slumped 1.95% to 2,435.93, and the Kosdaq dropped 1.89% to 684.36. The South Korean won traded near its weakest level since March 2009 at 1,452.33 against the dollar.
  • Australia: The S&P/ASX 200 declined 1.7%, closing at 8,168.2.
  • Hong Kong and China: The Hang Seng index fell 0.36% in late trade, while mainland China’s CSI 300 managed a slight gain of 0.08% to end at 3,945.46.

Central Bank Developments
The Bank of Japan held its policy rate at 0.25% for the third consecutive meeting, aligning with its strategy of incremental adjustments. Meanwhile, the Hong Kong Monetary Authority mirrored the Fed’s move with a 25-basis-point rate cut, given its currency’s tight peg to the U.S. dollar.

Elsewhere, New Zealand confirmed it had slipped into a technical recession, with GDP contracting by 1% in the September quarter, marking the second consecutive quarter of decline.

Market Outlook
Global markets remain volatile as central banks navigate a challenging balance between controlling inflation and sustaining growth. Investors are expected to remain cautious, particularly with the Fed signaling a slower trajectory for future rate adjustments.