Asian equities saw a muted response to the Federal Reserve's first rate hike in over three years, with Japan's Nikkei 225 and South Korea's KOSPI both surrendering early advances as investors weighed the implications of further U.S. tightening.
The Nikkei 225 was barely changed by midday after initially surging more than 1% at the open, while the broader Topix index added about 0.7%. South Korea's KOSPI followed a similar trajectory, opening 0.9% higher before paring gains to just 0.1%.
The initial optimism stemmed from the removal of uncertainty surrounding the Fed's decision, but a firmer dollar and rising short-term U.S. yields quickly tempered enthusiasm. The Fed raised its benchmark rate by a quarter point to a range of 3.75%-4%, with officials signaling another increase is likely this year.
Yen weakness supports Japanese exporters
Japanese equities initially welcomed the Fed's move, particularly as the dollar strengthened against the yen. The yen weakened beyond 156 per dollar following the decision, improving the earnings outlook for exporters. Machinery and pharmaceutical stocks were among the stronger performers, with Mitsubishi Heavy Industries climbing more than 3% and SoftBank also advancing.
However, technology shares lagged. Advantest and Tokyo Electron fell as lingering uncertainty over AI investment kept pressure on semiconductor names, erasing much of the Nikkei's opening gain. Nomura Securities strategist Wataru Akiyama noted that while the Fed event had cleared some market uncertainty, the breadth of Thursday's gains did not yet indicate a particularly robust Japanese equity backdrop.
KOSPI rally fades as foreign selling persists
The KOSPI climbed as high as 1.15% shortly after the open before retreating to 6,723.23, up just 0.08% by late morning. Samsung Electronics slipped 0.39% and SK Hynix fell 0.74%, limiting the benchmark after semiconductor shares had helped Korea snap a four-session losing streak on Wednesday.
Financial and defense stocks performed better, with KB Financial up 1.47% and Hanwha Aerospace gaining about 3%. Foreign investors remained a constraint, while the won weakened to around 1,382 per dollar. Kiwoom Securities analyst Han Ji-young told the Korea Times that Korean equities were likely to remain volatile as investors digested the Fed's hawkish message. That sensitivity is amplified by the KOSPI's heavy technology weighting and its dependence on overseas capital flows.
Fed relief partial as BOJ decision looms
The Fed's unanimous decision and signal of further tightening pushed the dollar to a seven-week high, although the 10-year Treasury yield eased just below 5% after Tuesday's surge. Brent crude fell towards $105 as Saudi supply concerns eased, providing some relief to energy-importing Japan and South Korea.
Elsewhere, MSCI's Asia-Pacific index excluding Japan rose about 0.4%, while China's CSI 300 fell 0.4% and Hong Kong's Hang Seng dropped 0.9%. S&P 500 futures gained about 0.5% and Nasdaq futures rose 0.6%.
Attention now shifts to Friday's Bank of Japan decision. A quarter-point hike to 1.25% is widely expected, meaning the bigger issue for the Nikkei will be Governor Kazuo Ueda's guidance on what comes next. For the KOSPI, the test is whether Fed uncertainty has genuinely cleared enough to bring foreign buyers back.
This article is for informational purposes only and does not constitute financial advice.
