Asian shares waver as oil and yields rise ahead of key US, Japan central bank meetings

On September 15, Asian shares faced volatility due to rising oil prices and higher bond yields as investors braced for key central bank meetings in the US and Japan. Tensions in the Middle East, following a new attack by Iran-aligned Houthis on Saudi Arabia, added to market uncertainty. The kingdom had blamed Iran-backed fighters in Iraq for disrupting up to 4% of global oil supply, prompting Gulf Arab states to postpone planned talks with Iran.

This supply concern contributed to elevated crude oil prices, with US crude rising 1.27% to $102.68 a barrel and Brent crude up 1.21% to $106.96 per barrel.

Analysts cautioned that higher oil prices could fuel inflation and potentially lead to interest rate hikes. Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, noted that markets would likely remain cautious, watching for the risk of inflationary pressures pushing interest rates higher. Amidst the AI development debate, US President Donald Trump downplayed concerns, stating that existing US safeguards were sufficient and that China would benefit from doubts surrounding AI advancement.

MSCI’s Asia-Pacific index outside Japan fell by 0.12%, led by a 0.25% dip in South Korea’s index. Japan’s Nikkei edged up by 0.19% after initial losses. Chip-related shares were mixed, with Samsung Electronics declining 0.2% and Kioxia gaining 3.3%. The Federal Open Market Committee's two-day meeting, scheduled later that day, saw markets price in a 90% chance of a rate hike, the first since mid-2023.

Despite recent deceleration in inflation, analysts at Morgan Stanley expected a 25 basis-point hike on September 16 and another in December.

Benchmark 10-year US Treasury yields hit 5% for the first time since 2023, while Germany's 10-year bond yield surpassed 3.51%, its highest level since 2009. Japan's benchmark 10-year government bond yield returned to 3% overnight, while the Bank of Japan was expected to raise its interest rate by 25 basis points to 1.25% at the end of its meeting on September 18.

The yen was seen as a target for intervention after a 40-year low was reached. Currency markets saw the dollar index rise by 0.05% to 99.53, with the euro falling by 0.03% to $1.1543, and the dollar advancing 0.17% to 154.61 against the Japanese yen. Gold eased by 0.15% to $4,291.59 an ounce, and silver dropped by 0.31% to $63.03 an ounce.