Japan stocks rise as Asian equities gain ahead of key US inflation data

The MSCI Asia Pacific Index rose 0.8% as Asian stocks gained and bonds steadied following a turbulent sell-off. Traders were awaiting a crucial US inflation reading to gauge the path of interest rates, while the US dollar reached its best month since June. The S&P 500 futures climbed 0.1% at 12:01 pm Tokyo time, and the Nikkei 225 futures increased by 1%, with Japan's Topix gaining 0.9% and Australia's S&P/ASX 200 up 1%. Hong Kong's Hang Seng remained flat, while Shanghai Composite grew by 0.3%.

SoftBank, an investor in OpenAI, experienced a 6% surge after reports surfaced that the artificial intelligence company sought at least $30 billion in fresh funding at a valuation of $1.4 trillion. Meanwhile, bond yields on the longest-maturity Treasuries reached their highest since 2002, steadying across the curve after a previous week's increase. The rally in oil prices prompted traders to anticipate further interest rate hikes by the US Federal Reserve.

Brent crude oil rose 0.5% to around $103.10 a barrel, recovering some of Tuesday's losses. Oil prices and US-Iran tensions continue to be sources of uncertainty, with markets seeking clearer signs of progress in negotiations. Global bond yields have surged to multi-year highs due to persistent inflation concerns, signaling expectations of additional Fed interest rate hikes.

Arjun Vij, a fund manager at JPMorgan Asset Management, suggested that the sell-off in bonds could halt for a quick resolution of the US-Iran conflict, a significant drop in stock prices following a slowdown in economic data, or lower earnings and forward guidance.

Treasury 30-year bond yields rose for a sixth consecutive day as investors demanded greater compensation to hold the securities amid worries about persistent inflation, higher government spending, and a surge in corporate borrowing to fund AI development. Money markets are pricing in a series of rate hikes over 2027. The US dollar steadied, completing its best month since June, as the Fed's renewed focus on taming inflation pushed rate expectations and US bond yields higher. The yen strengthened by 0.4% to 156.69 per US dollar.

Traders will now focus on Wednesday's Bureau of Economic Analysis Personal Consumption Expenditures reading, the Fed's preferred measure of inflation. August's personal income and outlays report should indicate an acceleration in headline and core inflation, according to Bloomberg Economics. Upside surprises would reinforce the Fed's hawkish stance and support the case for further tightening measures.

Conversely, softer numbers might raise questions about the necessity of a follow-up rate hike in October and potentially dampen the recent rise in Treasury yields.