Asian stocks showed mixed performance on Monday, with some support coming from expectations of lower U.S. interest rates, though Japanese markets fell under pressure due to a strengthening yen and increasing bets on rate hikes by the Bank of Japan.

Regional markets received a positive boost from Wall Street, where the S&P 500 and the Dow Jones Industrial Average neared record highs on Friday following comments from Federal Reserve Chair Jerome Powell, which solidified expectations for a rate cut in September.

In Asian trade, U.S. stock index futures remained steady, with attention shifting to key inflation data expected later this week and earnings from NVIDIA Corporation (NASDAQ: NVDA), which could provide further insights into the ongoing artificial intelligence boom.

Japanese Stocks Decline as Yen Strengthens

Japanese stocks underperformed due to a sharp rise in the yen, with the Nikkei 225 and TOPIX both down around 1%. The yen’s USDJPY pair, which measures the yen’s value against the dollar, fell by 0.4%, approaching lows seen earlier in August amid increasing confidence that the Bank of Japan will further hike interest rates this year.

Hawkish remarks from BOJ Governor Kazuo Ueda reinforced this belief. The stronger yen put pressure on Japanese stocks, particularly those in export-oriented sectors, while the prospect of higher interest rates posed challenges for the technology and export sectors that had driven a Japanese stock rally earlier in the year.

Additionally, the stronger yen weakened the appeal of the carry trade—a strategy where investors borrow in yen to invest in higher-yielding assets in other Asian markets—further impacting Japanese markets.

Inflation data from Tokyo, expected later this week, could provide more clarity on the future direction of Japanese interest rates.

Rate Cut Hopes Lend Some Support, China Lags

Excluding Japan, most other Asian markets rose, tracking Wall Street’s gains driven by expectations of lower U.S. interest rates. Australia’s ASX 200 gained 0.6%, nearing record highs, while futures for India’s Nifty 50 index suggested a slightly positive opening.

South Korea’s KOSPI remained flat, with some pressure from losses in major chipmaking stocks ahead of Nvidia’s earnings report. Meanwhile, Hong Kong’s Hang Seng index climbed 0.8%, recovering from steep losses in the previous session and outperforming mainland Chinese markets.

In contrast, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell by 0.4% and 0.3%, respectively, as concerns persisted over the country’s sluggish economic recovery. Market sentiment was also rattled by the People’s Bank of China withdrawing approximately 101 billion yuan ($14.2 billion) from the open market.

While the liquidity withdrawal appeared aimed at strengthening the yuan, it also raised doubts about the extent of support Beijing is willing to provide to the Chinese economy. The ongoing slowdown in China remains a significant concern for investor sentiment in Asia, causing Chinese markets to lag behind their regional peers.

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