Asian equity markets traded without clear direction on Tuesday as investors weighed Federal Reserve interest-rate expectations, comments from President Donald Trump on Iran, and a note from Societe Generale on the shifting focus within artificial intelligence-related earnings, while Brent crude rose after attacks on shipping in the Strait of Hormuz.
Currency and bond markets remained the focus of attention. The yen continued to rebuild dollar strength after coordinated intervention by U.S. and Japanese authorities last week aimed at supporting the currency — the first such U.S. action in the Japanese foreign exchange market in 15 years.
The dollar was up 0.3% against the yen at 157.62, though the yen remains about 4% stronger against the dollar than it was a week earlier, before that intervention. An auction of 10-year Japanese government bonds on Tuesday drew weaker demand than the previous sale, pushing the yield up 3 basis points to 2.85%. The yield on the U.S. 10-year Treasury bond rose 1.2 basis points to 4.694%, while the U.S. dollar index, which tracks the currency against a basket of six others, held near its lowest level in two months at 100.01. Market pricing continues to point to a further rise in U.S. interest rates: fed funds futures currently imply a 65% probability of a 25-basis-point increase at the Federal Reserve's next two-day meeting, concluding September 16, according to CME Group's FedWatch tool.
Equity benchmarks were mixed. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1%, with South Korea's Kospi swinging between gains and losses before settling 1.2% higher. Japan's Nikkei 225 edged up 0.2%, and S&P 500 e-mini futures gained 0.3%. The moves followed data showing U.S. manufacturing activity reached its highest level in more than four years in July, which helped send the Dow Jones Industrial Average to a record close overnight. With almost two-thirds of S&P 500 companies having reported second-quarter results, 84% have beaten earnings estimates, according to LSEG data.
Against that backdrop, Societe Generale analysts characterised the AI trade as entering a more mature phase, pointing to falling earnings expectations among South Korean technology stocks that have been central to recent volatility, and noting that investor focus is increasingly shifting toward the sustainability of margins beyond 2026. Analysts at Eastspring Investments, including Chief Investment Officer Vis Nayar, took a different view, writing that recent Big Tech earnings show the AI capital expenditure cycle remains firmly in place.
Oil prices posted only limited gains in Asian trading, with Brent crude up 1.6% at $85.12 a barrel. The benchmark had fallen to a three-week low on Monday, after President Trump indicated he had paused any fresh military action against Iran, describing the pause as a gesture of goodwill during ongoing peace talks. Tehran, however, has denied that any negotiations are taking place. In cryptocurrency markets, bitcoin was flat at $63,776.56, while ether slipped 0.3% to $1,862.40.
The combination of weaker demand at the Japanese government bond auction and a yen still trading well above the levels that triggered last week's intervention leaves cross-border financing and hedging costs exposed to further movement. That exposure sits alongside a Federal Reserve meeting on September 16, at which futures markets currently assign a 65% probability to a further rate increase — a combination that keeps both sovereign borrowing costs and dollar-yen positioning under active reassessment.
