Asian shares waver as oil and yields rise ahead of Fed, BOJ meetings

TOKYO: Asian shares struggled on Tuesday (Sep 15) as investors weighed Middle East tensions and calls by industry figures for a slowdown in AI development, while elevated oil prices and higher bond yields added to caution before key central bank meetings in the US and Japan.   

Yemen's Iran-aligned Houthis launched a new attack on Saudi Arabia on Monday, after Riyadh blamed Iran-backed fighters in Iraq for an attack on the kingdom's east-west pipeline that it said could disrupt as much as 4 per cent of global oil supply. Gulf Arab states also postponed planned talks with Iran.

Renewed supply concerns kept markets on edge,  with US crude rising 1.27 per cent to US$102.68 a barrel while Brent was up 1.21 per cent to US$106.96 per barrel. 

"Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher," said Yokoo Akihiko, analyst at Mitsubishi UFJ Bank, in a note. 

Calls by leading AI figures to slow development continued to reverberate through markets even as US President Donald Trump played down concerns over misuse of the technology, saying existing US safeguards were adequate and that China would benefit from doubts over AI development.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.12 per cent. Japan's Nikkei edged 0.19 per cent higher after reversing early losses.

Meanwhile, South Korean shares clawed back early losses on Tuesday, as bargain hunting in chip stocks followed a three-session slide that culminated in a more than 3 per cent drop in the KOSPI a day earlier.

The Kospi was up 9.74 points, or 0.15 per cent, at 6,694.11 as of 1.32am GMT, after falling nearly 1 per cent earlier in the session.

The benchmark index lost 3.26 per cent in the previous session as chipmakers slumped, extending losses for a third consecutive session.

Chip-related shares were mixed, with South Korea's Samsung Electronics losing 0.2 per cent while Japan's Kioxia  gained 3.3 per cent.

The Federal Open Market Committee begins its two-day meeting later in the day, with markets pricing in a 90 per cent chance of a rate hike that would mark the Fed's first increase since mid-2023.

"While inflation continues to decelerate, recent upside surprises mean the pace of disinflation has been slower and less convincing than" the Fed likely requires, analysts at Morgan Stanley said in a report, expecting a 25 basis-point hike on Wednesday and in December. 

"We see arguments for both a hike and a hold, but signs of second-round effects from energy prices, strong demand tied to AI-related investment, a neutral rate that is possibly temporarily higher, and concerns about credibility mean the balance of risks now argues for a somewhat more restrictive policy." 

Overnight, benchmark 10-year US Treasury yields touched 5 per cent for the first time since 2023, while Germany's 10-year bond yield climbed above 3.51 per cent, its highest level since 2009. On Tuesday, Japan's benchmark 10-year government bond yield popped back to 3 per cent.

The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25 per cent at the end of its two-day meeting on Friday and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.

In currency markets, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.05 per cent to 99.53, with the euro down 0.03 per cent at US$1.1543.

Against the Japanese yen, the dollar advanced 0.17 per cent to 154.61.

Spot gold eased 0.15 per cent to US$4,291.59 an ounce, while spot silver fell 0.31 per cent to US$63.03 an ounce.