Asian stocks experienced a sharp decline on Thursday, following one of the worst trading days for U.S. markets this year. Investors were spooked after the Federal Reserve hinted at fewer rate cuts in 2025 than initially expected, casting doubt on further monetary easing.
The Fed reduced its key interest rate by 0.25 percentage points, bringing it to a range between 4.25% and 4.5%, in line with expectations. Meanwhile, other major central banks maintained their current policies. The Bank of Japan, for instance, chose to keep its benchmark rate at 0.25%, a decision that pushed the U.S. dollar up against the yen. By midday Thursday, the dollar was trading at 155.24 yen, up from 154.79 yen.
The yen’s weakening could potentially increase import prices in Japan, which may force the Bank of Japan (BOJ) to reconsider its low-rate stance. Analysts predict a rate hike from the BOJ in January, although the central bank is cautious about making abrupt changes amid the uncertain impact of President-elect Donald Trump’s tariff policies.
The BOJ acknowledged “high uncertainties” concerning Japan’s business outlook, price levels, and the effects of global economic developments.
In China, stock markets also faltered. The Hang Seng index dropped 1% to 19,666.12, while the Shanghai Composite lost 0.7%, settling at 3,357.82. Other Asian markets, including Australia’s S&P/ASX 200 (-1.9%), South Korea’s Kospi (-1.5%), and India’s Sensex (-0.9%), all recorded losses. Taiwan’s Taiex fell 1.5%, and Bangkok’s SET index lost 0.6%.
On Wall Street, the previous day’s trading was marked by sharp losses. The S&P 500 plummeted 2.9%, nearly its worst drop of the year, closing at 5,872.16. The Dow Jones Industrial Average lost 1,123 points (2.6%), finishing at 42,326.87, while the Nasdaq Composite sank 3.6% to 19,392.69. Small-cap stocks were also hard hit, with the Russell 2000 index plunging 4.4%.
The Fed’s interest rate cut was the third of 2024, following a series of reductions aimed at supporting the job market after a two-decade high in rates. While the rate cut was widely anticipated, investors were more focused on the Fed’s future plans. Earlier expectations had suggested multiple rate cuts in 2025, which helped fuel a surge in U.S. stock prices, including 57 record-highs in 2024 alone.
However, the Federal Reserve’s latest projections suggest only two more rate cuts in 2025, a reduction from the four cuts previously forecast. Fed Chairman Jerome Powell acknowledged that the central bank is entering a “new phase” of monetary policy. He pointed to the robust job market and recent upticks in inflation as reasons for slowing the pace of cuts.
“Some Fed officials are also factoring in uncertainties related to the incoming administration,” Powell said, citing concerns about potential inflationary pressures from President-elect Trump’s policies. “When the path is uncertain, you go a little slower,” Powell added, comparing the decision-making process to “driving on a foggy night.”
The reduced expectations for rate cuts in 2025 sent U.S. Treasury yields higher, further pressuring stocks. The 10-year Treasury yield climbed to 4.51% from 4.40%, while the two-year yield, which is more sensitive to expectations of Fed actions, rose to 4.35% from 4.25%.
In corporate news, Nvidia, which has been a significant driver of Wall Street’s recent rally, saw its stock drop 1.1%. The company’s stock has fallen more than 13% from its record high last month, marking a slowdown after a streak of gains.
Elsewhere, crude oil prices were under pressure, with U.S. benchmark crude dropping 41 cents to $69.61 per barrel, while Brent crude fell 39 cents to $73.00 per barrel.
The euro saw a slight rise, reaching $1.0377 from $1.0355 in previous trading.
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