TOKYO (AP) — Asian shares slipped on Thursday as ongoing tensions in the Middle East and uncertain economic signals from the U.S. weighed on investor sentiment.
Tensions escalated after former President Donald Trump warned the U.S. could become directly involved in the conflict between Israel and Iran. Meanwhile, Iran’s supreme leader dismissed U.S. calls for surrender.
Oil prices and U.S. futures also declined during the trading session.
In Asia, Japan’s Nikkei 225 fell 0.7% to 38,619.17. However, Nippon Steel Corp. shares rose 0.8% after it completed its long-delayed acquisition of U.S. Steel, despite earlier opposition from the U.S. government.
Hong Kong’s Hang Seng dropped 2% to 23,231.48 amid heavy selling in tech stocks, while the Shanghai Composite Index declined 0.9% to 3,359.78. Australia’s S&P/ASX 200 was nearly flat at 8,528.30. South Korea’s Kospi lost 0.4% to 2,960.81.
U.S. markets were closed Thursday for the Juneteenth holiday. On Wednesday, Wall Street ended mixed after the Federal Reserve signaled it might cut interest rates twice this year, although those plans remain uncertain.
The S&P 500 was nearly unchanged at 5,980.87. The Dow Jones Industrial Average dipped 0.1% to 42,171.66, while the Nasdaq rose 0.1% to 19,546.27.
Treasury yields were steady after the Fed released its projections. The median outlook from Fed officials still expects two rate cuts by the end of 2025, the same forecast made three months ago. This helped ease concerns that inflation, possibly worsened by Trump’s proposed tariffs, could restrict the Fed’s options.
Lower interest rates would reduce borrowing costs for households and businesses, potentially boosting the economy. But they also carry the risk of pushing inflation higher. Although inflation remains close to the Fed’s 2% target, recent increases in oil prices due to the Israel-Iran conflict are adding pressure.
Fed Chair Jerome Powell cautioned that predictions for interest rate cuts are far from certain. “Right now, it’s just a forecast in a very foggy time,” he said Wednesday.
Fed policymakers are waiting to see how Trump’s tariffs will take shape — how large they’ll be, what goods they’ll affect, and whether they’ll cause temporary or long-term inflation. There is also uncertainty about how much these tariffs could slow economic growth.
“Because the economy is still solid, we can take the time to actually see what’s going to happen,” Powell added. “We’ll make smarter and better decisions if we just wait a couple months.”
Economic data on Wednesday also sent mixed signals. A drop in jobless claims suggested fewer layoffs, while a weaker-than-expected housing starts report indicated high mortgage rates may be discouraging new construction.
Oil prices dipped slightly in early Thursday trading. U.S. benchmark crude fell 10 cents to $73.40 per barrel. Brent crude, the international standard, dropped 24 cents to $76.46.
Oil markets remain volatile due to fears that the Israel-Iran conflict could disrupt global supply. Iran is a major oil producer and controls the Strait of Hormuz, a key shipping route for global crude.
In currency markets, the U.S. dollar slipped to 145.05 Japanese yen from 145.13 yen. The euro weakened to $1.1468 from $1.1484.
