Markets in Asia finished the week cautiously as investors awaited critical United States inflation figures and a continuing air of uncertainty over American trade tariffs. Korea's KOSPI last week recorded its biggest monthly rise since November 2023, and Hong Kong's Hang Seng also made strong gains. But investors were feeling less optimistic this week in light of the renewed attention to tariffs, economic indicators, and bond yields.
World markets were rattled when an American court halted most of President Donald Trump's tariffs. A few days later, a federal appeals court temporarily restored them. This pendulum has raised concerns throughout Asia, particularly in export-weighted nations like Japan and China. The sense is that U.S. policies are influencing sentiment as investors recalibrate expectations for trade and inflation.
Japan's Nikkei closed down after having gained almost 2% the day before as profit-taking set in. Japan's escalating debt fears and a poor reaction to a 40-year bond auction also spooked traders. Such longer-term debt concerns weighed on financial stocks and public sentiment. After opening higher, the Nikkei gave up some solid gains as investors re-evaluated risks.
The Japanese yen made a sharp recovery, gaining as much as 2 percent from its low on Thursday. During Friday's European trading hours, it was trading below 144 yen to the dollar. The move is indicative of investor wariness, as well as the general flight from riskier assets around the world. The euro and the British pound also fell slightly against the dollar, to $1.13 and $1.34.
China's blue-chip CSI300 index was down 0.5%, and Hong Kong's Hang Seng fell 1.2%, primarily on the back of declines in Apple suppliers hit by tariff fears. But both indexes were still on track for monthly gains. All in all, emerging Asian markets fared well, in line with a 5% jump in MSCI's global index last month.
Investors now await U.S. Personal Consumption Expenditures (PCE) data, which is the Federal Reserve's favorite inflation metric. This release has the potential to help determine whether the Fed raises or lowers interest rates later this year. In early trading in Europe, U.S. Treasury yields rose further. The dollar rose 0.3% and was on track for its first monthly gain of 2025 with gains of less than 0.05%.
Adding to market jitter, a clause in Trump's budget proposal included a provision that would give the U.S. the right to levy a 20% tax on overseas investments. And while it's not something receiving much press, there are some close watches on this idea. Analysts caution that it is likely to lessen international capital flow and risk nudging the economy toward stagflation, where high inflation collides with low growth.
Among commodities, oil was on track for a second weekly decline but was still up for the month. This is because the market braces for higher OPEC+ output and recent demand concerns. Gold prices, meanwhile, continued to surge, helping currencies like Ghana's cedi, which soared nearly 40% in May.
Despite the tariff drama, the U.S. government confirmed ongoing trade talks. Treasury Secretary Scott Bessent said he would meet with a Japanese delegation in Washington, though negotiations with China were "a bit stalled."
