A powerful three-day rally across Asian equities came to a sudden halt on Thursday, as bombshell comments from US Treasury Secretary Scott Bessent sent a jolt through currency markets, strengthening the yen and sending Japanese stocks into a sharp retreat.
The move unleashed a dramatic divergence across the region, with Tokyo sliding while shares in Shanghai advanced and Bitcoin soared to a new all-time high.
The MSCI Asia Pacific Index fell 0.2%, dragged down by a 1.4% slide in Japan. The catalyst was a sudden 0.5% surge in the yen against the dollar, a direct reaction to Bessent’s pointed criticism of the Bank of Japan.
He stated the BOJ is “falling behind the curve” in tackling inflation and that he expected it to hike rates. Simultaneously, Bessent continued his campaign of pressure on the Federal Reserve, sending the dollar lower against all its Group-of-10 peers.
“When Bessent talks, markets listen, and now he wants a stronger yen,” said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney.
At least in recent days, the market is seemingly taking more notice on Bessent’s words, with an underlying theme of pushing the dollar down.
The Fed under fire
Bessent’s comments on the Fed were his most explicit yet, cementing expectations for easier monetary policy that have sent global stocks to record highs this week.
In a television interview on Bloomberg Surveillance Wednesday, he advocated for a dramatic easing cycle.
“We could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” he said, suggesting the Fed’s benchmark rate ought to be at least 1.5 percentage points lower than its current 4.25% to 4.5% range.
This external pressure from the Trump administration has fundamentally shifted the market’s focus. After a benign US inflation reading earlier this week, the debate is no longer about if the Fed will cut, but by how much.
“As the market continues to digest the shift… it follows intuitively that the question has become: how large of a cut should Powell deliver?” remarked Ian Lyngen at BMO Capital Markets.
A flat start on Dalal Street
This complex global picture is translating into a cautious mood on Dalal Street, which looks set for a flat start to the final session of a holiday-shortened week.
Around 7:50 a.m., the GIFT Nifty index was trading nearly unchanged at 24,699, pointing to a muted open.
This comes after a strong session on Wednesday, where frontline indices surged over half a percent on positive global cues. However, experts had advised caution, suggesting the uptick might be a “bull trap.”
Underscoring the divided sentiment, provisional NSE data showed Foreign Institutional Investors (FIIs) were net sellers of shares worth Rs 3,644 crore, while Domestic Institutional Investors (DIIs) were net purchasers to the tune of Rs 5,623 crore.
As traders digest the monetary policy shifts, they are also watching for a U.S. report on producer prices due Thursday for more inflation clues.
Geopolitical tensions are also simmering, after President Trump warned he would impose “very severe consequences” if Vladimir Putin didn’t agree to a ceasefire agreement ahead of their meeting this week, adding another layer of uncertainty to the market landscape.
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