(Sharecast News) - Asia-Pacific equities were mostly lower on Tuesday as investors digested a landmark rare earths agreement between US president Donald Trump and Japan's new prime minister Sanae Takaichi, which overshadowed optimism from Wall Street's record highs.
The deal, announced during Trump's visit to Tokyo, establishes a new framework for the joint development and processing of rare earth materials critical to defence and technology supply chains.
While investors initially viewed the accord as a potential stabiliser for resource access, analysts warned it could unsettle Beijing and reignite trade frictions in Asia.
The meeting marked Trump's first with Takaichi since she assumed office and followed a ceremonial audience with Emperor Naruhito.
Stephen Innes, managing partner at SPI Asset Management, said "Asia woke this morning not to panic, but to a long exhale - the kind that follows a sprint.
"The region's markets, flushed from record highs, finally took a step back as traders braced for the 'Super Bowl of Earnings.'
"After weeks of relentless buying, the glow on traders' faces has given way to that squint of caution that comes when everyone realizes they've been running on adrenaline."
Japan stocks fall as Trump meets with new PM
In Japan, the Nikkei 225 fell 0.58% to 50,219.18 and the broader Topix dropped 1.18% to 3,285.87, reversing early gains as technology and industrial shares weighed.
Ibiden surged as much as 21% to a record after being added to the Nikkei 225, replacing Nidec, which tumbled 19.45%.
The benchmark changes take effect on 5 November.
Nidec's plunge came after the company was designated a "security on special alert" by the Nikkei amid a probe into alleged accounting irregularities and the cancellation of a share buyback.
Dowa Holdings and Sumitomo Heavy Industries also slipped 5.77% and 5.64%, respectively, reflecting weakness across industrials.
Innes noted that "Japan's Nikkei, flirting with 50,000, paused as if in disbelief at its own altitude.
"This was tactical hesitation, not emotional retreat - a collective tightening of risk before a potentially defining week.
"Markets need to see ink meets paper, certainly not a bridge too far."
He added that the mood in Asia "wasn't fearful - it was composed.
"Traders weren't rushing for the doors; they were checking their seat belts."
Elsewhere, mainland Chinese markets traded lower as investors assessed the potential implications of the US-Japan rare earths framework for regional trade dynamics.
The Shanghai Composite eased 0.22% to 3,988.22, while the Shenzhen Component slipped 0.44% to 13,430.10.
Losses were concentrated in materials and consumer sectors, with Arcplus Group down 9.98%, Shanghai Jahwa United off 9.43%, and Zhejiang Cheng Yi Pharmaceutical falling 8.39%.
Analysts said the rare earths accord could increase competitive pressure on Chinese producers, who have dominated global exports for years.
In Hong Kong, the Hang Seng Index shed 0.33% to 26,346.14, as Zijin Mining Group, Chow Tai Fook Jewellery and Li Ning Co declined between 4.5% and 5.6%, reflecting a broader pullback in resource and consumer shares.
Korea's Kospi slips amid stronger-than-expected growth data
South Korea's Kospi 100 fell 0.8% to 4,010.41 despite the release of stronger-than-expected growth data.
The Bank of Korea said GDP expanded 1.7% year on year in the third quarter, exceeding forecasts of 1.5%, while quarter-on-quarter growth came in at 1.2%.
Exports rose 6% and manufacturing output 3.3%, driven by robust demand for semiconductors and motor vehicles.
However, construction contracted 8.1%, underscoring the unevenness of the recovery.
President Lee Jae Myung told Bloomberg that Seoul's trade negotiators remained deadlocked with Washington over details of South Korea's $350bn US investment pledge agreed in July, which accompanied a reduction in American tariffs on South Korean exports to 15% from 25%.
"The US will of course try to maximize its interests, but it mustn't be to the extent that causes catastrophic consequences for South Korea," Lee said.
He is due to meet Trump later this week on the sidelines of the Asia-Pacific Economic Cooperation summit in Gyeongju.
The Bank of Korea maintained its full-year growth forecast for 2025 at 0.9%, rising to 1.6% in 2026, and said the economy would continue to benefit from consumption recovery and resilient exports, though tariff impacts would gradually expand.
Consumer sentiment eased slightly in October, with the Composite Consumer Sentiment Index slipping to 109.8 from 110.1 in September, while inflation expectations ticked up to 2.6%.
Australia declines, NZ in the green after long weekend
In Australia, the S&P/ASX 200 declined 0.48% to 9,012.50, led lower by steep losses in technology and healthcare shares.
Wisetech Global and CSL both plunged nearly 16%, while Lynas Rare Earths sank 13.94% as traders speculated that the new US-Japan deal could reshape demand and pricing for rare earth supplies.
In contrast, New Zealand's S&P/NZX 50 edged up 0.08% to 13,402.66, buoyed by gains in financial and leisure stocks, with ANZ Group, SkyCity Entertainment, and Westpac up between 2.7% and 3%.
In currency markets, the yen strengthened 0.67% to JPY 151.86 per dollar following Trump's Tokyo visit, while the Australian dollar slipped marginally to AUD 1.5248 and the New Zealand dollar eased to NZD 1.7315.
Oil prices extended losses as investors weighed weaker global demand and policy uncertainty, with Brent crude down 1.54% to $64.61 a barrel and West Texas Intermediate falling 1.5% to $60.39.
Reporting by Josh White for Sharecast.com.
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