(Sharecast News) - Asia-Pacific markets mostly declined on Thursday as investors reacted to the Bank of Japan's decision to hold its short-term interest rate steady at 0.5% for a fourth consecutive meeting.
Market participants were also assessing the potential fallout from new U.S. tariffs on South Korea and India.
"We are navigating an exceptionally eventful week, best described as the calm before the storm," quipped TickMill market strategy partner Patrick Munnelly.
"Today's focus centres on corporate earnings, critical economic data releases, central bank decisions on interest rates, and developments in trade negotiations ahead of the new US tariffs set to take effect this Friday.
"The yen climbed immediately after the Bank of Japan opted to maintain its interest rates, as expected."
Munnelly said market attention was now shifting toward an upward revision in inflation projections.
"Speculation is mounting among traders that rate hikes could become a possibility later this year.
"The MSCI index tracking Asia-Pacific shares, excluding Japan, dipped but is still on course for its fourth consecutive monthly gain.
"Copper futures plunged following US president Donald Trump's announcement of a 50% tariff on copper imports."
Most markets in the red as investors watch for trade developments
Japan's equity markets bucked the regional trend, with the Nikkei 225 gaining 1% to close at 41,062.50 and the broader Topix index rising 0.78% to 2,943.07.
The Japanese yen strengthened, and government bond yields climbed following the BoJ's decision.
Shares in Yamato Holdings surged 12.77%, Kyocera gained 9.54%, and Nippon Electric Glass rose 7.45%.
On the mainland, Chinese markets extended losses, with the Shanghai Composite falling 1.18% to 3,573.21 and the Shenzhen Component down 1.73% to 11,009.77.
Lionco Pharmaceutical Group slumped 10.04%, China Film Co dropped 9.97%, and Jinneng Holding Shanxi Coal Industry lost 9.37%.
Hong Kong's Hang Seng Index declined 1.6% to 24,773.33.
Property and mining shares led the losses, with Longfor Properties down 6.23%, Zijin Mining Group off 6.05%, and Budweiser Brewing Company falling 5.82%.
In South Korea, the Kospi 100 slipped 0.31% to 3,280.71 as auto stocks came under pressure following the announcement of a 15% blanket US tariff.
SK Innovation fell 7.94%, Posco ICT dropped 7.88%, and Kia Corporation slid 7.34%.
However, Samsung Electronics rose after posting a second-quarter profit miss that was not as severe as feared.
Australia's S&P/ASX 200 edged 0.16% lower to 8,742.80, led by steep declines in resource and travel stocks.
Champion Iron fell 13.13%, Beach Energy lost 9.3%, and Flight Centre dropped 7.3%.
In New Zealand, the S&P/NZX 50 slipped 0.25% to 12,823.74.
Infrastructure investor Infratil declined 3.08%, KMD Brands fell 1.92%, and Mainfreight eased 1.33%.
In currency markets, the dollar was last up 0.31% on the yen to trade at JPY 149.98, while it slipped 0.05% against the Aussie to AUD 1.5535, and edged 0.03% lower on the Kiwi, changing hands at NZD 1.6960.
Oil prices fell, with Brent crude futures last down 0.63% on ICE at $72.78 per barrel, and the NYMEX quote for West Texas Intermediate declining 0.5% to $69.65.
BoJ holds rates and lifts inflation forecast, China manufacturing contracts
At the top of the economic agenda on Thursday was news that the Bank of Japan held its benchmark interest rate at 0.5%, while sharply raising its inflation forecasts, signalling growing confidence in domestic price pressures and edging closer to a potential rate hike later in the year.
The move came alongside a quarterly economic outlook that showed upgraded expectations for both inflation and growth, and a less severe assessment of global trade risks.
It said it now saw core inflation at 2.7% for the current financial year, up from its April forecast of 2.2%, driven largely by stubborn increases in food prices.
The central bank also revised projections for the 2026 and 2027 financial years to 1.8% and 2.0%, respectively.
Those new forecasts outpaced market expectations, which had anticipated a more modest 2.5% outlook for this year.
For the first time in its current policy cycle, the BoJ described the balance of risks to its inflation outlook as "roughly balanced", a marked shift from its prior warnings of downside risk.
Its assessment of global trade tensions also softened, with risks described as "high", down from "extremely high" in May.
The changes followed the 22 July trade deal with the United States, which saw US tariffs on Japanese goods and autos lowered to 15%.
Meanwhile in China, official data showed a deeper-than-expected contraction in manufacturing activity in July, amid slow growth and lingering trade friction with the United States.
The official manufacturing purchasing managers' index (PMI) fell to 49.3, below the 50-point threshold that separates growth from contraction and missing forecasts for 49.7.
It had now been in contraction for four consecutive months.
Analysts attributed the decline to seasonal disruptions and a shift in export demand to countries with more favourable tariff regimes, such as Vietnam.
Tensions between Washington and Beijing remained high, with more than 100% tariffs still in place on many goods.
A temporary agreement reached in May to reduce effective tariffs to around 43% on Chinese exports to the US is due to expire in mid-August.
Talks this week between the two sides in Stockholm ended without any announcement on an extension.
A separate US-Vietnam agreement announced earlier this month introduced tiered tariffs of up to 40% for transshipped goods, signalling Washington's continued crackdown on tariff evasion.
Reporting by Josh White for Sharecast.com.
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