(Sharecast News) - Asia-Pacific markets fell sharply on Thursday, tracking losses on Wall Street as escalating tensions in the Iran war drove a surge in energy prices and reinforced inflation concerns, while investors also assessed a steady policy decision from the Bank of Japan.
"Global markets took another hit as escalating tensions in the Middle East rattled investors, sending oil prices soaring and stoking fears of renewed inflationary pressures," noted Patrick Munnelly, market strategy partner at TickMill.
Regional sentiment followed a weaker US lead, where the Dow Jones Industrial Average closed at a new low for the year after data showed US producer prices rose 0.7% in February, well above expectations for a 0.3% increase.
The Federal Reserve held its benchmark rate at 3.5% to 3.75%, with chair Jerome Powell signalling that inflation was not easing as much as hoped, although the central bank's projections still point to rate cuts in 2026 and 2027.
Oil prices remained a central concern, with Brent crude futures last up 5.94% on ICE at $113.76 per barrel and the NYMEX quote for West Texas Intermediate edging 0.15% higher to $96.46.
Munnelly said Brent "surged past $112 per barrel amid heightened concerns over attacks targeting key energy infrastructure in the Middle East," adding that "the spike in oil prices has already put central banks on edge, complicating their efforts to navigate inflation risks."
Tokyo declines as BoJ holds interest rates
In Japan, the Nikkei 225 dropped 3.38% to 53,372.53, while the broader Topix fell 2.91% to 3,609.40.
Losses were led by Sumitomo Metal Mining, down 8.77%, Taiheiyo Cement, which fell 8.68%, and Tokyo Electric Power Company, down 8.41%.
Munnelly noted that "Japan's Nikkei 225 plunged over 3.5%, as traders grew increasingly uneasy about the yen's potential slide past the critical 160-per-dollar mark."
The Bank of Japan kept its policy rate unchanged at 0.75% in a widely expected decision, although the vote was split 8-1, with board member Hajime Takata calling for a hike to 1% due to risks from overseas developments.
Munnelly added that "the Bank of Japan opted to hold interest rates steady, mirroring the Federal Reserve's decision a day earlier, as policymakers grappled with the uncertainty stemming from the intensifying conflict."
The central bank warned that inflation risks were now tilted to the upside, citing the Iran conflict and rising crude oil prices as key drivers, while noting that Japan's heavy reliance on Middle Eastern energy imports leaves it particularly exposed.#
Economic data showed Japan's core machinery orders fell 5.5% month-on-month to JPY 982.4bn in January, reversing a 16.1% surge in December but beating expectations for a steeper 9.6% decline.
Manufacturing orders dropped 12.5% to JPY 435.8bn, while non-manufacturing orders rose 6.8% to JPY 563.2bn.
On an annual basis, orders increased 13.7%, ahead of forecasts for a 10.5% rise.
Stocks lower across the region
Chinese markets also declined, with the Shanghai Composite falling 1.39% to 4,006.55 and the Shenzhen Component dropping 2.02% to 13,901.57.
Among the biggest losers, Shandong Bohui Paper Industry slid 10.05%, Hubei Zhenhua Chemical lost 9.99%, and Jiangsu Sanfangxiang Industry fell 9.37%.
In Hong Kong, the Hang Seng Index dropped 2.02% to 25,500.58, led lower by Zijin Mining Group, down 7.07%, Tencent Holdings, which fell 6.81%, and China Hongqiao Group, down 6.66%.
South Korea's Kospi 100 declined 3.04% to 6,637.24, with Hyundai Heavy Industries down 5.26%, LG Chemicals falling 5.16%, and Netmarble Games losing 5.03%.
Sydney, Wellington fall on fresh economic data
In Australia, the S&P/ASX 200 dropped 1.65% to 8,497.80, with Westgold Resources tumbling 12.8%, IperionX down 12.1%, and Genesis Minerals falling 10.7%.
Australian labour market data painted a mixed picture, with employment rising by 48,900 in February, well above expectations for a 20,000 gain, following a revised 26,000 increase in January.
However, the increase was driven by a 79,400 rise in part-time jobs, particularly among workers aged 65 and over, while full-time employment fell by 30,500.
The unemployment rate rose to a three-month high of 4.3% from 4.1%, as the participation rate climbed to 66.9%, and hours worked slipped 0.2%.
In New Zealand, the S&P/NZX 50 declined 1.98% to 13,051.61, with Spark New Zealand down 5.26%, KMD Brands falling 4.39%, and Serko losing 4.3%.
Data showed economic growth slowed sharply, with GDP rising just 0.2% in the fourth quarter after a revised 0.9% expansion in the previous period, missing expectations for a 0.5% increase.
While earlier rate cuts had supported confidence and activity in sectors such as retail and tourism, the outlook has been clouded by rising fuel costs linked to the Iran conflict.
With inflation now expected to exceed the Reserve Bank of New Zealand's 1% to 3% target range for much of 2026, markets were fully pricing in rate hikes in both September and December after the central bank held its official cash rate at 2.25% last month.
Dollar modestly weaker against regional peers
Currency markets reflected a modest weakening of the dollar against regional peers, with the greenback last down 0.43% on the yen to JPY 159.17, as it fell 0.39% against the Aussie to AUD 1.4181, and declined 0.35% on the Kiwi to change hands at NZD 1.7190.
Reporting by Josh White for Sharecast.com.
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