Asia markets waver as investors eye tariffs, Fed moves

July 22, 2025 (MLN): Asia-Pacific equities showed a mixed performance on Tuesday as Japanese markets reopened with modest gains following a national holiday.

The rally came after the ruling coalition lost its majority in the upper house elections over the weekend, a result that investors had already priced in.

Prime Minister Shigeru Ishiba vowed to stay in office despite the setback, as CNBC reported.

Japanese stocks jumped briefly at the open, and shares of SoftBank Group led the gains with a 5.7% surge.

Bonds remained relatively unaffected by the political outcome, which was seen as less severe than feared.

Meanwhile, the yen held steady at 147.46 per dollar, recovering 1% on Monday.

Kristina Clifton, an economist at the Commonwealth Bank of Australia, noted that the weakening of Ishiba's leadership could pave the way for further fiscal expansion.

"The bottom line is longer term Japanese government bond yields and JPY can fall if concerns about Japan’s fiscal spending deepen," she said.

Elsewhere, Singapore's stock market broke an 11-day winning streak, while South Korea’s trade and finance ministers are scheduled to meet their U.S. counterparts this Friday, highlighting ongoing international economic dialogue.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched its highest level since October 2021 during early trading but later stabilized.

The index is up nearly 16% year-to-date.

On Wall Street, the S&P 500 and Nasdaq closed at record highs on Monday, boosted by strong performances from Alphabet and other megacap stocks ahead of a critical earnings week.

However, investor attention is also sharply focused on the looming August 1 deadline for U.S.-EU trade negotiations.

The European Union is reportedly considering a broader range of countermeasures amid diminishing hopes for a favorable agreement with Washington.

Clifton emphasized that trade deals with the EU and Japan remain crucial for global markets.

She added that "the USD reaction to the announcement of trade deals with these countries would depend on the details of the deals," suggesting the dollar might weaken further against the euro and pound.

The euro traded at $1.1689 after a 0.5% gain in the previous session, remaining shy of the four-year high it hit earlier in the month.

The dollar index stood at 97.905.

Meanwhile, speculation around the Federal Reserve’s independence continues to rattle investor confidence.

Last week, U.S. President Donald Trump reportedly considered firing Fed Chair Jerome Powell but refrained amid concerns about potential market disruptions.

U.S. Treasury Secretary Scott Bessent intensified the debate on Monday by questioning the Fed's institutional performance.

Though the Fed is expected to keep interest rates unchanged in July, markets are awaiting Chair Powell’s speech later Tuesday for policy direction.

Goldman Sachs strategists forecast three consecutive 25-basis-point rate cuts starting in September, assuming inflation expectations remain subdued and institutional independence concerns persist.

In commodities, oil prices edged down amid fears that escalating trade tensions between the U.S. and the EU could reduce global fuel demand.

Brent crude dropped 0.35% to $68.97 per barrel, while U.S. West Texas Intermediate slipped 0.31% to $66.99 per barrel.

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