Asia stocks mixed, Japanese shares drop on rate hike signals

The Nikkei 225 index slipped around 2% as the yen firmed and Japanese government bond yields jumped, reflecting growing expectations of a BOJ rate hike

Asian stocks moved in narrow ranges on Monday, while Japanese shares dropped sharply amid bets on a Bank of Japan rate hike.

China’s factory activity offered little relief. A private-sector manufacturing PMI released on Monday showed activity sliding back into contraction, underscoring persistent demand softness.

The figure followed Sunday’s official PMI, which showed the sector shrinking for an eighth straight month.

Still, blue chip Shanghai Shenzhen CSI 300 gained 0.8% on Monday, while the Shanghai Composite index added 0.4%. Hong Kong’s Hang Seng index rose 0.9%.

In South Korea, the benchmark KOSPI was largely unchanged.

Australia’s S&P/ASX 200 shed 0.4%, while STI was largely muted.

Nifty 50 ticked 0.3% higher at market open.

Japanese markets underperformed the region. The Nikkei 225 index slipped around 2% as the yen firmed and Japanese government bond yields jumped, reflecting growing expectations of a BOJ rate hike.

Traders pushed yields higher after last week’s strong Tokyo consumer inflation figures reinforced the view that underlying price pressures remain firm.

The shift was amplified on Monday when BOJ Governor Kazuo Ueda signalled that policymakers would discuss the “pros and cons” of raising rates at the December 18–19 meeting.

The rise in the yen weighed heavily on exporters and helped drag the Nikkei lower.

Meanwhile, some markets mirrored losses in U.S. stock index futures, which weakened as technology stocks led the decline.

U.S. central bank rate-cut expectations have risen meaningfully from last week, driven by weaker U.S. data and a shift in market pricing after several policymakers sounded more cautious about keeping policy too tight.

Money markets now imply close to an 87% possibility of a quarter-point cut at the December meeting, up from around 40% a week earlier. Still, investors remained cautious, concerned that weaker U.S. data may not translate into sustained risk appetite if economic conditions worsen through the winter.