Nikkei nearly flat after early rise, Kospi slips as Fed decision looms

Asia's mixed start shows traders torn between a subdued session on Wall Street and the imminent Fed policy decision, with few committing to positions until the result is clear. If the Fed delivers a hawkish surprise, Asian stocks could come under further pressure and the US dollar may strengthen against regional currencies. A more dovish than expected outcome, by contrast, could spark a swift recovery in risk appetite since much caution is already factored into prices. The jump in US Treasury yields to levels not seen since 2007 is an important background factor, as it typically drags on rate-sensitive and growth-focused sectors in Asian markets. A further widening of the yield spread between the US and Japan could add downward pressure on the yen. The Australian dollar will probably remain sensitive to the risk-off tone that is driving overall Asian mood, lacking any significant domestic catalyst from the overnight session.

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Asia opened without a clear direction, caught between a weak Wall Street lead and the anticipation of the Fed's verdict due later this week.

Key points at a glance:

• Asia-Pacific equities had a mixed opening on Wednesday, September 16, after a weak close on Wall Street.
• Japan's Nikkei 225 opened slightly higher, gaining about 11 points or 0.02%, trading near 63,495.
• South Korea's Kospi started the day lower, dropping roughly 12 points or 0.17%, around the 6,616 level.
• US markets declined on Tuesday: the Dow decreased 0.63%, the S&P 500 fell 0.45%, and the Nasdaq dropped 0.78%. The 10-year Treasury yield surged to a peak above 5%, its highest since 2007.
• Crude oil prices continued to climb on Tuesday, putting additional pressure on US stocks as traders awaited the Fed's rate decision.
• Artificial intelligence-linked shares stood out on Wall Street, with Coherent, AMD, and Qualcomm all posting gains, reversing the prior session's weakness in chip stocks.

Asia-Pacific shares started Wednesday on a mixed note, with caution prevailing after a lackluster performance on Wall Street as investors prepared for the Fed's interest rate decision later this week.

The Nikkei 225 was nearly flat at the open, up about 11 points or 0.02%, near 63,495, while the Kospi slipped, down roughly 12 points or 0.17%, near 6,616. This split indicates a lack of clear market direction, with traders hesitating to take strong positions until the Fed provides more clarity.

The subdued opening followed Tuesday's weak close on Wall Street. The Dow fell 0.63%, the S&P 500 lost 0.45%, and the Nasdaq dropped 0.78%. The session featured a sharp spike in the 10-year Treasury yield, which briefly exceeded 5%, the highest since 2007. Higher oil prices exacerbated inflation worries just one day before the Fed's policy announcement. Despite the overall decline, AI-related stocks were a highlight. Coherent, AMD, and Qualcomm all rose, recovering from the previous session's weakness in the chip sector.

The increase in Treasury yields is likely to stay a major factor for Asian markets in the short term, given its impact on relative valuations of currencies and stocks. If the yield spread between the US and Japan widens further, the yen could face additional pressure. Meanwhile, persistent strength in oil prices keeps energy costs and, consequently, inflation expectations high across import-reliant economies in the region.

With the Fed's decision scheduled for Wednesday in the US, Asian traders are expected to keep their positions slim as they head into the announcement, cautious about directional bets on an outcome that markets see as a tight race between a pause and a rate increase. Until that clarity emerges, regional markets are likely to stay in a narrow range, driven by headlines.