Asian Shares Waver as Oil, Yields Rise Before Fed and BOJ Decisions

Asian stock markets were mixed on Tuesday as investors assessed Middle East tensions and calls from industry figures to slow AI development, while elevated oil prices and rising bond yields kept sentiment cautious before pivotal central bank meetings in the United States and Japan.

Supply concerns intensified after Yemen's Iran-aligned Houthis launched a fresh attack on Saudi Arabia on Monday. Riyadh had blamed Iran-backed fighters in Iraq for an earlier strike on its east-west pipeline, warning it could disrupt as much as 4% of global oil supply. Gulf Arab states also postponed planned talks with Iran.

U.S. crude rose 1.27% to $102.68 a barrel, and Brent gained 1.21% to $106.96. An analyst at Mitsubishi UFJ Bank noted that markets are likely to stay focused on the risk that higher crude prices could feed inflationary pressures and push interest rates higher.

Concerns over artificial intelligence also lingered after leading AI figures called for a slowdown in development. U.S. President Donald Trump downplayed worries about misuse of the technology, saying existing safeguards were adequate and that China would benefit from doubts over AI development.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.12%, led by a 0.25% decline in South Korea. Japan's Nikkei edged up 0.19% after reversing early losses. Chip-related shares were mixed, with Samsung Electronics down 0.2% and Japan's Kioxia up 3.3%.

The Federal Open Market Committee begins its two-day meeting later in the day, with markets pricing a 90% chance of a rate hike — the Fed's first increase since mid-2023. Morgan Stanley analysts expect a 25 basis-point hike on Wednesday and another in December, citing signs of second-round effects from energy prices, strong AI-related investment demand, a possibly temporarily higher neutral rate, and credibility concerns.

Overnight, the benchmark 10-year U.S. Treasury yield touched 5% for the first time since 2023, while Germany's 10-year bond yield climbed above 3.51%, its highest since 2009. On Tuesday, Japan's benchmark 10-year government bond yield returned to 3%.

The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday and signal further tightening. Policymakers are seeking to support the yen after intervention helped steer the currency away from a 40-year low.

In currency markets, the dollar index rose 0.05% to 99.53, with the euro down 0.03% at $1.1543. Against the yen, the dollar advanced 0.17% to 154.61. Spot gold eased 0.15% to $4,291.59 an ounce, while spot silver fell 0.31% to $63.03 an ounce.