Tug-Of-War In Asian Stocks: China Bulls Overshadow Japan's Rate Hike Woes

Shares in Japan tumbled on rate hike worries after Shigeru Ishiba’s victory in the party’s leadership race. However, China's benchmark extended its bull run as the country vowed to revive the economy.

The Japanese benchmark—Nikkei 225—was 4.6% down at 37,980, while China's CSI 300 was up 4.5% at 3,871 as of 8:26 a.m. Australia stock gauge was up 0.7% at 8,273, while South Korean Kospi was down 0.9% at 2,622.

Ishiba favoured rate hikes and supported policies for the Central Bank's independence and the country's deflation target, Bloomberg News reported. The yen rose sharply on Ishiba’s win, triggering caution among exporters in the country.

The last time rate hikes were undertaken by the Bank of Japan in early August, it unleashed a global rout with the unwinding of Yen carry trade.

Events in West Asia will also be closely watched as sentiments were hit after Israel killed Hezbollah chief Hassan Nasrallah in an air strike. The attack comes despite efforts by the US, France, and Arab countries to deescalate tensions in the region.

Retaliation by Iran is expected, but President Masoud Pezeshkian stopped short of pledging a direct and immediate attack. Crude oil prices edged higher after the Israel attack. Brent crude was trading 0.22% higher at $72.14 a barrel as of 5:55 a.m. IST. West Texas Intermediate was up 0.29% at $68.38.

Chinese stocks clocked their best weekly rally since 2008, on easing measures to revive the economy. China's CSI 300 is up 22% from its September lows.

The South Asian country's September manufacturing PMI came in at 49.8 on Monday versus the estimate of 49.4.

Interest rate cuts, liquidity for banks, and incentives for homebuyers were announced to revive China's economy last week. Further, the 24-man Politburo vowed to complete the country’s annual economic goals.

Markets in the region will be closed for seven days, starting Tuesday, Oct. 1, for Golden Week festivities, with holiday consumption in focus. 

China will release data on unemployment, industrial production, and Caixin PMIs on Monday.

Meanwhile, US stocks gained for a third consecutive week but ended mostly lower on Friday on increasing rate cut optimism. S&P 500 and Nasdaq Composite declined 0.13% and 0.39%, respectively. The Dow Jones Industrial Average advanced by 0.33%.

Traders will closely watch for any cues during Fed Chair Jerome Powell's speech at the National Association for Business Economics conference in Nashville.