Nikkei Drops as Asian Markets Slide on Fed Hike Risk, Oil Rebound

Asian markets fell as investors shifted back to concerns about Federal Reserve tightening and as oil recovered following a temporary U.S. sanctions waiver linked to Iranian exports. Tokyo’s Nikkei declined 0.6%, while a broader index of Asia-Pacific shares outside Japan lost about 0.5%.

Market moves followed a weaker session on Wall Street. The Nasdaq fell 1.3% overnight as large technology names came under pressure. S&P 500 futures were lower in early Asian trade. South Korea’s Kospi swung before trading roughly 2% below recent levels, and Taiwan’s market opened higher and briefly reached a record.

Brent crude rose about 0.2% to near $78 a barrel after a drop of more than 3% in the previous session. U.S. officials issued a temporary waiver on some sanctions related to Iranian oil, and statements that the Strait of Hormuz remained open eased immediate supply worries. Traders said the waiver could affect flows over time, while the crude rebound kept a Middle East risk premium in prices.

Market expectations for U.S. interest rates tightened. The dollar index traded around 101.04, close to its highest level since May last year. The CME FedWatch tool indicated roughly a 54% chance of at least two quarter-point rate hikes by year-end, up from about 15% a week earlier.

Currency moves drew attention. The yen traded near 161.55 per dollar, close to four-decade lows that have prompted official concern. Japan’s finance minister met with U.S. Treasury Secretary Scott Bessent. Sterling was near $1.3247 following Prime Minister Keir Starmer’s announcement that he will resign, creating potential political and policy uncertainty for U.K. markets.

A private survey showed Japan’s manufacturing activity remained strong in June, with the purchasing managers’ index rising to 54.9 and new orders expanding at the fastest pace in more than four years. The survey also recorded higher fuel and raw material costs.

Strategists pointed to a broader rotation in equity leadership as investors moved away from previously high-flying technology names toward companies with steadier cash flows. The stronger dollar put downward pressure on gold, which slipped 0.2%, and on cryptocurrencies, with bitcoin and ether trading lower.