Asian Markets Rally on Wall Street Highs, but China Deflation and Japan Politics Cloud Outlook

Asian equities advanced on Wednesday, tracking Wall Street’s record-setting performance. South Korea’s KOSPI climbed 1.5%, fueled by strong gains in heavyweight chipmakers Samsung Electronics and SK Hynix, which rose 1.5% and 5% respectively.

Hong Kong’s Hang Seng Index added up to 1.2%, touching a four-year peak, while the Hang Seng TECH sub-index jumped nearly 2%, buoyed by optimism following Nasdaq’s latest record close. Singapore’s Straits Times Index also posted solid gains, rising over 1%.

Japan’s Rally Overshadowed by Political Upheaval

Japan’s markets remained resilient despite political turbulence. The Nikkei 225 advanced 0.5%, holding just below record highs near 44,185 points reached a day earlier, while the TOPIX added 0.4%.

The rally comes in the wake of Prime Minister Shigeru Ishiba’s resignation after election setbacks and mounting internal party discord. The leadership vacuum has sparked speculation that Japan’s next administration could adopt more aggressive fiscal and monetary policies. Investor sentiment was also buoyed by news of a U.S.–Japan trade deal, which will see tariffs on Japanese auto exports reduced by mid-September.

China’s Inflation Concerns Weigh on Sentiment

While much of the region basked in Wall Street’s glow, China’s markets lagged. Fresh data revealed consumer prices fell more than expected in August, signaling entrenched deflationary pressure despite government stimulus efforts.

The Shanghai Composite slipped 0.1%, while the CSI 300 declined 0.2%. Producer prices also logged their 35th consecutive monthly drop, underscoring the depth of China’s economic challenges.

Broader Asia Moves Cautiously Higher

Elsewhere, Australia’s S&P/ASX 200 edged up 0.2%, reflecting cautious optimism. Futures pointed to a 0.4% rise for India’s Nifty 50, suggesting modest gains at the market open.

Wall Street’s Momentum Sets the Tone

The positive sentiment across Asia was underpinned by Wall Street’s record-breaking session on Tuesday, with all three major indices closing at all-time highs. Investors remain focused on the Federal Reserve’s upcoming meeting, where markets widely expect a rate cut next week—a key driver of risk appetite globally.