Asian Markets Gear Up for Rate Hike Uncertainty

Markets in Asia are set to open cautiously this week as September's poor seasonals clash with the Federal Reserve's (Fed) decision on interest rates, stronger oil prices, and a firmer yen.

The recent payroll report did not settle the debate over rate hikes for September. Instead, it has shifted the focus to inflation data, which will be released this week. A low inflation print would keep the situation manageable, but a higher-than-expected number could have significant implications for markets.

The price of oil is also playing a key role in the conversation about interest rates. With crude prices above $92 per barrel (bbl) and Brent pushing through $98/bbl, oil is no longer just a commodity story, but rather an important factor in inflation expectations, yields, and equity valuations.

The yen's recent break below 155 against the US dollar (USD/JPY) is also causing concern. This move is not seen as just another squeeze, but rather a potential change in regime, with markets pricing in a firmer Bank of Japan (BOJ) path and possible Japanese repatriation.