KOSPI Diverges from Nikkei as Asia's AI Trade Weighs Fed and BOJ Rate Decisions

The KOSPI and Nikkei 225 indexes diverged on Tuesday as investors weighed the impact of anticipated rate decisions by the Federal Reserve and Bank of Japan. South Korea's KOSPI fell as much as 0.76% in early trading, extending a tough stretch following Monday's sharp technology sell-off, while Japan's Nikkei 225 rose about 0.8% in later trade.

The KOSPI remains exposed to the AI trade due to its heavy weighting of Samsung Electronics and SK Hynix, key players in the global memory-chip supply chain. Analyst Han Ji-young noted that part of Monday's US chip share weakness had already been reflected in Korea's sell-off, leaving room for some recovery.

The Nikkei 225's rebound was driven by a strong performance from SoftBank Group, which rallied more than 8% and provided an outsized boost to the price-weighted benchmark. However, the macro pressure on Japanese equities remains as investors prepare for the BOJ's decision on Friday, with many expecting a 25 basis point rate hike.

Higher energy costs are a concern for Japan and South Korea due to their import dependence, which can lead to inflation and squeezed corporate margins. US Treasury yields have added pressure, with the 10-year yield briefly touching 5%, and investors assign a roughly 90% chance of a quarter-point Federal Reserve increase on Wednesday.