Kospi Struggles Amid AI Trade Uncertainty Ahead of Key Rate Decisions

Asian stocks diverged on Tuesday as South Korea's KOSPI struggled to recover from Monday's sharp technology sell-off, while Japan's Nikkei 225 rebounded strongly.

The KOSPI fell as much as 0.76% in early Seoul trading before paring most of the decline, extending a difficult stretch for the index. The Nikkei 225, however, rose about 0.8% in later trade as SoftBank Group rallied more than 8%, giving the price-weighted benchmark an outsized boost.

The divergence came as investors assessed another rise in crude oil to near $107 a barrel and elevated global bond yields, with the US Treasury yield briefly touching 5%. The combination of expensive oil, higher yields, and uncertainty around AI spending leaves the KOSPI and Nikkei 225 vulnerable to sharp swings through the rest of the week.

The Bank of Japan's decision on Friday is widely expected to raise its policy rate by 25 basis points to 1.25%, but markets will focus less on the move than on Governor Kazuo Ueda's guidance on how quickly further tightening could follow. A measured Federal Reserve increase on Wednesday would be the first rate rise in roughly three years.