Asian stocks declined on Wednesday as investors grew more cautious ahead of the upcoming U.S. Federal Reserve interest rate decision. Market sentiment was further weighed down by fresh signs of deflation in China.
Geopolitical tensions between Japan and China also pressured regional markets. The U.S. recently criticized Beijing for targeting radars at Japanese military aircraft during a training exercise, adding to the uncertainty.
Asian equities followed a lukewarm lead from Wall Street. U.S. stocks edged lower overnight as traders awaited the Fed’s announcement. Although a 25 basis-point rate cut is widely expected, analysts warned that the central bank may deliver a more hawkish signal than markets anticipate.
S&P 500 Futures were flat at 23:14 ET (04:14 GMT).
Chinese Markets Fall as Deflation Concerns Deepen
China’s CSI 300 and Shanghai Composite indexes dropped 0.9% and 0.7%, while Hong Kong’s Hang Seng slipped 0.4%.
Fresh government data showed that China’s CPI inflation rose year-on-year in November but unexpectedly declined from the previous month. The PPI contracted for the 38th consecutive month, reinforcing concerns that deflation remains entrenched in the economy.
The data pointed to ongoing weakness in domestic demand and raised new worries about China’s growth outlook heading into 2026.
Although China’s Politburo pledged more fiscal stimulus during this week’s meeting, the promises failed to provide immediate support for markets.
Chinese equities also faced pressure from declining chip stocks after U.S. President Donald Trump said he would allow NVIDIA to sell more advanced AI chips in China.
Japan Slips as Inflation Stays Sticky
Japan’s Nikkei 225 fell 0.3%, while the broader TOPIX index remained flat.
New data showed that PPI inflation in Japan stayed elevated in November, increasing speculation that the Bank of Japan may raise interest rates at its December meeting. BOJ officials have repeatedly highlighted persistent inflation as a key factor in upcoming policy decisions.
Geopolitical tensions between Japan and China also dragged markets lower, as their dispute over military activity near Taiwan showed no signs of easing.
Broader Asia Remains Cautious Ahead of the Fed
Most Asian indexes traded cautiously before the Fed announcement.
Australia’s ASX 200 was unchanged after the Reserve Bank of Australia adopted a hawkish tone on Tuesday, downplaying expectations for near-term rate cuts.
Singapore’s Straits Times Index dropped 0.3%, while South Korea’s KOSPI was flat.
India’s Nifty 50 saw a modest rebound after sharp losses in recent sessions, driven by steep declines in IndiGo, the country’s largest airline. IndiGo has fallen nearly 8% this week amid ongoing operational issues.
