South Korean stocks fell more than 2 percent in trading on Monday, with shares in chipmakers falling on concerns about rising bond yields, in the first trading session after a two-day holiday.
The main KOSPI index fell 150.83 points, or 2.13 percent, to 6930.09 points by 01:22 GMT, after recording gains over four consecutive sessions that brought it to the highest level in two months.
South Korean financial markets were closed Thursday and Friday for the Chuseok holiday.
Investors are awaiting Korean export data and Micron Technology business results scheduled to be released later this week, searching for indications of the strength of the chip boom linked to artificial intelligence, according to analysts.
Wall Street closed higher on Friday, supported by Microsoft and other technology stocks related to artificial intelligence, but rising oil prices and the recent jump in US Treasury bond yields kept investors cautious.
The Bank of Korea said Monday that it will closely monitor financial and foreign exchange markets.
Samsung Electronics shares fell 3.94 percent, while SK Hynix shares fell 4.67 percent.
In other leading stocks, the shares of the battery company “LG Energy Solutions” rose 3.20 percent, and the shares of “Hyundai Motor” and “Kia” increased 0.42 and 0.78 percent, respectively.
“Posco Holdings” steel shares rose 1.28 percent, and “Samsung Biologics” pharmaceutical company rose 1.39 percent.
Of the 912 shares traded, 630 shares rose, while 245 shares declined.
Foreign investors' net sales of shares amounted to 811.3 billion won ($597.09 million).
The won settled at 1,357 won to the dollar in the local settlement market.
In cash and debt markets, December contracts for three-year Treasury bond futures fell 0.37 points to 102.05.
The yield on three-year Korean government bonds, which are the most liquid, rose 11.6 basis points to 4.114 percent, while the yield on benchmark 10-year bonds rose 13 basis points to 4.539 percent.
The minutes of the Bank of Japan's July meeting showed that a number of policy makers saw the need to accelerate the pace of raising interest rates to confront escalating inflation risks, an indication of growing conviction within the bank to continue tightening monetary policy despite borrowing costs remaining low.
The bank had raised interest rates in June, before keeping them unchanged at the July meeting, then raised the interest rate in September to 1.25 percent, its highest level in 31 years, in light of the impact of the war in the Middle East and the weakness of the yen on the prices of fuel and imported raw materials.
The minutes issued on Monday showed that many members of the Monetary Policy Council, which consists of nine members, saw the bank gradually shifting its focus towards consolidating core inflation near its target of 2 percent, instead of seeking to raise prices.
One of the members said, according to the minutes, that the markets seemed to expect the bank to raise interest rates at intervals of about six months, but the pace of raising may be faster than these expectations, with core inflation approaching 2 percent and the increasing need to focus on the risks of rising prices.
Another member said that the bank should pay special attention to the risks of high inflation and “adjust the interest rate flexibly,” while a third member believed that the Bank of Japan should accelerate the rate hike, because the risks of waiting are no longer marginal, warning that the economy may suffer significant damage if inflation risks materialize.
Inflation risks push further upward
At its July 30-31 meeting, the Bank of Japan kept the interest rate at 1 percent, but warned that core inflation might exceed its target, and said that upcoming monetary policy discussions would focus on the risks of rising prices.
The minutes of the meeting showed growing concern within the Monetary Policy Council about rising inflation, with some members expecting the rise in wholesale prices to spread to a wider range of prices.
Many members said that long-term inflation expectations were rising for both households and businesses. One of them believed that the bank should check the stability of these expectations around the 2 percent level, as part of its efforts to stabilize core inflation at its target.
As the Bank of Japan raises interest rates in June and September, a growing number of analysts believe the bank may continue to tighten at a faster pace than the approach it took during 2024 and 2025, when increases occurred on average about twice a year.
The Bank of Japan faces greater pressure to raise interest rates compared to other major central banks, as the policy interest rate is still close to the lower end of the estimated range for Japan’s neutral interest rate, which amounts to between 1.1 and 2.5 percent. It is the level that does not slow down growth or stimulate it excessively.
One of the council members said, according to the minutes, that even if the exact level of the neutral interest rate cannot be determined, the bank should raise the interest rate that is still below the lower limit of the estimated range, to create the basis for the normalization of monetary policy and ensure its ability to adjust it flexibly.
Data released on Monday showed that a key indicator of Japan's services sector inflation rose in August at its fastest annual pace in more than two years, highlighting escalating price pressures.
Many analysts expect the Bank of Japan to raise its inflation expectations in its quarterly report scheduled to be issued during its next meeting on October 29 and 30, while they expect the bank to raise interest rates again in October or December.
Expectations of further interest rate increases pushed the 10-year Japanese government bond yield to 3.115 percent on Friday, its highest level since August 1996.
Most Asian stock markets fell in trading on Monday, with oil prices rising again amid doubts that the United States and Iran could reach a truce soon, keeping bonds under pressure ahead of a week full of economic data.
Over the weekend, US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, saying that Tehran was now in a position to conclude an agreement. Trump said that the talks will continue this week, at a time when Iran does not appear ready to ease its demands.
Brent crude futures rose 2.1 percent to $106.49 per barrel, raising their gains since the beginning of the month to about 18 percent, while US crude futures increased 1.5 percent to $93.84.
The shortage of refining capacities, in turn, pushed diesel prices to record levels, with a significant difference from crude prices, which increases the risk of inflation becoming entrenched in pricing and wage decisions.
Central banks have responded with a series of interest rate hikes, with the Reserve Bank of Australia likely to be next to tighten monetary policy when it meets on Tuesday.
Markets are currently pricing in a 66 percent probability that the US Federal Reserve will raise interest rates for the second consecutive time in October, while prices reflect monetary tightening of about 90 basis points until the end of next year.
On the other hand, a series of strong US economic data supported corporate profit expectations, despite the rise in bond yields, which helped keep stocks near their record levels.
The GDB Now gauge of the Federal Reserve Bank of Atlanta expects the US economy to grow at an annual rate of 5 percent during the current quarter. Economic activity also showed strong performance in Asia and Europe, supported in part by a boom in investments in artificial intelligence.
“The global economy appears to have entered a period of broad-based strength the likes of which we have rarely seen in the past two decades,” said Bruce Kasman, chief economist at JP Morgan.
He added that the strength of growth and the growing belief in the ability of economies to withstand rising energy prices makes the rise in interest rates, with stocks remaining near record levels, not surprising, noting that what is striking about the recent movements of the markets is the extension of expectations of high interest rates beyond next year.
Bonds bet on “higher for longer”
Japan's Nikkei index stabilized, while the volatile South Korean stock market fell 2.4 percent. The broader MSCI index of Asia-Pacific stocks, excluding Japan, fell 0.6 percent.
Chinese blue chips fell 1.4 percent, bringing their losses since the beginning of the month to more than 5 percent.
On Wall Street, Standard & Poor's 500 futures fell by 0.3 percent, while Nasdaq futures fell by 0.5 percent. In Europe, Euro Stoxx 50 futures rose by 0.4 percent, DAX futures increased by 0.3 percent, and FTSE futures rose by 0.2 percent.
The yield on 30-year US Treasury bonds rose to 5.5185 percent, approaching its highest levels since 2004, after rising 27 basis points during September alone. The two-year bond yield also jumped 55 basis points this month, with markets pricing in further US interest rate increases.
Mark Cabana, interest rate strategist at Bank of America, believes that there is room for further bond selling as markets price higher levels of US interest rates.
He warned that “repricing may not stop until clear evidence emerges that financial conditions have become sufficiently constrained.”
The rise in bond yields increases borrowing costs globally, at a time when technology companies are borrowing billions of dollars to finance their expansion in artificial intelligence, and also raises the discount rate applied to corporate profits.
The US data agenda this week includes inflation, gross domestic product, manufacturing, and jobs indicators. The September jobs report, scheduled for release on Friday, is expected to show the addition of 85,000 jobs, with the unemployment rate holding steady at 4.1 percent, with a possible decline to 4 percent.
The recent series of strong economic data supported the dollar index, which rose to a two-month high of 101.39. The euro fell to $1.1380, recording a loss of 2 percent since the beginning of the month.
The dollar rose 0.3 percent to 157.73 yen, recovering some of its losses after its decline on Friday, when Japanese Finance Minister Satsuki Katayama said that Trump expressed his concern about the weakness of the yen.
The pound sterling settled just above its lowest level in three months at $1.3240, after receiving some support from hawkish statements on interest rates made by Bank of England Governor Andrew Bailey.
In commodity markets, gold, which does not generate a return, fell 1.7 percent to $4,212 an ounce, after losing more than 4 percent during September as bond yields rose.
