Asian stocks cautious ahead of Japan bond auction

Asian shares opened cautiously after weak US economic data reinforced expectations for Federal Reserve interest rate cuts this year.

A regional gauge swung between small gains and losses at the open as South Korean shares gained for a third day while Japanese indexes dropped. Treasuries steadied after rallying across the curve Wednesday as data showed a contraction in US service providers and a deceleration in hiring. The dollar declined for a second day.



Markets are focused on the auction of super-long-term bonds in Japan Thursday. The sale comes after dismal showings recently, as demand for the far-end of the curve sputters across the globe.

US economic activity has fallen slightly in recent weeks, indicating tariffs and elevated uncertainty are rippling across the economy, according to the Fed’s Beige Book. Still, a gauge of global stocks closed at a record high Wednesday amid speculation that the worst may be over after the tumult fueled by President Donald Trump’s reciprocal tariff announcement two months ago.

“The specter of a slowdown in growth continues to feed niggling fears that the equity market has gotten too far ahead of itself,” Kyle Rodda, a senior market analyst at Capital.com, wrote in a note Thursday.

Swap traders are pricing in two Fed reductions by the end of the year. The weaker yields on Wednesday added downward pressure to the greenback and left an index of the dollar 0.4% lower, compounding a weakening trend.

The Institute for Supply Management’s index of services dropped a touch below the 50 level that separates expansion and contraction. Private payrolls rose the least in two years. Nonfarm payroll jobs data due Friday will provide further clarity.

“Markets are likely to view this through the lens of disappointment on the real growth side,” said Florian Ielpo at Lombard Odier Investment Managers. “While this represents good news for the US economy in terms of potential rate relief, the improvement already priced into equities and credit spreads could be challenged by this series of weaker numbers.”

Later in the day the European Central Bank will hand down an interest rate decision.

Attention in Asia will be on the bond sale in Japan. Japanese government bonds are seen underpinned as US Treasury yields extend declines, with investors focused on demand at the 30-year auction later on Thursday.

Kevin Zhao, head of global sovereign and currency at UBS Asset Management, floated the idea that Japan should stop issuing long bonds to halt a recent selloff. Japan’s sovereign debt is back in the spotlight as the government prepares for another sale of super-long-term bonds after dismal showings at recent auctions.

“It’s time for the MOF to recognize this structural shift in demand for long-dated government bonds,” Zhao said in an interview. “The MOF should announce they will stop issuing any bonds over 30 years, because there’s no demand anymore.”