Asia Shares Decline Amid Trade War Concerns and Tariff Announcements

In Tokyo, the streets were busy as people walked past an electronic board displaying Japan's Nikkei index, which finished significantly lower at 38,520.09, reflecting a 2.7% loss on February 3. Other Asian markets followed suit; Australia's S&P/ASX 200 decreased by 1.8% to 8,379.40, while South Korea's Kospi fell by 2.5% to 2,453.95. Hong Kong's Hang Seng saw a slight decline of 0.3% to 20,160.42, and trading was closed in Shanghai due to a holiday.

Analysts suggest that the markets are preparing for potential volatility, which could arise from an escalation in trade disputes. Yeap Jun Rong, a market strategist at IG, noted that any trade restrictions could disrupt global trade flows, alter supply chains, and result in higher costs for businesses, ultimately leading to inflationary pressures.

Last week, Wall Street also experienced declines, as the S&P 500 and the Nasdaq composite dropped by 0.5% and 0.3%, respectively. These losses represented the first weekly decline in three weeks, with the Dow Jones Industrial Average falling 0.8%. The sell-off was widespread, with approximately 75% of the S&P 500 stocks closing in the red, particularly in the technology and energy sectors.

Investors were also unsettled by news from a Chinese firm, DeepSeek, which reported advancements in developing a cheaper large language model, raising doubts about the necessity of current investments in AI chips and causing technology stocks to drop. Trump's planned tariffs of 25% on imports from Canada and Mexico and 10% on Chinese goods are set to be implemented on Tuesday, although the specific conditions for their potential removal remain unclear.

In reaction to the tariff announcements, Canada and Mexico have responded with plans for retaliatory tariffs on American products, though details from Canada have yet to be disclosed. The concerns surrounding trade led to higher long-term bond yields, including a rise in the 10-year Treasury yield from 4.52% to 4.54%, continuing a trend that has been apparent since September due to a stronger-than-expected U.S. economy.

In the energy sector, benchmark U.S. crude rose by $1.37, reaching $73.90 a barrel, while Brent crude gained 72 cents, reaching $76.39 a barrel. Additionally, in currency trading, the U.S. dollar strengthened slightly against the Japanese yen, rising to 155.52 from 155.18, while the euro fell to $1.0243, down from $1.0363.