Global stock markets rebounded ahead of the US non-farm payrolls report, with South Korean stocks closing up 1.64%, the yen strengthening, and oil prices rising slightly.

Dovish comments from Federal Reserve officials led the market to repric its expectations for interest rate hikes, resulting in a third consecutive day of gains for global stock markets, with Asia-Pacific assets generally strengthening.

Federal Reserve Governor Waller stated that he would support keeping interest rates unchanged if inflation continues to decline, a statement that significantly reduced market bets on a September rate hike. The swap market is pricing in a 25 basis point rate hike in September at about 50%, a sharp decline from about 70% earlier this week. The dollar stabilized after hitting a four-month low, while US Treasuries and gold maintained their upward trend.

Asia-Pacific markets benefited across the board. The MSCI Asia Pacific Equity Index rose 0.8%, driving the MSCI World All Country Index—the broadest global equity benchmark—to its third consecutive day of gains. South Korea's KOSPI closed up 1.64% at 6687.21 points. The Korean won touched its highest level against the US dollar since July 1, 2025. Yields on Japanese ultra-long-term government bonds also saw a significant decline, with both 20-year and 30-year yields falling by about 10 basis points.

In an interview with Bloomberg TV, Aidan Yao, senior investment strategist at AXA Investment Management, stated that with only about two weeks until the Federal Reserve meeting and about two months until the US midterm elections, the market faces considerable uncertainty. "My personal assessment is that the downside risks may slightly outweigh the upside potential, therefore I believe maintaining a relatively cautious stance is worthwhile."

The Nikkei 225 index closed up 1.3% at 65,020.94 points. The Topix index closed up 0.03% at 4,103.23 points. The KOSPI index closed up 1.64% at 6,687.21 points.The US dollar was trading at around 156.28 against the Japanese yen, after reaching a high of 155.30 in the previous trading session.The South Korean won hit its highest level against the US dollar since July 1, 2025.The yield on the 10-year U.S. Treasury note remained largely unchanged at 4.76%.Yields on Japanese ultra-long-term government bonds also saw a significant decline, with both the 20-year and 30-year maturities falling by approximately 10 basis points. The yield on Japan's 10-year bonds fell by 6.5 basis points to 2.900%.Brent crude rose slightly to around $95.65 a barrel, on track for its biggest weekly gain since July. West Texas Intermediate crude rose 0.4% to $91.68 a barrel.Spot gold fell below $4,460 per ounce, down 0.3% on the day.Bitcoin fell 0.5% to $81,079.42.

The bond market reacted first to the shift in interest rate hike expectations.

Earlier this week, rising oil prices coupled with hawkish comments from Federal Reserve Chairman Warsh pushed global yields to multi-decade highs, severely impacting the bond market. Warsh's remarks subsequently reversed this trend, providing simultaneous support to both stock and bond markets.

Waller noted that if inflation continues to move toward the Fed's 2% target, he would be willing to support "keeping the current policy rate unchanged." The Fed's key inflation gauge—the personal consumption expenditures price index—reported 3.7% in July, down from 4.1% in May, but still significantly above the target level.

Market focus has now shifted to Friday's non-farm payroll data. Suresh Tantia, Chief Investment Officer for Asia Equities at UBS Global Wealth Management, told Bloomberg TV that Waller's comments were "very significant because they could potentially shift or adjust the balance for the Fed's next policy decision." He emphasized that non-farm payrolls and the next inflation data will be key to determining whether the Fed will act at its next meeting.

The yen is strong, and bets on a Bank of Japan rate hike are rising.

The yen's performance was another focus in Asian markets. The yen appreciated by about 2% on Thursday, recovering from a month of gradual declines. At the time of this report, the dollar was trading at around 156.28 against the yen, having touched a high of 155.30 in the previous session.

Market participants have further increased their bets on a Bank of Japan (BOJ) rate hike, while closely monitoring the risk of further intervention by Japanese authorities to boost the yen. Yujiro Goto of Nomura Securities believes that the BOJ's 25-basis-point rate increase in September was reasonable, and further tightening measures are likely to follow.

Yields on Japanese ultra-long-term government bonds fell in tandem, with the 20-year yield dropping 10 basis points to 3.715% and the 30-year yield falling 10 basis points to 3.975%, reflecting a reassessment of market expectations regarding the path of global central bank monetary policy.

High oil prices and lingering uncertainties

In other markets, Brent crude rose slightly to around $95.65 a barrel, on track for its biggest weekly gain since July. Renewed tensions between the US and Iran exacerbated market concerns about continued disruptions to energy flows through the Strait of Hormuz, providing support for oil prices.

Nasdaq 100 futures rose 0.2%, and European stocks also pointed to a slightly higher open. Bitcoin hovered around $81,000, while the yield on the interest rate-sensitive two-year US Treasury note stabilized at 4.34% after declining in the previous session.

In addition, the sell-off in the bond market earlier this week also reflects deep structural pressures: years of massive government spending, persistent price pressures, and a wave of corporate borrowing to finance the development of artificial intelligence have all led investors to demand higher returns on their bonds.

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