SYDNEY, Feb 17 – Asian financial markets opened the week on a restrained footing as investors weighed geopolitical uncertainty against thin trading conditions caused by regional holidays. With several major Asian markets closed for the Lunar New Year holidays. U.S. markets were shut on Monday for Presidents’ Day. activity was muted. Still, the backdrop was far from calm, as traders closely monitored developments ahead of renewed nuclear discussions between Washington and Tehran scheduled to take place in Geneva later in the day.
The cautious mood was reflected across equities, bonds, currencies, and commodities, with oil markets in particular showing sensitivity to both diplomacy and security developments in the Middle East.
Markets steady
Large parts of Asia were effectively offline, with exchanges in mainland China, Hong Kong, Singapore, Taiwan, and South Korea closed for holidays. That left Japan and Australia as the main regional indicators, and both markets pointed to investor hesitation rather than conviction.
In Tokyo, the Nikkei (.N225) slid by close to 0.9%, dragged down by a stronger yen earlier in the session and concerns about domestic growth. The decline followed the release of unexpectedly weak economic data, which showed Japan’s economy barely expanding at the end of last year. According to official figures released on Monday, gross domestic product grew at an annualised pace of just 0.2% in the fourth quarter, sharply undershooting market expectations of around 1.6%. Government spending was cited as a key drag on activity.
The soft data renewed attention on the policy challenges facing Prime Minister Sanae Takaichi, whose administration has been under pressure to shore up growth while managing rising living costs. Economists said the weak performance strengthens the case for additional fiscal stimulus, including proposals to reduce sales taxes on essential food items. Analysts at National Australia Bank noted in a client briefing that markets appear to be pricing in a more accommodative fiscal stance, which in turn has lowered expectations for near term interest rate increases.
Bond markets echoed that view. Yields on Japanese government bonds fell across the curve, with longer dated maturities seeing particularly strong demand. The 20 year and 30 year yields both slipped notably, while a five year bond auction earlier in the day met with lukewarm interest, pushing yields lower there as well. Since bond prices and yields move in opposite directions, the decline signaled investor preference for safety amid uncertainty.
Expectations around monetary policy have also shifted. The Bank of Japan is widely expected to keep rates on hold at its next meeting in March, with traders assigning only a slim probability to a hike. A recent survey of economists suggested that July remains the more likely timing for any further tightening, assuming inflation trends remain stable.
In Australia, the picture was slightly brighter. The benchmark index edged higher, supported by gains in financial stocks and miners. The country’s central bank added to the policy debate by stating on Tuesday that inflation would likely have remained stubbornly high had interest rates not been lifted earlier this month. However, officials also emphasized that it was still too early to say whether additional tightening would be required, leaving markets with little new guidance.
Currency markets were relatively calm. The U.S. dollar index hovered near recent highs after a modest overnight gain, while the Japanese yen weakened back above 153 per dollar. The move reflected both interest rate differentials and lingering concerns about Japan’s growth outlook. In the United States, Treasury yields dipped slightly, with the benchmark ten year yield easing to just above 4%.
Equity futures in the U.S. pointed to a softer open later in the day, with technology heavy indices leading the declines. Traders cited the absence of fresh catalysts and caution ahead of upcoming geopolitical talks as reasons for the pullback.
Oil in focus
Energy markets were among the few areas showing clear directional moves, though even there the signals were mixed. Oil prices fluctuated as traders balanced hopes for diplomatic progress against ongoing security risks and supply considerations.
U.S. crude futures were higher, though the move largely reflected delayed settlement from the prior session due to the U.S. holiday. By contrast, Brent crude eased during Asian trading after posting gains the day before. Analysts said the lack of a clear trend underscored the market’s wait and see approach ahead of the U.S. Iran nuclear talks.
Those negotiations are seen as potentially pivotal. Any signs of de escalation could pave the way for increased Iranian oil exports, adding supply to an already well stocked market. At the same time, producers aligned with OPEC+ are expected to gradually raise output in the coming months, which could further cap prices.
Adding to the unease, Iran conducted naval exercises in the Strait of Hormuz on Monday, according to reports from Iranian media. The narrow waterway is one of the world’s most critical energy chokepoints, handling roughly one fifth of global oil shipments. Even routine military drills in the area tend to attract attention from energy traders due to the potential impact on shipping flows.
Analysts at ANZ said in a market note that geopolitical risk premiums have crept back into oil prices in recent weeks. They cautioned that speculative positioning has increased, leaving the market vulnerable to sharp moves if tensions ease suddenly. Progress on Middle East diplomacy or on other global conflicts, such as the war in Ukraine, could quickly unwind that premium, they added.
Precious metals moved lower as the firmer dollar reduced their appeal. Gold slipped below recent highs, while silver posted steeper losses. Traders attributed the declines to currency effects rather than any shift in underlying demand, noting that safe haven interest remains elevated amid geopolitical uncertainty.