Asian Stocks Slide on Brent Surge, BOJ Holds Rates: Markets Wrap

A screen displays Nikkei 225 Stock Average inside the Kabuto One building in Tokyo, Japan, on Wednesday, Jan. 21, 2026. Japan's financial stocks declined as Tuesday's government bond meltdown raised alarms about potential losses for lenders and brokerages. Photographer: Toru Hanai/Bloomberg Photo by Toru Hanai /Bloomberg

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(Bloomberg) — Asian equities dropped as attacks on key energy infrastructure in the Middle East drove oil prices higher, fueling investor concern that an escalating war will add to inflation pressures.

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The MSCI Asia Pacific Index was down more than 2%, snapping a three-day advance, as investors trimmed risk. Japan’s Nikkei 225 slumped 2.8%, with traders also on alert for the yen’s potential breach of 160 against the dollar. US equity futures edged higher after the S&P 500 and Nasdaq 100 both fell 1.4% on Wednesday.

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Brent crude traded around $112 per barrel as strikes between Iran and Israel on critical energy facilities — which also caused extensive damage to the world’s largest liquefied natural gas export plant in Qatar — raised concerns of a more lasting impact from the conflict.

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Oil’s surge already has global central bankers fretting about price pressures. The Bank of Japan kept interest rates unchanged on Thursday, following a hold by the Federal Reserve on Wednesday, with both signaling the Middle East conflict had clouded the policy outlook.

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The gauge of Asian stocks is down nearly 8% in March, trailing peers in the US and Europe.

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“Asia is more vulnerable than other regions to the ongoing interruption in oil, LNG and other input products,” Morgan Stanley strategists including Jonathan Garner and Kristal Ji wrote in a note, recommending investors to sell this week’s rally in the region’s stocks.

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Iran carried out attacks on the LNG site in Qatar, one of several energy assets it pledged to target following strikes on the Islamic Republic’s giant South Pars gas field. President Donald Trump said the US didn’t know about Israel’s assault on the field, but threatened to “blow up the entirety” of the deposit with US forces if Qatari assets get hit further.

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He said earlier this week that targeting oil infrastructure on Iran’s main export hub, Kharg Island, remains on the table following earlier bombing of military targets there.

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Fed officials continue to expect one rate cut this year though Chair Jerome Powell emphasized that to resume lowering rates, they needed to see progress in reducing inflation. “If we don’t see that progress, then we won’t see the rate cut,” Powell said in remarks to reporters after the Fed decision.

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His comments prompted traders to scale back expectations for rate cuts, reinforcing a higher-for-longer rate outlook amid volatility in energy markets. They are now pricing in only about 15 basis points worth of Fed easing this year, less than one full quarter-point cut.

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In economic forecasts released with their decision, Fed officials raised their outlook for inflation in 2026 to 2.7% from 2.4%. Notably, they saw the core measure — which excludes volatile food and energy categories — also rising to 2.7%.

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Treasuries sold off across the curve on Wednesday, with the two-year yield jumping about 10 basis points. It rose another three basis points to 3.80% on Thursday.