Asian Stocks End Strong Quarter as Dollar Surges, Yen Hits 40-Year Low Ahead of US Jobs Data

Asian stock markets traded cautiously on Tuesday as investors wrapped up a remarkably strong second quarter, while a stronger U.S. dollar pushed the Japanese yen to its weakest level in four decades amid shifting expectations for Federal Reserve policy.

Japan’s Nikkei was little changed in early trading but remained on track to post a record quarterly gain of more than 36%. South Korea’s KOSPI slipped 1% after a powerful rally fueled by semiconductor stocks, though the benchmark was still poised for an impressive 65% quarterly increase and had more than doubled from a year earlier.

Investor sentiment also improved as concerns over Middle East supply disruptions eased. Brent crude traded around $72.49 per barrel, returning to levels seen before recent geopolitical tensions despite a fragile ceasefire.

According to J.P. Morgan Asset Management strategist Kerry Craig, lower oil prices support expectations for steadier global economic growth and stronger corporate earnings after fears of weaker expansion earlier this year.

Wall Street ended higher overnight, while U.S. stock futures were largely unchanged during Asian trading. The U.S. dollar continued to strengthen after markets sharply revised interest rate expectations, shifting from anticipating Federal Reserve rate cuts to pricing in potential rate hikes due to resilient economic growth and persistent inflation.

The stronger greenback weighed heavily on gold prices, putting the precious metal on track for its biggest quarterly decline in more than a decade. Meanwhile, the yen weakened to around 162.41 per dollar, its lowest level in 40 years, increasing speculation that Japanese authorities could intervene in the foreign exchange market.

Japan’s Finance Minister Satsuki Katayama reiterated that officials remain prepared to respond to excessive currency movements whenever necessary.

The U.S. Dollar Index has gained roughly 1.3% during the quarter, while attention now shifts to Thursday’s U.S. nonfarm payrolls report, released a day early because of Friday’s holiday, and Federal Reserve Chair Kevin Warsh’s scheduled remarks on Wednesday.

Economic data released Tuesday showed China’s manufacturing sector expanded in June, supported by stronger high-tech exports. Investors are also monitoring upcoming European inflation figures, along with U.S. consumer confidence and job openings data, for additional clues on the global economic outlook.

Across Asia, Taiwan’s benchmark index remained one of the region’s top performers with gains exceeding 40% this quarter, driven largely by semiconductor stocks. In contrast, Hong Kong’s Hang Seng Index lagged, heading toward a quarterly decline of about 7.5%.

Despite the rally in technology shares, institutional investors have continued reducing exposure to some of Asia’s biggest chipmakers. According to BNY, foreign investors have withdrawn approximately $17.3 billion from South Korean equities this year as portfolio managers rebalance holdings and reduce concentration in technology stocks.

BNY macro strategist Geoff Yu noted that the divergence between strong market performance and persistent capital outflows reflects investors taking profits rather than adding fresh positions.

Elsewhere, Europe’s STOXX index was on track for a quarterly gain of around 9%, while China’s CSI 300 looked set to finish the quarter roughly 10% higher. Market participants are increasingly seeking diversification beyond technology by adding exposure to sectors such as defense and renewable energy, reflecting broader shifts in global investment strategies.