Asian stock markets declined on Thursday as fresh U.S. military strikes on Iran sapped investor optimism about a possible near-term peace agreement and as market participants adopted a cautious stance ahead of a key U.S. inflation release later in the day.
Wall Street had closed at all-time highs overnight, driven by hopes that easing tensions in the Middle East and lower oil prices would support risk assets. During Asian hours, U.S. stock futures were little changed.
Reports that the United States carried out a second round of strikes on Iran this week weighed on sentiment in Asian trade. The actions followed remarks from U.S. President Donald Trump rejecting reports that Iran and Oman would jointly oversee shipping through the Strait of Hormuz under a proposed peace arrangement.
Energy markets reacted strongly to the escalation. Oil prices reversed part of Wednesday's sharp drop, rebounding by more than 2% after the strikes. Brent crude traded near $97 a barrel, and U.S. West Texas Intermediate crude climbed back above $90.
Major Asian indexes moved lower amid the risk-off tone. Japan's Nikkei 225 eased 0.1% to 64,921.1 points on Thursday after having reached a record high of 66,428.81 points in the previous session. The broader TOPIX index in Japan edged down 0.2%.
South Korea's KOSPI declined 1.1% to 8,139.21 points after hitting a fresh record high of 8,457.09 on Wednesday, with heavyweight semiconductor companies and AI-linked stocks taking a breather following a strong recent rally. Hong Kong's Hang Seng index dropped nearly 2%, pressured by weakness among technology names.
On the Chinese mainland, the Shanghai Composite slipped 0.4% while the blue-chip Shanghai Shenzhen CSI 300 fell 1.1%. Other regional benchmarks also retreated: Singapore's Straits Times Index lost 0.7%, futures tied to India's Nifty 50 edged down 0.3%, and Australia's S&P/ASX 200 declined 1.1%.
Investors are focused on the U.S. Personal Consumption Expenditures price index due later in the day, the Federal Reserve's preferred inflation gauge. Market participants worry that persistent, higher energy prices driven by the Iran conflict could complicate the Fed's policy outlook and raise the odds of an interest rate increase this year.
Shares of major semiconductor firms experienced mild selling pressure as market players trimmed risk exposure ahead of the U.S. inflation data and amid the renewed geopolitical uncertainty. Overall, the market reaction reflected a mix of profit-taking after recent record highs and heightened sensitivity to oil price moves tied to Middle East developments.
Bottom line: Renewed U.S.-Iran hostilities reversed some risk-on positioning in Asia, lifting oil and prompting declines across many regional equity markets as investors awaited U.S. PCE inflation data that could influence the Fed's policy path.