Traders in Seoul and Tokyo sold equities on Friday, driving the KOSPI down over 2.5% and the Nikkei 225 down roughly 2.8%, as an energy-price shock and rising US borrowing costs revived bets on tighter monetary policy.
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KOSPI sinks 2.5% as oil above $108 and yields near 5% bite
South Korea's KOSPI slid more than 2.5% and Japan's Nikkei 225 lost about 2.8% on Friday, the sharpest declines in a region-wide retreat, after Brent crude pushed past $108 a barrel and the US 10-year Treasury yield reached 4.93%, its highest since October 2023.
"The step up in attacks in the Strait of Hormuz and by the Houthis against Saudi Arabia suggests that Iran and its proxies are trying to regain the initiative in the war," said Jason Tuvey, deputy chief emerging markets economist at Capital Economics. "This could set back the recovery in oil output in the Gulf and raises the risk that global energy prices rise even further in the coming weeks."
The two moves are compounding each other. Brent touched $108.77 a barrel before easing to $107.75, a gain of more than 12% over the past week, according to ANI. US crude briefly hit $100. The 10-year Treasury yield added nine basis points to 4.93% on Thursday, and traders now assign a 70% probability to a Federal Reserve rate increase at next week's policy meeting, up from 49% a week ago, CME FedWatch data shows. The European Central Bank raised its main rate a quarter point to 2.5% on Thursday, its second increase this year.
The KOSPI's decline extended weakness from Thursday's session, with the index tracking losses in Seoul's export-heavy technology names. The Nikkei 225's roughly 2.8% slide was its steepest single-day drop in the current run, as a stronger yen added pressure to Japanese exporters already facing higher energy input costs. Both benchmarks moved in the same direction as Wall Street, where the S&P 500 fell 0.6% on Thursday for a fourth consecutive down day and sits more than 2.5% below its August 13 record close.
Diesel at a record $5.98 a gallon
The refined-products market is transmitting the shock faster than crude itself. The national average US diesel price hit a record $5.98 a gallon on Thursday, according to AAA data, a level that feeds directly into trucking, shipping and industrial costs across Asia's export supply chains.
"When it comes to crude, the situation is actually less dangerous than it is in the oil products, specifically diesel," Claudio Galimberti, chief economist at Rystad Energy, told CNN.
For Asian importers, the arithmetic is unforgiving. Economist Sunil Sinha, former senior economist at the National Council of Applied Economic Research, estimates that every $10 increase in international crude prices shaves 20 to 30 basis points off India's GDP growth. India's most recent quarterly growth was 7.8%.
The bond market is supplying the second leg of the pressure. Yields rose even after the Treasury Department said Wednesday it would buy back up to $6 billion of bonds on Thursday, a move intended to ease pressure on the long end. "Treasury is figuratively shooting a BB gun at an elephant," Mike O'Rourke, chief market strategist at JonesTrading, said in a note. August wholesale inflation picked up, adding to the case for tighter policy.
What the 5% level means for positioning
The 10-year yield's approach to 5% is the number Asian equity desks are watching. That threshold has not been breached since 2023, and it functions as a valuation ceiling for long-duration growth stocks — the category that dominates both the KOSPI and the Nikkei 225. Higher US yields raise the discount rate applied to future earnings and simultaneously pull capital toward dollar assets, pressuring the won and the yen.
The Fed's decision next week is the immediate test. A hike would confirm the tighter-for-longer path that traders are already pricing, while a hold would leave the oil channel as the dominant driver. Either way, the duration of the West Asia conflict and whether crude holds above $100 will determine whether Friday's selloff in Seoul and Tokyo is a single session or the start of a deeper repricing.
This article is for informational purposes only and does not constitute investment advice.
[1] Oil nears $110, yields near 5%: can KOSPI and Nikkei avoid a deeper rout?[2] Brent Crude Tops $108: Four-Month High Raises Inflation and Growth Risks for India’s Economy[3] Crude oil price hits 4-month high above USD 108 amid escalating West Asia tensions[4] Crude Oil Price Hits 4-Month High Above $108 Amid Escalating West Asia Tensions[5] Global oil hits $108 per barrel while bond yields surge
