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Asia’s record-breaking quarter ended with less of a victory lap than a test of conviction.
Chip-heavy markets in Japan, South Korea and Taiwan have delivered the sort of gains usually seen after recessions, not during a period of sticky inflation and higher-for-longer rates.
Yet Tuesday’s trade showed investors becoming more selective.
The dollar’s renewed strength pushed the yen to levels last seen in the mid-1980s, while oil’s retreat helped calm one of the market’s biggest fears: that Middle East tensions would keep energy costs elevated.
A record quarter loses some shine
The Nikkei was little changed in early trade, but still headed for a quarterly advance of more than 36%.
South Korea’s Kospi slipped about 1%, even as it remained on course for a near-65% rise in the second quarter after more than doubling this year.
Taiwan’s benchmark was also set for a gain of more than 40%.
That scale of performance is creating its own resistance.
Foreign investors have not chased the rally blindly. In South Korea, net equity outflows this year were estimated at $17.3 billion, even as chipmakers powered the benchmark higher.
BNY strategists see that gap as a sign of rebalancing rather than outright pessimism: strong returns are forcing big funds to trim exposure where index weights have become too concentrated.
The dollar turns into the main market risk
The more immediate pressure point is currency markets.
The yen weakened to 162.41 per dollar in Asian trading, its softest level since 1986, putting intervention risk back on the table.
Japan’s finance ministry has again signalled that it is ready to respond if moves become excessive.
The dollar is on track for a fourth straight quarterly gain, helped by a sharp repricing of the US rate outlook.
Markets that were once leaning towards cuts have had to make room for the possibility of further tightening, as US growth holds up and inflation remains uncomfortable.
Fed Chair Kevin Warsh’s upcoming remarks and Thursday’s jobs data are now the week’s main macro tests, with US markets closed on Friday for Independence Day.
Lower oil shifts the growth debate
The other important shift is oil.
Brent crude was trading near $72 a barrel, back around pre-war levels, even as the US-Iran ceasefire remains fragile. For equity investors, that matters.
Lower energy prices reduce the risk of a fresh inflation shock and make the earnings outlook easier to defend.
Strategists at JPMorgan Asset Management say the pullback in crude supports the case for growth moving closer to trend, rather than the weaker outlook feared a few months ago.
China added to that steadier tone after official data showed manufacturing activity expanding in June, helped by high-tech exports.
The rally, though, is no longer broad or effortless. Investors are still rewarding AI-linked markets, but they are also looking again at Europe, mainland China and themes such as defence, renewables and diversification.
The quarter may end with records. The next one will test how much of the optimism has already been priced in.
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