Asian markets experienced a broad decline on Thursday, driven by escalating geopolitical tensions and fresh warnings from the US Federal Reserve regarding inflation linked to US President Donald Trump’s escalating trade war. Investor sentiment was further unsettled by uncertainty surrounding whether the US would join Israel’s ongoing airstrikes against Iran.

Major Asian indices saw significant drops. Hong Kong's Hang Seng Index fell more than 1 percent, Tokyo's Nikkei shed 0.7 percent, and Shanghai's Composite Index lost 0.3 percent in early trade. Other markets across the region, including Sydney, Seoul, Singapore, Jakarta, Wellington, Taipei, and Manila, also opened in the red, reflecting widespread market apprehension.

The declines followed the Federal Reserve’s decision to keep interest rates unchanged for a fourth consecutive time, as widely expected. While Fed Chair Jerome Powell acknowledged the US economy remained “solid,” he issued a cautious warning that “increases in tariffs this year are likely to push up prices and weigh on economic activity.” In its updated projections, the Fed revised its economic growth outlook downwards while simultaneously raising expectations for both inflation and unemployment. Powell noted that ultimately, the cost of tariffs would fall on the end consumer, indicating the bank would “wait to learn more” before making further policy moves. Despite this cautious stance, the Fed's dot-plot chart still predicted two rate cuts for the year.

President Trump, meanwhile, continued his outspoken criticism of the central bank ahead of the rate decision, stating, “We have a stupid person, frankly, at the Fed.” Speaking at the White House, he insisted, “We have no inflation, we have only success,” and even questioned whether he could legally appoint himself to lead the institution. This ongoing tension between the White House and the Federal Reserve added another layer of unpredictability to market sentiment.

Geopolitical concerns, particularly the situation in the Middle East, were a key driver of market movements. The yen and gold, traditional safe-haven assets, saw gains as market participants grew wary over Trump’s ambiguous stance on military action against Iran. When questioned about joining Israeli strikes on Iranian nuclear facilities, Trump stated, “I may do it. I may not do it.” According to the Wall Street Journal, Trump had reportedly approved military plans but was waiting to see if Iran might back off its nuclear ambitions. Iran’s supreme leader, Ayatollah Ali Khamenei, defiantly rejected Trump’s call for “unconditional surrender.” Gold rose 0.3 percent to $3,378 per ounce, and the yen appreciated against the dollar, reaching 144.92 and later 145.15 yen. The US dollar itself also gained, with the euro dipping to $1.1455 and sterling down to $1.3396.

Oil prices edged slightly lower despite volatile trading, with Brent crude falling 0.4 percent to $76.40 a barrel and West Texas Intermediate dropping 0.4 percent to $74.86. Still, prices remained close to multi-month highs due to persistent fears that Iran could disrupt shipments through the Strait of Hormuz, a vital corridor for global oil supply. Mike Sommers, president of the American Petroleum Institute, commented to Bloomberg that while they didn't see a shutdown as a likely scenario,