Asian financial markets experienced a downturn on Friday following a U.S. appeal court's decision to grant a temporary reprieve to Donald Trump's extensive tariffs. This development has injected fresh uncertainty into the global trade landscape, occurring just a day after different judges had declared these controversial measures unconstitutional. The market losses reversed a rally seen across global markets on the preceding day, as analysts voiced concerns that the ongoing legal battles could exacerbate volatility and complicate trade negotiations between Washington and other nations.

Despite the tariffs being currently stalled and potentially heading for a Supreme Court review, there is a prevailing expectation that the U.S. president may explore alternative methods to implement them. The U.S. Court of International Trade's ruling on Wednesday had invalidated most of the tariffs announced since Trump assumed office, citing that he had overstepped his presidential authority. Trump vehemently criticized this decision, labeling it "horrible" and urging for its swift and decisive reversal. On his Truth Social platform, he stated, "Backroom 'hustlers' must not be allowed to destroy our Nation!" A separate ruling by a federal district judge in Washington, D.C., also found some levies unlawful, giving the administration a 14-day window to appeal.

These legal developments have fueled speculation regarding the future of several trade negotiations, including those between the United States and the European Union, as well as a pre-existing agreement with Britain. However, Kevin Hassett, Director of the White House National Economic Council, downplayed these concerns. Speaking to Fox Business, Hassett suggested that any "hiccups" caused by what he termed "activist judges" would not derail ongoing negotiations, confidently stating that three trade agreements were nearing finalization.

Offering a more cautious perspective, Rodrigo Catril of National Australia Bank commented that following the appeal court's decision, "Trump’s trade agenda remains alive and kicking with the legal battle adding yet another layer of uncertainty." He acknowledged that judges could still rule against the White House but emphasized, "it is probably worth emphasising that the president has other avenues to impose tariffs, so our view here is that the court case is just another layer of uncertainty/complication but it does not derail Trump’s tariff agenda."

Catril further elaborated on the broader implications, stating, "The ongoing shift in US trade policy is creating a cloud of uncertainty and now the legal battles are making the outlook even cloudier. The only thing that looks more certain is more uncertainty, which is set to lead to a further pullback in investment decision and hiring."

Meanwhile, U.S. Treasury Secretary Scott Bessent informed Fox News on Thursday that negotiations with China were "a bit stalled." He suggested that President Trump might need to directly engage with President Xi Jinping to move forward, especially considering the complexity and magnitude of the discussions, which had seen a detente weeks prior.

The market reactions were pronounced across Asia. In Tokyo, the Nikkei 225 fell by 1.4 percent, closing at 37,890.86. Hong Kong's Hang Seng Index mirrored this decline, dropping 1.4 percent to 23,243.11. The Shanghai Composite also saw a decrease of 0.5 percent, ending at 3,346.41. Sydney and Seoul markets also recorded losses. In contrast, markets in Wellington and Manila managed to achieve slight gains.

This cautious sentiment extended to Wall Street, which had a tepid trading day. All three main indexes finished slightly higher, but overall sentiment was dampened by data indicating that the U.S. economy contracted in the first quarter (January-March), although at a slower rate than initially anticipated. Disappointing figures on jobless benefits and pending home sales further contributed to the downbeat mood. Investors also remained on edge due to elevated bond yields and concerns over Trump's plans to increase the budget deficit. The Dow Jones Industrial Average closed up 0.3 percent at 42,215.73, while London's FTSE 100 was down 0.1 percent at 8,716.45.

In currency markets, the Japanese yen strengthened. This was attributed to inflation figures from Tokyo, a key indicator for Japan's national economy, coming in above forecasts for the month. This has increased expectations that the Bank of Japan might implement an interest rate hike in July. The dollar weakened against the yen, trading at 143.91 yen compared to 144.19 yen previously. The euro was slightly down against the dollar at $1.1357, and the pound also dipped against the dollar to $1.3483. Oil prices also saw a slight decrease, with West Texas Intermediate down 0.3 percent at $60.74 per barrel and Brent North Sea Crude falling 0.3 percent to $63.97 per barrel.