(Bloomberg) — Japanese shares extended this week’s declines before Friday’s central bank interest-rate decision. Most other Asian stocks gained after slowing US inflation data boosted US equities.

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The Topix dropped for a third day on concern the Bank of Japan will cut back on bond purchases at its two-day policy meeting. Stocks gained in Australia, Hong Kong and South Korea following a rally in their US peers Wednesday when cooling inflation more than offset a hawkish Federal Reserve policy decision.

US stocks and Treasuries had rallied after a report showed the core consumer price index fell to the lowest in more than three years. Later, the Federal Reserve penciled in just one quarter point interest-rate cut this year, down from three seen in March, while upping its outlook for 2025 to four cuts.

“Given that there are clear signs that data is softening, markets will continue to expect the Fed to cut rates sooner, and that can support Asian markets,” said Charu Chanana, a strategist at Saxo Capital Markets. “The market is discounting the Fed’s cautious stance given it seems to come because of the dovish pivot earlier that proved premature.”

South Korea’s stock benchmark rose as much as 1.8%, heading for its highest close since February 2022. The government said it will consider changes to its short-selling rules Thursday as part of ongoing discussions on when to lift the ban on the trading strategy.

Chinese electric-vehicle maker stocks mostly gained as analysts said the European Union’s preliminary announcement of tariff increases was in line with the market’s expectations.

Financial firms were some of the heaviest drags on Japan’s Topix ahead of the BOJ policy decision on Friday, where it is widely seen to consider reducing bond purchases. Japanese investors sold the largest amount of foreign debt in nine years last week amid a shift in global central bank policy.

“There has been a slight decrease in the long-term yields in Japan,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “As a result, insurance, banking and other financial companies are lower, and it seems that banks in particular, with their large market capitalization, are weighing down the Topix.”

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Fed Outlook

The change in the Fed rate outlook on Wednesday showed up most in Treasuries and the dollar. Bloomberg’s dollar index rose less than 0.1% Thursday after falling 0.2% the previous day.

Individual Fed officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.

“These ‘dot plot’ projections likely don’t account for the latest May inflation data, which were softer than expected and reversed some of the heat we saw in the first quarter,” said Sonu Varghese at Carson Group. “We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect.”

Powell said the officials welcomed the latest inflation figures, adding that he hopes for more reports like that. He said Wednesday’s figures had helped build their confidence on the trajectory of inflation but not enough to warrant rate cuts at this time.

In commodities, oil edged lower after a three-day advance as investors weighed an unexpected build in US crude stockpiles and the higher-for-longer Fed rate outlook. Gold declined.

Key events this week:

• Eurozone industrial production, Thursday

• US PPI, initial jobless claims, Thursday

• Tesla annual meeting, Thursday

• New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday

• Bank of Japan’s monetary policy decision, Friday

• Chicago Fed President Austan Goolsbee speaks, Friday

• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 1:40 p.m. Tokyo time

• Nikkei 225 futures (OSE) fell 0.4%

• Japan’s Topix fell 0.6%

• Australia’s S&P/ASX 200 rose 0.5%

• Hong Kong’s Hang Seng rose 0.5%

• The Shanghai Composite fell 0.3%

• Euro Stoxx 50 futures fell 0.1%

• Nasdaq 100 futures rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0804

• The Japanese yen fell 0.2% to 157.04 per dollar

• The offshore yuan was little changed at 7.2659 per dollar

• The Australian dollar fell 0.2% to $0.6649

Cryptocurrencies

• Bitcoin fell 0.8% to $67,519.95

• Ether fell 1.3% to $3,508.93

Bonds

• The yield on 10-year Treasuries was little changed at 4.32%

• Japan’s 10-year yield declined two basis points to 0.965%

• Australia’s 10-year yield declined eight basis points to 4.20%

Commodities

• West Texas Intermediate crude fell 0.2% to $78.36 a barrel

• Spot gold fell 0.6% to $2,311.18 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Stephen Kirkland and Aya Wagatsuma.

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