Asian stocks moved in narrow ranges on Monday as traders assessed rising expectations of an interest rate cut by the Federal Reserve next month, while Japanese stocks fell sharply amid bets on an interest rate hike by the Bank of Japan.
Some regional markets reflected losses in US stock index futures, which weakened as technology stocks led the decline.
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Asian stocks were mixed, with focus on the Fed's outlook and China's Purchasing Managers' Index.
Expectations for an interest rate cut by the Federal Reserve have risen significantly since last week, driven by weaker U.S. data and a shift in market pricing after several policymakers expressed greater caution about keeping monetary policy extremely tight.
Financial markets are now indicating an 87% probability of a quarter-point rate cut at the December meeting, up from around 40% a week ago. However, investors remain cautious, concerned that weaker US data may not translate into a sustained appetite for risk if economic conditions worsen over the winter.
Chinese factory activity offered little reassurance. Monday's private sector purchasing managers' index showed activity had returned to contraction, confirming continued weak demand.
The reading came after the official Purchasing Managers' Index released on Sunday, which showed the sector contracting for the eighth consecutive month.
However, China's benchmark Shanghai Shenzhen CSI 300 index rose 0.8% on Monday, while the Shanghai Composite index climbed 0.4%. Hong Kong's Hang Seng index advanced 0.9%.
In South Korea, the benchmark Kospi index remained virtually unchanged.
Elsewhere, Australia’s S&P/ASX 200 index fell 0.4%, while Singapore’s STI index remained virtually unchanged.
India's Nifty 50 index rose 0.3% at the market opening.
Japanese stocks fell 2% amid bets on an interest rate hike by the Bank of Japan.
Japanese markets underperformed the region. The Nikkei 225 index fell by about 2% as the yen strengthened and Japanese government bond yields rose, reflecting growing expectations of an interest rate hike by the Bank of Japan.
Traders pushed yields higher after last week's strong inflation reading for Tokyo consumers reinforced the view that underlying price pressures remain strong.
This shift was amplified on Monday when Bank of Japan Governor Kazuo Ueda indicated that policymakers would discuss the pros and cons of raising interest rates at their December 18-19 meeting.
The rise in the yen significantly impacted exporting companies and helped pull the Nikkei index down.
