Asian stocks show mixed performance with Nikkei 225 retreating from record highs

• Asian stocks gained after Wall Street's overnight rally on rising Fed rate cut expectations.
• The CME FedWatch tool shows markets pricing in 10% odds of a larger 50-basis-point move in September.
• Japanese equities climbed to new record highs following the resignation of Prime Minister Shigeru Ishiba.

Asian stocks rose on Tuesday, mirroring Wall Street's overnight strength. This strength is attributed to rising expectations that the US Federal Reserve (Fed) will cut rates in September after last week's weaker-than-expected August jobs data, with markets increasingly betting on the possibility of a larger 50-basis-point move. The Asian markets ticked higher despite global political turmoil, keeping currency and bond investors on edge.

At the time of writing, Japan's Nikkei 225 pulls back from all-time highs, trading near 43,700, while Hong Kong's Hang Seng holds ground above 25,800, trimming daily gains after reaching highs since October 2021; South Korea's KOSPI advances 1.07% above 3,250, its highest level in more than five weeks. However, China's Shanghai Composite declines 0.30% to near 3,800, while the Shenzhen Component depreciates 0.89% to 12,500.

Traders see a 25-basis-point cut this month as all but certain, with attention now turning to whether the Federal Reserve might opt for a larger 50-basis-point move. The CME FedWatch tool shows markets pricing in nearly a 90% chance of a quarter-point cut at the September meeting, up from 86% a week earlier, alongside a 10% probability of a 50-point reduction.

Traders will likely watch the US Nonfarm Payrolls Benchmark Revision due later in the day. Focus will shift toward US inflation reports that could shape the interest rate outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.

Japanese equities rose to fresh records after the resignation of the country's Prime Minister Shigeru Ishiba. Ishiba announced Sunday that he would resign amid growing divisions within the ruling party and sustained pressure following his defeat in last year's national election. In a separate development, Japan's tariff negotiator Ryosei Akazawa said in an X post on Tuesday that US tariffs on Japanese goods, including cars and auto parts, will be reduced by September 16.

Hong Kong stocks advanced, led by a roughly 2% jump in property shares after Shenzhen eased home-buying curbs last week. Tech, financial, and consumer stocks also gained, supported by a third consecutive rise in mainland markets as Beijing moves toward a record trade surplus.

South Korean markets found support after Finance Minister Koo Yun-cheol signaled Monday that the government may reconsider its earlier proposal on capital gains taxation for large shareholders. The initial plan aimed to lower the taxable equity holding threshold from KRW 5 billion ($3.61 million) to KRW 1 billion.