Most Asian stocks fell sharply on Friday after a bigger-than-expected rate hike from the Bank of England pushed up concerns over tightening monetary policy, while a beat on Japanese consumer inflation also rattled sentiment. In addition to the BoE move, risk-driven assets were also hit by somewhat hawkish comments from Federal Reserve Chair Jerome Powell, who testified before Congress that the bank could raise rates at least two more times this year. The two factors ramped up concerns over tightening global monetary policy, and saw investors largely dump risk-driven, rate-sensitive assets. Hong Kong’s Hang Seng was the worst performer in Asia, down 1.8% in catch-up trade after a holiday on Thursday. Broader Chinese markets were closed for the day, but had closed lower on Wednesday following an underwhelming rate cut in the country. South Korea’s KOSPI fell 0.7%, while Australia’s ASX 200 lost 1.1% even as data showed some improvement in manufacturing and service sector activity through June.

Japanese Stocks Slide After Inflation Grows More Than Expected

Japan’s Nikkei 225 index slid 1.7%, while the TOPIX fell 1.5% after data showed consumer price index inflation grew more than expected in the 12 months to May. While core inflation read lower from the prior month, a reading that showed inflation excluding food and fuel costs surged to a 42-year high in May, indicating that underlying Japanese inflation remained high. The trend points to mounting pressure on the Bank of Japan to tighten policy, even as the bank reiterated that it has no plans to alter its ultra-loose policy in the near future. High inflation could also potentially offset recent resilience seen in the Japanese economy, which had in part attracted a heavy dose of foreign buying into local stocks. Investors used the high inflation reading as a catalyst to lock-in recent gains in the Japanese market. Both the Nikkei and the TOPIX had surged to 33-year highs earlier in the week. Indian stocks set to fall further from record highs Singapore-traded futures for India’s Nifty 50 index pointed to a weak open for local stocks, after both the Nifty and the BSE Sensex 30 pulled back from record high on Thursday. While optimism over relative strength in the Indian economy drove a slew of foreign buying into local markets, analysts recently warned that small and medium-cap stocks could see some correction, given their high valuations in a weak global economic environment. Fears of a resurgence in Indian retail inflation also came back into play, following a delay in the Indian monsoon.