Asian investors trod carefully Thursday after a Federal Reserve official floated the idea of delaying or reducing interest rate cuts, while the yen held gains having briefly hit a 34-year low the day before.
A recent market rally has started to peter out as traders assess the outlook for US monetary policy, with a string of above-forecast inflation and economic data leading some to question whether the central bank can stick to its projection of three cuts this year.
Confidence has not been helped by comments from Fed officials in the past week.
Atlanta president Raphael Bostic on Monday reiterated his comments from Friday that he saw only one cut this year, adding that acting too quickly could be disruptive, while governor Lisa Cook said decision-makers should be cautious.
The latest was Fed governor Christopher Waller, who told a conference in New York that "it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data".
"We made a lot of headway in reducing inflation in the past year or so, although the readings in the past two months have been disappointing," Waller said.
"Shorter-term inflation measures are now telling me that progress has slowed and may have stalled. But we will need more data to know that," he added.
His remarks came ahead of the release Friday of the personal consumption expenditures (PCE) index -- the Fed's preferred gauge of inflation -- which is expected to show a slight uptick.
Despite the worries, all three main indexes on Wall Street rose, with the S&P 500 clocking another record high.
Asia, however, was mixed, with Hong Kong, Shanghai, Sydney, Mumbai and Wellington rising, while Singapore, Seoul, Bangkok, Taipei and Jakarta fell.
Tokyo was down more than one percent as the yen stabilises after hitting 151.97 per dollar Wednesday, its weakest level since 1990 following comments from a Bank of Japan official warning monetary policy would remain accommodative for some time.
That comment came a week after the bank lifted interest rates for the first time in 17 years as it shifts away from its long-running ultra-loose monetary policy, while talk of the Fed putting off its rate cut has added upward pressure to the greenback.
The slide has fuelled speculation authorities will step in to support the unit, with Vice Finance Minister Masato Kanda warning that he was ready to do whatever was necessary.
"Markets will be braced all day... for BoJ intervention," said National Australia Bank's Ray Attrill.
"It's unlikely anyone will pay 152.01 yen for ( a dollar Thursday) because of this risk, but in the absence of intervention before the weekend, we strongly suspect someone will next week."
Tokyo - Nikkei 225: DOWN 1.5 percent at 40,168.07 (close)
Hong Kong - Hang Seng Index: UP 1.5 percent at 16,630.44
Shanghai - Composite: UP 0.6 percent at 3,010.66 (close)
Dollar/yen: UP at 151.35 yen from 151.34 yen on Wednesday
Euro/dollar: DOWN at $1.0821 from $1.0831
Pound/dollar: DOWN at $1.2628 from $1.2641
Euro/pound: UP at 85.68 pence from 85.66 pence
West Texas Intermediate: UP 0.6 percent at $81.85 per barrel
Brent North Sea Crude: UP 0.4 percent at $86.45 per barrel
New York - Dow: UP 1.2 percent at 39,760.08 (close)
London - FTSE 100: FLAT at 7,931.98 (close)
