Most equity markets rose Thursday after the Federal Reserve flagged a possible interest rate cut next month, but Tokyo's Nikkei tumbled on a stronger yen following a hike by the Bank of Japan.
US central bank boss Jerome Powell said decision-makers were increasingly confident inflation and the economy were at a point where they could start loosening monetary policy.
After a highly anticipated two-day meeting where borrowing costs were kept at 23-year highs as expected, he told reporters the first reduction could come "as soon as" September if data continued to improve.
"The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate," he said, adding there had been a "really significant decline in inflation."
His remarks follow a string of reports suggesting that prices were being brought under control and the labour market was softening. He also told lawmakers this month that inflation did not need to hit the Fed's two percent target before that cut.
Traders are now fully pricing in a reduction in September and almost two more before the end of the year.
"We continue to expect that the Federal Reserve will cut rates in September and December, followed by four 25 basis point reductions in 2025," said JP Morgan Asset Management's Raisah Rasid.
However, she added a word of warning in her commentary.
"Investors should be mindful of potential risks, which at times are underestimated, including the possibility of a sharper growth deceleration and the impact of geopolitical uncertainties on the growth backdrop."
And Jeff Klingelhofer at Thornburg Investment Management was also cautious, writing: "The market is assuming a September cut is a 100 percent certainty, but this is wrongheaded.
"I'm sure the Fed wants to cut but there are still two inflation prints before September, so one bad piece of data could derail efforts."
The prospect of US borrowing costs coming down in around six weeks' time sent Wall Street's three main indexes surging, and most of Asia followed suit.
Hong Kong, Shanghai, Sydney, Seoul, Wellington, Taipei, Manila and Jakarta were all in the green.
However, Tokyo tumbled more than three percent at one point as export-reliant firms were bit by the stronger yen.
The Japanese unit soared Wednesday -- building on a rally in recent weeks -- after the Bank of Japan lifted rates and outlined plans to wind up its bond-buying, which has helped keep borrowing costs at super-low levels.
The announcement comes as the BoJ looks to shift away from a long-running programme of monetary easing put in place to boost the economy. A hike in March was the first since 2007.
Grzegorz Drozdz, a market analyst at Invest.Conotoxia.com, said the weaker yen has boosted exporter profits over the past three years, helping drive a surge in Japanese stocks that saw them hit a new record high earlier in the year.
"The profits of the companies comprising this index have risen by a total of 32 percent over this period," he said.
"Therefore, the current rapid strengthening of the yen has contributed to the recent sell-off in equities from this market. If the strengthening of the Japanese currency continues, we could witness a reversal of the upward trend."
The yen has rallied around 7.5 percent since hitting a four-decade low of close to 162 per dollar at the start of July.
Oil prices extended Wednesday's big gains that were fuelled by rising tensions in the Middle East as Hamas vowed retribution after political leader Ismail Haniyeh was killed in a strike in Iran that was blamed on Israel.
Tokyo - Nikkei 225: DOWN 2.6 percent at 38,094.24 (break)
Hong Kong - Hang Seng Index: UP 0.1 percent at 17,355.40
Shanghai - Composite: UP 0.1 percent at 2,940.85
Dollar/yen: DOWN at 149.00 yen from 149.88 yen on Wednesday
Pound/dollar: DOWN at $1.2854 from $1.2858
Euro/dollar: UP at $1.0829 from $1.0828
Euro/pound: UP at 84.23 pence from 84.19 pence
West Texas Intermediate: UP 0.7 percent at $78.45 per barrel
Brent North Sea Crude: UP 0.5 percent at $81.26 per barrel
New York - Dow: UP 0.2 percent at 40,842.79 (close)
London - FTSE 100: UP 1.1 percent at 8,367.98 (close)
