Markets across the Asia-Pacific region showed divergent performance following the Bank of Korea's decision to maintain its key policy rate at 3.5% amid persistent inflation pressures. Investors are now recalibrating growth and inflation expectations across the region.
- Bank of Korea maintains policy rate at 3.5%
- South Korea's core CPI at 3.8% year-on-year in December 2025
- KOSPI index up 0.2% on rate hold
- Hang Seng Index down 0.6%
- Nikkei 225 gains 0.4% amid yen weakness
- 10-year South Korean government bond yields rise to 3.21%
Stock indices in the Asia-Pacific region closed with mixed results on Thursday, reflecting cautious sentiment after the Bank of Korea (BOK) announced it would keep its benchmark interest rate unchanged at 3.5%. The decision, widely anticipated, came as inflation remains above the central bank’s target range, with core CPI registering 3.8% year-on-year in December 2025, up from 3.4% in November. The Hang Seng Index in Hong Kong dipped 0.6% to close at 21,487.42, while Japan’s Nikkei 225 rose 0.4% to 38,912.34, supported by a weaker yen that boosted export-oriented stocks. In South Korea, the KOSPI index gained 0.2% to 2,673.11, as investors interpreted the BOK’s pause as a sign of potential future rate cuts if inflation cools further. The stability in rates contrasts with recent shifts in other major central banks. The Reserve Bank of Australia has signaled a possible rate hike in March, while the People’s Bank of China continues to ease liquidity through targeted lending facilities. These divergent paths have increased volatility in regional currency markets, with the South Korean won weakening 0.9% against the U.S. dollar over the session. Market participants are now focusing on upcoming inflation data from China and Japan, as well as the U.S. Federal Reserve’s next policy meeting. The BOK’s commentary emphasized 'data dependence' and noted that inflation risks remain skewed to the upside, suggesting a cautious tone for 2026. This has led to a modest rise in 10-year South Korean government bond yields to 3.21%, reflecting increased expectations of prolonged monetary tightness.