The Japanese yen extended its rally to a six-month high against the US dollar, with USD/JPY briefly dipping below 153.00, as speculation over a shift in the Government Pension Investment Fund's asset allocation combined with rising expectations for faster Bank of Japan rate hikes. The case for tighter BOJ policy at next week's meeting was reinforced by the day's data, with upwardly revised second-quarter GDP and July wage figures showing the strongest wage growth since 1997 both cementing the hike argument. For the BOJ, sustained wage growth is the key condition it has repeatedly flagged for normalising policy away from the ultra-loose settings that have kept Japanese borrowing costs near zero for years, which is why the 1997-era wage reading carries particular weight for rate expectations.

The stronger yen came at a cost for Japanese equities. The Nikkei managed only a minuscule 0.07% gain in morning trade, as currency strength offset dip-buying elsewhere in the market — a familiar dynamic, since Japan's export-heavy index tends to suffer when a firmer yen erodes the overseas earnings of its heavyweight manufacturers and financials. South Korea's Kospi fared considerably better, rallying nearly 2% in morning trade past 7,130 on broad-based buying led by chips.

Oil traded in lacklustre fashion on Tuesday, with the only fresh Middle East development a Houthi missile and drone attack on Khamis Mushait and Abha airport in Saudi Arabia — not enough to shift the broader price picture. Gold steadied on the absence of news flow.

The Australian and New Zealand dollars both softened modestly. The AUD declined after NAB's business survey showed conditions turning negative — hitting a six-year low — as profitability fell sharply and business confidence declined in response. The bigger driver, however, was news that China's CMRG has directed some steel mills to halt negotiations with Rio Tinto, a move first reported by Reuters on August 6 that now appears to be taking effect with the arrival of September, escalating Beijing's leverage in the annual iron ore talks. China is the world's largest iron ore consumer, and the stand-off puts direct pressure on Australia's biggest export earner to China. For the kiwi, RBNZ Monetary Policy Committee member Prasanna Gai added a modest headwind, saying it is plausible the central bank's key rate is already sitting in neutral territory — a remark that trims expectations of further tightening from Wellington.

China's August trade data rounded out the session. Exports matched forecasts exactly while accelerating from July, confirming the export-led growth pattern that has defined China's year, with high-tech goods, cars and semiconductors doing the heavy lifting. The more notable number was the import miss — growth of 28.2% against a 30% forecast — suggesting the pickup in domestic demand that markets had been hoping for is not materialising at the expected pace, even though it still marks a clear acceleration from July. Soft domestic consumption has been a persistent theme for Beijing this year, and trade is once again carrying the growth burden.

Elsewhere in the region, RBA's Hunter flagged deliberate cooling in housing and broader growth, while the PBOC set the USD/CNY central rate at 6.7804 versus an estimate of 6.7104 — a setting notably stronger than market expectations, consistent with the central bank's practice of managing the fixing to guide the currency.

Earlier headlines

• RBA's Hunter flags deliberate cooling in housing and broader growth
• China exports match forecast in August, imports fall short as domestic demand stays soft
• Kospi surges past 7,130 on chips, Nikkei ekes out modest gain
• China August trade balance shows imports below expectations
• China's Rio Tinto ore purchasing halt appears set to take effect. AUD down.
• Vitol CEO sees China oil demand picking up, flags unsustainable gap
• ASX, AUD, NZD softer as NAB business conditions hit six-year low
• PBOC sets USD/CNY central rate at 6.7804 (vs. estimate at 6.7104)
• Goldman Sachs turns more constructive on Indian equities: valuations, rupee resilience + more
• Japan GDP revision cements BOJ hike bets, yen and Nikkei in focus
• ICYMI: Goldman flags $120 oil risk, lifts Brent and WTI forecasts
• Japan wage growth strongest since 1997, cementing BOJ hike case
• South Korea Q2 GDP, final, +0.6% (vs. expected +0.6%, prior +1.8%)
• BRC data shows summer retail boost fading fast as GBP watches consumer signals
• MUFG sees ECB hike this week, flags downside risk for euro
• Oil jumps at reopen on Saudi strikes, Iran threat to Gulf energy assets
• UBS still likes gold despite hawkish Fed pivot
• UBS: two Fed hikes incoming, but equity bull case still intact
• Goldman Sachs says gold bull run not over, flags $4,000 as buy zone into FOMC
• investingLive Americas FX news wrap 7 Sept: USD falls as the yen surges on BOJ rate-hike expectations