Asian Stock Market: Trades in negative territory, Japan’s Nikkei leads losses

• Asian stock markets trade on a negative note as investors worry about the possible US debt ceiling crisis.
• After Fitch downgraded the US government's credit rating, markets turn cautious from AAA to AA+. 
• BoJ policymaker stated that Japan is in a position where it is critical to maintain an easy policy.

Asian stock markets trade in negative territory on Wednesday. The market turned to a risk-off mood amid the concern of the US credit rating cut, the renewed tension between the US-China and mixed US economic data ahead of the Nonfarm Payrolls report.

The Asian stock market remains under pressure after Fitch downgraded the US Long-Term Foreign-Currency Issuer Default Rating from AAA to AA+. The leading rating company cites an expected fiscal deterioration over the next three years and a high general government debt burden as the primary reasons for this drastic action.

At press time, the Nikkei slumps 2.02%, Shanghai drops 0.84%, Hang Sang dipped 1.99%, the Shenzhen Component Index drops 0.42%, the Kospi Index is down 1.64%, and the Nifty50 falls 0.57%.

In Japan, the Bank of Japan (BoJ) maintained its ultra-low interest rates on Friday and decided to maintain its short-term interest rates at -0.1% while keeping its 10-year JGB yield target around 0%.

However, the BoJ surprised financial markets by making its yield curve control (YCC) more flexible. The central bank will allow the 10-year yield to move above the cap as long as it stays below 1.0%, rather than being capped at 0.5%. Additionally, BoJ Deputy Governor Shinichi Uchida stated early Wednesday that Japan is in a position where it is critical to maintain an easy policy.

On Tuesday, the Chinese Caixin Manufacturing PMI for July fell to 49.2 from 50.5 prior, versus a market expectation of 50.3. This figure marked the lowest level since January. This, in turn, weighs on risk sentiment.

Additionally, the escalating tensions between the US-China might exert some pressure on riskier assets and benefit the safe-haven Japanese Yen. Chinese authorities announced on Monday restrictions on the export of certain drones and drone-related equipment to the United States, citing "national security and interests”. On the other hand, US President Joe Biden plans to sign an executive order curbing US technology investments in China by mid-August.

Moving on, market participants will monitor the development of the US-China relationship. The renewed trade war tension could undermine riskier assets like Gold, equities, the AUDUSD, etc. In addition, the US ADP Employment Change data will be released later in the American session.