Asian markets posted mild gains in early trading Tuesday as the United States initiated a rare process that will close the federal government.
The federal government ordered agencies to shutter their doors, initiating a shutdown after lawmakers were unable to agree on a short-term extension of government funding.
The stakes are high. A government shutdown could cost the still-struggling U.S. economy roughly $1 billion a week in pay lost by furloughed federal workers.
Economists say the impact will come not just from those lost wages, but also from related businesses cutting back or halting their operations.
Despite the threat, initial market reaction in Asia was muted, and the dollar remained little changed.
The Australia ASX All Ordinaries swung between gains and losses, while Tokyo pared earlier gains, settling around 0.7%. Stocks in Korea gained 0.5%, Singapore climbed 0.6% and Taipei added 0.5%. Exchanges in Hong Kong and China were closed for a holiday.
"No doubt, everyone's gaze is firmly set on Washington, D.C.," said HSBC economist Frederic Neumann.
Investors in Asia were also waiting for an announcement from Japanese Prime Minister Shinzo Abe on an economic stimulus package and a planned increase in the country's consumption tax.
"What may arguably have far greater consequences for Asia over the long-term is what'll happen in Japan," Neumann said. "This is what will determine whether Japan's reflation drive succeeds."
Markets in Korea and Taiwan were also supported by strong expansion of factory activity, according to a survey by HSBC. Korea's September purchasing managers' index rose to a four-month high of 49.7, while Taiwan's September PMI surged to an 18-month high of 52. China's official PMI climbed to 51.1 in September.
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