TOKYO – Asian shares retreated Thursday as worries persisted about conflict in the Middle East.

Increasing tensions, President Donald Trump signaled the possibility of direct involvement in the conflict with Israel, while Iran’s supreme leader dismissed U.S. demands for capitulation.

Oil prices and U.S. futures declined.

In Asian markets, Japan’s leading Nikkei 225 index fell 0.7% to 38,619.17. Shares in Japan’s Nippon Steel Corp. increased by 0.8% following the completion of its acquisition of U.S. Steel, which had faced U.S. government opposition for over a year.

Hong Kong’s Hang Seng dropped 2% to 23,231.48 on heavy selling of tech-related shares, while the Shanghai Composite lost 0.9% to 3,359.78.

Australia’s S&P/ASX 200 was little changed at 8,528.30 and in South Korea, the Kospi lost 0.4% to 2,960.81.

U.S. financial markets will be closed Thursday for the Juneteenth holiday.

On Wednesday, U.S. stocks ended with mixed results after the Federal Reserve suggested it might reduce interest rates twice this year, though this remains uncertain.

The S&P 500 finished nearly unchanged at 5,980.87. The Dow Jones Industrial Average dipped 0.1% to 42,171.66, and the Nasdaq composite rose 0.1% to 19,546.27.

Treasury yields also wavered but ultimately held relatively steady after the Fed released projections showing the median official expects to cut the federal funds rate twice by the end of 2025. That’s the same number they were projecting three months ago, and it helped calm worries a bit that inflation caused by T rump’s higher tariffs could tie the Fed’s hands.

Cuts in rates would make mortgages, credit-card payments and other loans cheaper for U.S. households and businesses, which in turn could strengthen the overall economy. But they could likewise fan inflation higher.

So far, inflation has remained relatively tame, and it’s near the Fed’s target of 2%. But economists have been warning it may take months to feel the effects of tariffs. And inflation has been feeling upward pressure recently from a spurt in oil prices because of Israel’s fighting with Iran.

Fed Chair Jerome Powell stressed on Wednesday that all the uncertainty surrounding tariffs means the median forecast for two cuts to interest rates this year could end up being far from reality. “Right now it’s just a forecast in a very foggy time,” he said

Fed officials are waiting to see how big Trump’s tariffs will ultimately be, what they will affect and whether they will drive a one-time increase to inflation or something more dangerous. There is also still deep uncertainty about how much tariffs will grind down on the economy’s growth.

“Because the economy is still solid, we can take the time to actually see what’s going to happen,” Powell said.

“We’ll make smarter and better decisions if we just wait a couple months or however long it takes to get a sense of really what is going to be the passthrough of inflation and what are going to be the effects on spending and hiring and all those things.”

A report released Wednesday said fewer workers applied for unemployment benefits last week, possibly indicating fewer layoffs. But another said homebuilders broke ground on fewer homes last month than economists expected. That suggests higher mortgage rates may be casting a chill on the industry.

In other dealings early Thursday, benchmark U.S. crude declined 10 cents to $73.40. Brent crude, the international standard, fell 24 cents to $76.46 a barrel.

Oil prices have been yo-yoing as fears rise and ebb that the conflict between Israel and Iran could disrupt the global flow of crude. Iran is a major producer of oil and also sits on the narrow Strait of Hormuz, through which much of the world’s crude passes.

In currency trading, the U.S. dollar fell to 145.05 Japanese yen from 145.13 yen. The euro cost $1.1468, down from $1.1484.

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AP Business Writer Stan Choe contributed.