Asian shares bowed lower on Wednesday while the yen lorded over a weakened U.S dollar as talk the Bank of Japan may retreat from its massive bond-buying campaign twigged a shakeout in debt markets globally.
Worryingly for energy shares, the broad-based decline in the dollar was still not enough to spare U.S. crude oil from its first finish under $40 a barrel since April.
Adding to the jittery mood was a renewed selloff in bank stocks following stress-tests in Europe.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent, backing away from its recent one-year peak.
Japan’s Nikkei lost 1.4 percent as the rising yen pressured exporter stocks while financials slid 2.7 percent.
The sharpest moves were in sovereign bond markets where a sudden spike in yields stirred speculation that a multi-year bull run in prices might finally be nearing its end.
Japanese bonds have suffered their worst sell-off in more than three years as investors feared the BoJ was out of easing ammunition and might leave it to fiscal policy to stimulate the economy.
Tokyo on Tuesday approved 13.5 trillion yen ($132 billion) in fiscal measures and the IMF urged Japan to better coordinate fiscal stimulus with central bank action.
Bond bulls were now worried the Bank of England might also under-deliver at its policy meeting on Thursday, putting the onus on debt-funded government spending to support growth.
“With Japan and the UK set to ease fiscal policy, it will be important to watch whether we are at the beginning of a global policy re-pivot away from monetary easing,” wrote analysts at ANZ in a note.
The ripples spread all the way to U.S. Treasuries where 30-year yields hit their highest since July 21 even though domestic data were generally soft.
Disappointing auto sales slugged shares in Ford and General Motors, which both dropped more than 4 percent.
The Dow Jones Industrial Average fell 0.49 percent, while the S&P 500 lost 0.64 percent and the Nasdaq 0.9 percent.
The recent spate of weaker U.S. data has further pushed back expectations for when the Federal Reserve might hike its rates — the market is not fully priced for a move until 2018 — and taken a heavy toll on the dollar.
The dollar touched a five-week trough against a basket of currencies, while the euro reached its highest since mid-July around $1.1230.
Against the yen, the dollar fell to 101.16 yen having fled from 105.33 in just four sessions.
In commodity markets, oil prices were undermined by worries about a glut in both crude and refined product.
Brent crude was near four-month lows on Wednesday at $41.86 a barrel. NYMEX crude edged up 15 cents but at $39.66 was still under the psychological $40 level.