Asian shares slid on Wednesday while the yen lorded over a weakened US dollar as fears that the Bank of Japan may retreat from its massive bond-buying campaign added to a shakeout in debt markets globally.
Futures also pointed to early losses for major European stock markets and a softer opening on Wall Street.
Worryingly for energy shares, the broad-based decline in the dollar was still not enough to spare US 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 broadest index
MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.3 per cent, backing away from its recent one-year peak.
Japan's Nikkei shed 1.9 per cent as the rising yen pressured exporters' stocks, while financials slid 4 per cent.
China services sector
Shanghai was nearly flat, with a private survey showing growth in China's services sector cooled in July and companies shed staff for first time in four months.
The sharpest moves have been 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.
BoJ stimulus
While Japanese bonds steadied on Wednesday they have still suffered the worst sell-off in over 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 mix fiscal stimulus with labour market reforms.
Bond bulls were 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.
No Fed hike until 2018?
The ripples spread all the way to US 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 per cent.
The Dow Jones Industrial Average ended Tuesday down 0.49 per cent, while the S&P 500 lost 0.64 per cent and the Nasdaq 0.9 per cent.
The recent outbreak of weaker US data has further pushed back expectations for when the Federal Reserve might hike rates -- the market is not fully priced for a move until well into 2018 -- and taken a heavy toll on the dollar.
The dollar touched a near six-week trough against a basket of currencies, while the euro reached its highest since mid-July around $1.1230.
Against the yen, the dollar was at 101.03 yen having got as low as 100.75 and down from 105.33 in just four sessions.
In commodity markets, oil prices steadied in Asia but remained vulnerable to worries about a glut in both crude and refined product.
Brent crude edged up a cent to $41.81 but remained near four-month lows reached on Wednesday. NYMEX crude added 2 cents to $39.54 a barrel, but was still under the psychological $40 level.