SINGAPORE - Stocks and bonds were under pressure on Friday as investors hunkered down for U.S. interest rates to stay higher for longer, while waiting to see whether the Bank of Japan might cap a busy week by charting a course out of its ultra-easy monetary policy.
No policy change is expected in Japan but with inflation above-target for 17 months in a row, traders are speculating that Governor Kazuo Ueda might provide some forward guidance on future hikes, or address the sliding yen's role in price rises.
Benchmark 10-year Treasury yields hit a 16-year high of 4.50% early in Toyko. Japan's Nikkei fell 1%.
The yen bounced off an 11-month low of 148.46 per dollar to trade at 147.63 and 10-year Japanese government bond yields stood at a decade high of 0.745%.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4% to touch a 10-month low.
The S&P 500 dropped 1.6% overnight and is down 2.7% in a week when policymakers were at pains to sound hawkish, even if a peak in rates is near.
Federal Reserve officials lifted their 2024 rates projections, forcing investors to dial back bets on cuts next year and driving two-year yields above 5.2%.
In a split decision, the Bank of England left rates on hold for the first time in nearly two years, sending sterling to a six-month low, although Governor Andrew Bailey stressed that the job was unlikely to be done yet.
Central banks in Sweden and Norway announced 25 basis-point hikes with the prospect of more to come and the Swiss National Bank surprised investors with a hold on rates, sending the franc down about 0.7% on the dollar and 0.6% on the euro.
"It's a lot of mixed messages and stories, and often you get those around turning points," said Craig Ebert, senior economist at BNZ in Wellington.
"The markets always sniff for a reversal once they see a peak, but they've been burnt in various ways along the way," he said, adding that investors were positioning themselves cautiously, especially in case the rise in U.S. rates adds pressure on the Bank of Japan (BOJ) to act.
"People are waiting for it (the BOJ) to give any sort of ground," he said. Overnight implied volatility on the yen has spiked. A decision is due anytime from 0200 GMT and Ueda will give a news conference at 0630 GMT.
A surge in oil prices has also been unnerving investors, since it is likely to prolong the inflation pulse. Brent crude futures steadied at $93.51 a barrel on Friday and are up nearly 8% for September so far.
S&P 500 futures were steady in Asia. European futures fell 0.6%.
Elsewhere in foreign exchange markets the expectation of sticky U.S. interest rates has supported the dollar, which reached a six-month peak on the euro overnight at $1.0671 .
In emerging markets, India's rupee jumped in offshore trade after JPMorgan said it would add Indian bonds to its widely tracked emerging markets debt index, setting the stage for billions of dollars in foreign inflows.
(Reporting by Tom Westbrook; Editing by Edmund Klamann)