Signs that the Bank of Japan could scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks slid as threats of further U.S. tariffs on China drained risk appetite.
Europe's bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge easing program sent Japan's 10-year bond yield to a six-month high.
The report rekindled anxieties about global monetary policy easing and piled further pressure on investors already struggling to navigate rising protectionism and tense geopolitics.
The yield on Europe's benchmark bond, the German 10-year Bund, hit a one-month high of 0.39 percent while U.S. 10-year Treasury yields also hit their highest in a month at 2.90 percent.
The yen climbed to two-week highs against the dollar JPY= and was last up 0.4 percent at 110.98 per dollar.
"It's all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this," said Rory McPherson, head of investment strategy at Psigma Investment Management.
"The ECB meeting this week will be more in focus now that we've had this concern about Japan."
(Graphic: Japanese bond yields jump to six-month high reut.rs/2LgVPjJ)
The dollar index .DXY meanwhile languished at two-week lows after U.S. President Trump criticized the Federal Reserve's tightening policy and accused the European Union and China of manipulating their currencies.
"We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters," said Goldman Sachs analysts.
Trump's comments against Fed rate hikes also helped steepen the Treasury yield curve US2US10=TWEB.
Trump's new threats to slap duties on all U.S. imports from China triggered sell-offs across stock markets, though good corporate earnings kept a lid on losses.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.1 percent and the MSCI all-country world index declined just 0.02 percent.
Europe's STOXX 600 fell 0.3 percent as investors braced for a packed week of corporate earnings in Europe and a meeting between European Commissioner Jean-Claude Juncker and Trump to discuss threatened auto tariffs which could damage carmakers.
Goldman Sachs analysts said auto tariffs, if they came to pass, would likely cause weakness in the Canadian dollar and Mexican peso, possibly also affecting the euro, pound, yen, and Korean won as investors priced in a hit to the economy.
"The global economy is still OK, but the risk is now very high, and if trade policies don't make a U-turn very soon, we'll see a measurable impact on growth already next year," said UniCredit chief economist Erik Nielsen.
The euro EUR=, which has been gaining from dollar weakness, climbed for a third straight day to a two-week top of $1.1750. It was last up 0.2 percent at $1.135.
Concerns about fuel demand dented oil prices after finance ministers and central bank governors at the G20 meeting in Buenos Aires said the risks to global economic growth have increased due to trade and geopolitical tensions.
U.S. crude CLcv1 fell slightly to $68.24 a barrel after posting its third straight weekly loss. Brent crude LCOc1 rose 16 cents to $73.23.
Copper, among the most sensitive to trade tensions, hovered above a one-year low hit last week, trading at $6,151 a ton. Copper fell for the sixth week in a row last week. Gold prices declined 0.1 percent to $1,30.76 an ounce XAU=.
(Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh)