Asian markets opened lower and continued their slide on Monday, completely reversing the previous session's gains. By the close of trading on September 2, Japan's Nikkei 225 had plunged over 1,800 points, falling 2.85% to 64,325.64, while South Korea's KOSPI dropped 3.99% to 6,562.72.
Meanwhile, all three major Chinese indices declined, with the Shanghai Composite shedding 0.97%, the Shenzhen Component down 1.88%, and the ChiNext Index falling 2.39%.
Where the pressure is coming from
Escalating tensions between the United States and Iran have pushed bond yields higher, weighing on equity markets. At the same time, Federal Reserve officials have signaled a hawkish stance.
On September 1, Fed Governor Michael Barr stated that if inflation does not show sufficient signs of easing, the central bank should act decisively to raise interest rates, noting that inflation in the U.S. remains too high. He indicated his readiness to support further rate hikes if price pressures persist.
According to the CME FedWatch tool, market expectations for a September rate hike have now climbed to 66.9%.
IMF warns of global risks
IMF Managing Director Kristalina Georgieva, speaking at the G20 Finance Ministers and Central Bank Governors meeting on September 1, cautioned that the projected 3% global growth this year masks severe divergence across economies, with the outlook still clouded by significant uncertainty. She expressed particular concern over rising bond yields in advanced economies, which are pushing global interest rates higher.
Georgieva noted that global public debt has reached nearly 100% of GDP, surpassing the post-World War II peak and expected to climb further. With inflation cooling stalling in many countries, mounting fiscal pressures are driving core bond yields higher, and the interplay between fiscal and monetary policy is fueling market anxiety.
She also highlighted that the impact of artificial intelligence on productivity and financial stability remains an open question. The sustained rise in global interest rates is especially troubling, she said, as major advanced economies' bond yields have reached multi-year highs, driving up financing costs worldwide. While some emerging markets have seen their yield spreads versus advanced economies narrow, this benefit has been offset by higher borrowing costs resulting from rising global benchmark rates.
Furthermore, external financing conditions for developing nations have tightened further. The combination of reduced financing flows, higher borrowing costs, and increased debt refinancing pressures is squeezing fiscal space for infrastructure, healthcare, and education spending in many developing countries, particularly low-income ones.