Japan’s 10-year government bond yield held around 2.79% on Wednesday, hovering at its highest level since September 1996 as strong economic growth data and mounting concerns over an energy-driven inflation shock reinforced expectations for a near-term interest rate hike from the Bank of Japan. Recent figures showed Japan’s economy expanded 0.5% in Q1, beating market expectations of 0.4% and marking the fastest pace of growth since Q3 2024. Adding to hawkish sentiment, the prolonged Middle East conflict has effectively kept the strategic Strait of Hormuz closed to shipping traffic, driving oil prices higher and intensifying global inflationary pressures. Markets are speculating that the BOJ could raise rates as soon as next month following hawkish signals from policymakers. Japanese bonds have also come under pressure after Prime Minister Sanae Takaichi called on the finance ministry to compile a supplementary budget in response to rising commodity prices, raising debt concerns.

The People’s Bank of China maintained its key lending rates at record lows for a 12th straight month in May 2026, matching market expectations. The move reflected caution over the fallout from the conflict in the Middle East, even as growth momentum has recently sputtered, while consumer and producer price pressures accelerated amid higher energy prices and supply chain disruptions linked to the conflict. The one-year loan prime rate (LPR), the benchmark for most corporate and household borrowing, was held at 3.0%, while the five-year LPR, a reference rate for mortgages, remained at 3.5%. The decision came amid weakening economic data, with industrial output growing at its slowest pace since 2023 and retail sales rising at the weakest rate in four years. Meanwhile, the central bank continued to implement a moderately loose monetary policy in response to evolving domestic and global economic and financial conditions, as well as market developments.

US stock futures were little changed on Wednesday as investors awaited Nvidia’s latest earnings results for fresh clues on the strength of artificial intelligence-driven demand. Several other major companies are also scheduled to report quarterly earnings, including The TJX Companies, Analog Devices, Lowe’s, Target and Intuit. In regular trading on Tuesday, the S&P 500 and the Nasdaq Composite fell 0.67% and 0.84%, respectively, extending losses for a third consecutive session. The Dow Jones Industrial Average also declined 0.65% to finish at a two-week low. Six of the 11 major S&P sectors closed lower, with materials, communication services, and consumer discretionary stocks leading the declines. The weakness came as Treasury yields climbed amid mounting inflation concerns, with the US 30-year Treasury yield briefly rising above 5.19%, its highest level in nearly 19 years.

The Reuters Tankan index for Japanese manufacturers edged up to 8.0 in May 2026 from 7.0 in April, as commodity-related industries recovered from the sharp deterioration caused by the Iran war. Improvements were seen in chemicals, steel, and nonferrous metals, supported by front-loaded demand and a rebound in materials sectors. However, the recovery in overall factory sentiment remained limited, as confidence among transport machinery firms, including automakers and suppliers, weakened further amid supply constraints linked to disruptions in the Strait of Hormuz. Food processors and textile-related industries also remained deeply pessimistic due to rising raw material costs and the weak yen. Meanwhile, non-manufacturers’ sentiment fell to 29.0 from 31.0. Both manufacturing and services firms expect conditions to weaken further by August amid ongoing concerns over the Iran war, supply disruptions, and elevated energy costs.

Gold traded below $4,500 an ounce on Wednesday after tumbling nearly 2% in the previous session, as escalating tensions between the US and Iran kept investors focused on inflation risks and the prospect of higher interest rates. President Donald Trump warned that the US could resume strikes on Iran within “two or three days” if Tehran failed to agree to Washington’s peace terms. The remarks came shortly after Trump said he had called off a planned attack following appeals from Gulf allies, with Tehran’s nuclear program being a major sticking point in negotiations. The prolonged conflict has effectively kept the crucial Strait of Hormuz closed to shipping, driving oil prices higher and intensifying inflationary pressures. Accelerating US inflation has also prompted traders to further reduce expectations for Federal Reserve rate cuts this year, while reinforcing speculation that the central bank could still raise rates before the end of the year.

WTI crude held near $104 per barrel on Wednesday after coming under pressure in the previous session, as investors assessed President Donald Trump’s renewed threat to resume military strikes on Iran if it failed to accept US peace terms. The comments came less than a day after Trump said he had called off a planned attack following appeals from Gulf allies, while warning that Washington could act within “two or three days.” The developments added to persistent uncertainty surrounding the Middle East conflict, with Iran’s nuclear program remaining a key obstacle in negotiations. The war has now entered its 12th week and has effectively kept the strategic Strait of Hormuz closed to shipping traffic, supporting oil prices and fueling inflation concerns. Meanwhile, reports indicated that NATO is weighing plans to escort commercial vessels through the waterway if the route remains blocked beyond early July, adding another layer of uncertainty to the market.