Asia-Pacific bond and currency markets experienced significant volatility on December 1.

In afternoon trading (Beijing time), the Indian rupee hit a record low of 88.49 against the U.S. dollar. The euro, British pound, Australian dollar, Swiss franc, South Korean won, and Indonesian rupiah also declined sharply. More notably, government bonds in India, Vietnam, South Korea, Malaysia, Singapore, and Japan all fell across the board.

The turmoil extended to other assets as well. Bitcoin dropped below $86,000, marking a nearly 6% decline in 24 hours. U.S. stock futures also widened losses, with Nasdaq 100 futures down nearly 0.9%, S&P 500 futures falling 0.7%, and Dow Jones futures slipping 0.45%.

**What Triggered the Selloff?**

**Bond Market Rout** The selloff was not limited to Japanese bonds and equities—other Asia-Pacific markets were also hit hard. Indian government bonds of various maturities mostly declined, while Vietnamese bonds saw a broad-based drop. Malaysian short-term bonds (3-week, 3-month, and 7-month) saw yields surge, reflecting steep price declines. South Korean bonds mostly fell by over 1%.

**Currency Market Turmoil** The foreign exchange market was highly volatile. Three traders indicated that India’s central bank might intervene to support the struggling rupee after it hit a historic low, with risks of breaching the 90-per-dollar level. The rupee weakened to a record low of 89.7575 against the dollar, though one trader described the central bank’s intervention as "limited so far."

Meanwhile, Thailand’s central bank announced measures to curb baht volatility, including stricter oversight of gold-related forex transactions and requiring major gold traders to report transaction data.

South Korea’s financial regulator stated it would review forex risk protections for retail investors amid persistent won weakness, emphasizing consumer safeguards.

**Japan: A Lingering Risk Factor** Japanese government bonds extended their decline, dragging down regional equities. The Nikkei 225 closed 1.89% lower, while Japan’s 20-year bond yield hit its highest since 1999, and the 30-year yield surged to a record 3.395%. The yen also strengthened sharply.

Bank of Japan Governor Kazuo Ueda struck a hawkish tone, suggesting further rate hikes beyond 0.75% while acknowledging uncertainty over how far rates are from neutrality. He noted that government price-control measures could ease inflation but warned that delayed policy adjustments risked fueling excessive inflation.

Analysts highlight two key risks from Japan’s bond selloff and yen appreciation: 1. As one of the world’s largest creditors, Japan selling U.S. Treasuries to repatriate yen could destabilize global assets. 2. A reversal of yen carry trades—historically a major market force—could trigger capital outflows worldwide, echoing the 2024 volatility spike.