KOSPI drops 3% as U.S. strikes on Iran lift oil

South Korea’s KOSPI fell about 3% on Wednesday after U.S. airstrikes on Iran on Tuesday pushed Brent crude to $95.91 a barrel, a five-week high. The MSCI Asia-Pacific Index excluding Japan dropped 1.5% and Japan’s Nikkei 225 declined 2.6%.

The strikes raised concerns about disruptions to oil flows through the Strait of Hormuz, lifting Brent about 1.3% and adding to inflation worries that affected Asian trading.

Global government bond yields rose sharply. The U.S. 10-year Treasury yield hit an intraday high of 4.8122%, its highest level in almost three years, while Japan’s five-year government bond yield climbed to 2.295%, a record. Higher yields put pressure on interest-rate sensitive technology and semiconductor stocks across the region.

Cryptocurrencies fell as risk appetite weakened, with Bitcoin around $77,000 and Ether near $2,410.73. U.S. equity futures and Wall Street benchmarks slipped overnight, with the S&P 500 down 0.7% and the Nasdaq Composite off about 1%.

Westpac analysts wrote, “The threat of further disruptions to the Strait of Hormuz has brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global bond markets.” DBS analysts warned that if the bond rout does not stabilize, policymakers may need more aggressive measures to cap yields.

Traders priced roughly a 67% chance the Federal Reserve will raise rates at its two-day meeting ending Sept. 16, up from about 40% a week earlier, according to the CME Group’s FedWatch tool.

The declines extended recent losses in Asian technology and semiconductor stocks and widened falls across other sectors. With yields rising and the Fed decision two weeks away, investors are monitoring geopolitical developments and upcoming inflation data.