Financial markets enter a dangerous new phase

Around the world, financial markets look increasingly distressed. In Britain government-bond yields have surged (see chart) and sterling has slumped, prompting the Treasury and Bank of England to issue statements attempting to soothe markets. In Japan the government has intervened in foreign-exchange markets to stem the fall in the yen for the first time since 1998. In China the central bank has increased reserve requirements for foreign-exchange trading, in a bid to restrain currency outflows. At the heart of the turmoil is the relentless rise of the American dollar and global interest rates. There is little relief on the horizon.

Each market has its own idiosyncrasies. Britain’s new government plans the country’s largest tax cuts in half a century. Japan is attempting to keep interest rates at rock-bottom levels, bucking the global trend. China’s government is struggling with the consequences of a “zero-covid” policy that has isolated it from the world.