Asia-Pacific markets traded lower on Monday as renewed fighting between the United States and Iran pushed oil prices higher and kept government bond yields elevated, adding to a backdrop of firmer rate expectations and cautious risk sentiment across the region. Gold extended its slide after Friday’s hawkish Jackson Hole remarks from Fed Chair Kevin Warsh, while the yen firmed even after earlier weakness in USD/JPY past 160.

BofA said Warsh’s Jackson Hole speech raises pressure for a September rate hike. Barclays has also revised its outlook and now expects the Federal Reserve to raise rates by 25 basis points in both September and December, after previously forecasting no change.

Oil prices jumped after the United States struck Iran’s Larak Island on Sunday, the first U.S. strikes in more than a month. A U.S. official said the strike came after personnel were seen preparing rockets fitted with sea mines aimed at the Strait of Hormuz, a chokepoint closely watched by energy markets because disruptions there can quickly affect shipping flows. Iran responded by launching ballistic and anti-ship missiles from multiple provinces and by striking two U.S. bases in Jordan, King Hussein and Al Azraq. A U.S. source said most incoming missiles were intercepted and there had been no significant impact so far. Iran’s Revolutionary Guard said it had destroyed aircraft maintenance infrastructure and support facilities at both bases.

Trump posted on social media that Kharg Island, which handles roughly 90% of Iran’s oil exports, was being "blown to smithereens," but the accompanying video was AI-generated. Neither the White House nor the Defense Department immediately responded to requests for comment. Any actual strike on Kharg would represent a significant escalation given the island’s role in Iran’s oil trade.

Treasury Secretary Scott Bessent told Reuters that Washington is likely to introduce new secondary sanctions on Iran on a weekly basis, initially focused on banks. The comments follow Friday’s penalties on the United Arab Emirates branches of Egypt’s Banque Misr over alleged financial links to Iran. Bessent said the next step could be cutting an institution off entirely from the dollar-based financial system.

On currencies, Bessent said the yen’s recent moves are well contained and expressed confidence in BOJ Governor Kazuo Ueda’s handling of policy ahead of a planned meeting at this week’s G20 gathering in Asheville. The yen nevertheless firmed during the session as Japanese government bond yields extended their rise. The 10-year JGB yield reached its highest level since September 1996, while the 5-year yield touched a record high near 2.21%. The move reflected continued pressure on Japan’s bond market tied to expectations for further BOJ rate hikes.

Japan’s latest July data also pointed to resilience in the domestic economy, with industrial output and retail sales both beating forecasts. Even so, manufacturers flagged a likely pullback in September output.

Gold stayed under pressure after Friday’s sharp selloff sparked by Warsh’s hawkish remarks at Jackson Hole. Spot prices slipped below $4,400 an ounce for the first time since August 19, as the dollar and yields remained elevated. Gold remained pressured as traders continued to digest the prospect of a tighter U.S. rate path.

In China, the official manufacturing PMI rose to 49.8 in August from 49.2 in July, beating expectations of 49.7, but staying below the 50 mark that separates expansion from contraction for a second straight month. The non-manufacturing gauge was unchanged at 49.0. PBOC set the USD/CNY reference rate for today at 6.7828, compared with an estimate of 6.7344.

The mixed China data, together with the Iran escalation and firmer U.S. rate expectations, weighed on regional equities. Japan’s Nikkei and South Korea’s Kospi came under pressure, while Chinese shares posted a smaller decline.

In Australia, the Melbourne Institute’s inflation gauge cooled to a 0.5% monthly increase in August from 1.0% in July, but the annual pace accelerated to 4.8% from 4.0%. The pickup in the yearly rate comes ahead of the Reserve Bank of Australia’s next scheduled meeting on September 29 and its own monthly inflation reading, leaving price pressures still elevated for policymakers despite the softer month-on-month result.

Elsewhere in the region, New Zealand’s ANZ business survey showed August business confidence at 53.7, compared with 56.1 previously. ASB expects the Reserve Bank of New Zealand to deliver a consensus rate hike this week, while the RBNZ Shadow Board was split, with most members backing a 25 basis point increase.

Goldman Sachs said it still sees the Fed on hold despite Warsh’s hawkish Jackson Hole tone. Bessent also pressed G20 counterparts to confront China’s $1.2 trillion trade surplus.

Monday open indicative forex prices and other market updates were also in focus at the start of the week.