World stocks were stuck in a sea of red on Wednesday as markets braced for an even more aggressive U.S. Federal Reserve as inflation roars, and the yen jumped as Japan gave its strongest signal yet that it could act to shore up the battered currency.
The yen rallied over 1%, pulling away from recent 24-year lows versus the dollar, on a report that the Bank of Japan had conducted a rate check in apparent preparation for currency intervention.
Tuesday's U.S. data showing underlying inflation broadening meanwhile reverberated globally.
European shares (.STOXX) slipped 0.3%, retreating further from almost three-week highs hit a day earlier, and London's FTSE slid as much as 1% even as data showed British inflation fell unexpectedly in August.
In Asia, Japan's Nikkei (.N225) tumbled 2.6% and MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 2.2%. U.S. stock futures were mixed a day after the steepest fall on Wall Street in two years.
"The Fed has got further to go and there is an understanding that the peak rate will now be above 4%," said Seema Shah, chief strategist at Principal Global Investors.
"There had been a feeling that inflation was moderating but the data shows just how sticky inflation is and that requires the Fed to step it up a gear."
Money markets fully price in an interest rate hike of at least 75 basis points at next week's Fed policy meeting, with a 38% probability of a full percentage point increase to the Fed funds target rate, according to CME's FedWatch tool.
That outlook kept upward pressure on U.S. Treasury yields, with two-year yields rising to a fresh 15-year high at 3.804% in London trade .
