Global financial markets moved tentatively on Tuesday, as a sharp selloff in global bonds and a stumble in cryptocurrencies overshadowed modest gains in Asian equities. The primary driver was a sudden shift in expectations for Japanese monetary policy.

Bond Market Tremors
The catalyst was Bank of Japan Governor Kazuo Ueda's comments on Monday, which laid clear groundwork for an interest rate hike later this month. This sparked a dramatic surge in Japanese Government Bond (JGB) yields, with the 10-year yield touching a 17-year peak of 1.88% and 30-year yields reaching an all-time high. The selloff rippled globally, pushing the 10-year U.S. Treasury yield up nearly 8 basis points overnight before it steadied around 4.087% in Asian trading.

"The mood is ranging between fearful and resigned," said Jehan Chu, founder of Kenetic Capital, though referring specifically to the crypto selloff. A strong JGB auction later helped bonds pare some losses.

Crypto and Equity Sentiment
Bitcoin, often a bellwether for speculative sentiment, bounced 0.6% to around $86,965 after a jarring 5.2% slump on Monday. It remains down roughly 30% from its October peak. "The next couple months are crucial but even the most bullish may be settling in to hibernate for the winter," Chu added.

Stock markets reflected the cautious tone. S&P 500 futures held steady after a negative Wall Street session. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3%. Japan's Nikkei crept 0.1% higher following a sharp drop a day earlier, while South Korea's Kospi led gains with a 1.6% rise. China's blue-chip CSI300 index bucked the trend, falling 0.8%.

Currency and Commodity Moves
The yen held firm near 155.64 per dollar, bolstered by rate hike expectations. The potential shift in Japan's ultra-loose policy—and the prospect of capital repatriation—also pressured the U.S. dollar more broadly. The euro held above $1.16 ahead of regional inflation data.

Some analysts see a broader dollar downturn ahead. "The U.S. data remains decent enough – but the rest of the world is on a firmer footing," said Deutsche Bank strategist Tim Baker, noting December has historically been a weak month for the dollar.

In commodities, gold held recent gains just above $4,200 an ounce. Oil prices were steady, with Brent crude at $63.17 a barrel, supported by geopolitical tensions following drone attacks on Russian supply infrastructure.

Diverging Central Bank Paths
The market dynamics underscore a growing policy divergence. While traders now firmly expect a Bank of Japan hike, data continues to support expectations for U.S. Federal Reserve rate cuts. A report on Monday showed U.S. manufacturing contracting for a ninth month, even as consumer spending remained resilient.

This sets the stage for a tense period ahead, as markets balance the beginning of policy tightening in Japan against an anticipated easing cycle from the Fed.