Asian shares extended losses to three-week lows on Friday after bank shares slumped globally, while the yen soared to a 17-month high against the dollar as investors unwound bets against the yen, calculating that any effort by Japan to drive down the yen would be vigorously opposed by other major economies.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, while Japan's Nikkei dropped 1.4 percent to near-two-month lows, with financials coming under pressure.
Bank shares led losses in Europe and the U.S. markets on Thursday, amid talk of more lay-offs and cutbacks planned by Europe's major lenders as they struggle with zero rates.
U.S. S&P 500 Index lost 1.2 percent, with financial shares falling 1.9 percent. In Europe, the FTSEurofirst 300 closed down 0.8 percent, hurt by a drop of more than 2 percent in financials.
"When bank shares are making big falls and their CDS spreads are rising like this, obviously you would think something is afoot. If they keep falling in today's session, that is going to be really worrying," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
U.S. stock futures ESc1 slipped about 0.2 percent further in early Asian trade after Federal Reserve Chair Janet Yellen, in a conversation with former Fed chairmen, said the U.S. economy is on a solid course and still on track to warrant further interest rate hikes.
Despite a chorus of comments from Fed policymakers warning about more rate hikes, however, many investors think the global economy is too weak to allow the Fed to raise rates all that fast.
The 10-year U.S. Treasuries yield US10YT=RR fell to six-week low of 1.685 percent while U.S. interest rate futures maintained their firmness, pricing in a less than 20 percent chance of a rate hike in June.
Lower yields undermined the dollar given that prospects of higher U.S. yields were the main attraction behind the currency's firmness in recent years.
Investors instead bought back the yen, which had been long under pressure due to the Bank of Japan's massive monetary easing.
Traders also think it would be hard for Japanese authorities to intervene to stem the yen's rise after Group of 20 agreement in February warned countries to refrain from competitive devaluation.
Japanese Finance Minister Taro Aso said on Friday it will take necessary steps on currencies, but declined to comment on the issue of intervention.
The yen rose to a high of 107.67 to the dollar, its highest since October 2014, Thursday and last stood at 108.66.
The Euro also hit a six-month high of $1.1454 the previous day and last fetched $1.1371.
On the other hand, commodity-linked currencies and many emerging economy currencies stepped back from recent multi-month highs on the risk-averse mood among investors.
The Australian dollar traded at $0.7514, having fallen 1.3 percent Thursday.
In commodities market, copper suffered its biggest fall in more than six months on Thursday, falling 2.8 percent on the day and hitting a six-week low of $4,631 a tonne.
China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs, on to the global market.
Oil prices were mildly softer on Thursday after data was published showing higher weekly inventories at a big U.S. crude storage hub.
Global benchmark Brent crude futures LCOc1 stood at $39.71 per barrel, still holding gains of more than 2 percent on the week.
