A look at the day ahead in European and global markets

By Ankur Banerjee, Asia Finance & Markets Breaking News Correspondent

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As the U.S. and Israel's war with Iran intensifies after major attacks on energy infrastructure, central bank meetings have become the stage for policymakers to unite in flagging the prospect of accelerating inflation due to soaring energy prices.

The Bank of Japan joined the U.S. Federal Reserve and Bank of Canada in keeping interest rates steady but highlighted mounting price pressure that could accompany a prolonged war that has upended global markets this month.

QatarEnergy's liquefied natural gas (LNG) production facilities, amid the U.S.-Israeli conflict with Iran, in Ras Laffan Industrial City, Qatar March 2, 2026. REUTERS/Stringer

With markets expecting the European Central Bank and Bank of England to likewise hold rates later in the day, the focus will again be on comments from officials who will likely talk tough on inflation.

Policymakers are walking a tightrope as they look to rein in stubborn price pressure without derailing growth, just as they did in 2022 when Russia's invasion of Ukraine spurred a commodities-led spike in inflation rates.

That stagflationary dilemma has sapped investor sentiment as markets come to terms with another conflict that shows no sign of easing.

Graphics are produced by Reuters

And so, traders have put on their risk-off hats, sold stocks, pushed expectations of U.S. rate cuts further back and bought U.S. dollars. Oil prices are firmly above $100 a barrel while natural gas is up more than 6%.

That has left the Japanese yen just below 160 to the dollar which traders expect could trigger intervention, especially after strong comments from Japan's finance minister on Thursday.

Yen watchers might feel a sense of deja vu as the prospect of an intervention raises its head every few months.

The spotlight is firmly on BOJ governor as investors weigh how he will frame the balance between the need to support a shock-hit economy and avoid being behind the curve on inflation. That may dictate where yen ends up.

After that, it's over to the ECB and BoE.