Global stocks and bonds slipped on Friday as investors assessed a week of increasingly hawkish central-bank policy, while the Japanese yen weakened sharply even after the Bank of Japan raised interest rates to their highest level in 31 years.

The BOJ increased its policy rate to 1.25%, a move that had been widely anticipated by markets but failed to strengthen the yen. Instead, the dollar climbed 1% against the Japanese currency to 157.54, putting the yen on course for its largest one-day decline since mid-February.

Two BOJ board members dissented from the rate increase, adding to investor expectations that the central bank may face a difficult path as it balances persistent inflation against the risk of renewed currency weakness.

The yen had gained 1.6% against the dollar earlier in September as traders anticipated a faster tightening cycle and signs emerged that Japanese investors were beginning to repatriate funds. But the currency has since been hit by the Federal Reserve’s shift toward tighter policy.

The Fed raised interest rates on Wednesday for the first time in three years and adopted a more aggressive stance toward inflation. The move has pushed the yen toward a 2.6% weekly decline against the dollar, its worst weekly performance in two years.

BOJ Governor Kazuo Ueda said Friday that the bank’s policy focus had shifted as underlying inflation approaches 2%. He also said most board members still consider monetary policy accommodative even after the latest increase.

Chris Scicluna, head of research at Daiwa Capital Markets Europe, said the Fed’s tightening could leave the yen vulnerable to another sharp decline, potentially adding to Japan’s inflation problem.

“That certainly should keep the door open to further tightening, assuming inflation and domestic demand remain resilient,” Scicluna said. “Another rate hike to 1.50% before the end of the year would seem a decent bet.”

Central Banks Move Toward Tighter Policy

The BOJ’s decision capped a week in which inflation increasingly dominated monetary policy discussions across major economies. September has produced the largest increase in average G10 interest rates since July 2023, with four central banks raising rates and others warning that additional tightening could be required.

The Bank of England kept its policy rate unchanged on Thursday but indicated that a prolonged Iran war could eventually require higher rates if elevated energy prices keep inflationary pressure alive.

The European Central Bank also raised rates last week while signaling that further tightening could be necessary.

In Australia, the central bank’s governor said Friday that some of the upside inflation risks previously identified by policymakers appeared to be materializing.

The synchronized shift is being driven largely by the energy shock created by the conflict in the Middle East. The war has now approached its seventh month, with no clear resolution in sight, keeping oil prices above $100 a barrel and complicating central banks’ efforts to bring inflation back toward target.

For policymakers, the problem is difficult because energy prices can raise inflation even as higher interest rates weaken demand. Holding rates higher for longer can contain secondary price pressures, but it also increases borrowing costs for households and businesses.

Falling Oil Prices Offer Limited Relief

Oil prices provided some relief on Friday, although the decline has yet to eliminate concerns about supply disruptions. Brent crude futures fell as much as 2.8% to $101.92 a barrel after a Reuters report that China had asked Tehran to help restrain the Houthis following a week of military attacks.

Expectations that Gulf oil exporters could find alternative shipping routes have also reduced some of the immediate supply concerns.

Brent was heading for a weekly decline of about 2%.

The headline price movement, however, masks tighter conditions in physical markets, where oil was trading around $120 a barrel. That gap matters for the inflation outlook. A sustained fall in futures prices could ease pressure on headline inflation and improve sentiment across financial markets, but continued tightness in physical supplies could keep energy costs elevated for consumers and businesses.

European stocks fell 0.3% on Friday, while U.S. stock futures gained between 0.3% and 0.6%, led by technology shares.

The technology sector also recovered from losses earlier in the week, when warnings from leading AI executives about the risks of unchecked AI development triggered concerns that a slowdown in frontier AI could eventually reduce spending on data centers, chips and other infrastructure.

Bonds Remain Under Pressure

Government bonds also remained volatile after one of the worst selloffs of the year. The U.S. 10-year Treasury yield crossed 5% earlier in the week, reaching its highest level since 2007, before easing to about 4.93% on Friday.

Bond prices edged higher as yields declined, although the move provided limited relief after the sharp increase in borrowing costs across major markets. European and British government bond yields have also reached multi-year highs over the past week, reflecting expectations that central banks may have to keep policy restrictive for longer.

The combination of higher oil prices, tighter monetary policy and elevated bond yields presents a difficult backdrop for global investors.

The Fed’s rate increase has also widened the policy divergence with Japan at a pivotal moment for currency markets. The BOJ is tightening policy, but the yen can still weaken when U.S. rates rise faster or remain substantially higher than Japanese rates. That dynamic risks creating a feedback loop for Japan. A weaker yen raises the domestic cost of imported energy and other goods, potentially increasing inflation and giving the BOJ another reason to raise rates.

At the same time, faster Japanese tightening could increase the incentive for domestic investors to repatriate money from overseas markets, potentially affecting global bond and currency flows.

For now, Friday’s market moves show that a BOJ rate increase alone is not enough to reverse those forces. This has raised a fresh market concern of whether falling oil prices can continue long enough to ease inflation expectations, or whether persistent physical-market tightness and geopolitical risks will keep central banks in tightening mode.

After a week in which policymakers across the G10 moved decisively toward higher rates, markets are entering the next phase with the same problem they began the week facing: inflation has not yet been brought under control, and the cost of doing so is rising across currencies, bonds and the wider economy.

Saudi Aramco has told at least two European refining customers that they will receive no Saudi crude oil next month, Bloomberg News reported on Friday, as an attack on the kingdom’s critical East-West pipeline disrupts established supply flows and forces refiners to search for replacement barrels.

The development represents a further escalation of the disruption created by the attack. European refiners typically rely on term contracts with Saudi Aramco for predictable monthly crude deliveries, but at least two customers have now been told that their October supplies will not proceed, according to people familiar with the matter cited by Bloomberg.

The immediate consequence is a scramble for alternative crude. Poland’s Orlen, one of the affected buyers, has already been seeking replacement supplies, with traders saying the refiner bought North Sea crude to compensate for disrupted Saudi deliveries.

The significance for the wider oil market extends beyond the individual cargoes that have been cancelled. Saudi Arabia is one of the world’s most important crude suppliers, and any interruption to its established export infrastructure forces refiners to compete for alternative grades from other producers. That can increase crude procurement costs, freight rates and, depending on the duration of the disruption, refined-product prices.

The attack damaged three pumping stations along Saudi Arabia’s East-West pipeline, which transports crude from the kingdom’s oil-producing region in the east toward the Red Sea port of Yanbu. The pipeline provides Saudi Arabia with an alternative export route that reduces its reliance on the Strait of Hormuz.

Aramco is working to partially restart the pipeline within days and restore full capacity within six weeks, Bloomberg reported. In the meantime, the company has been increasing crude movements from its Gulf operations through ship-to-ship transfers near Oman’s Sohar port.

Trade sources said Aramco plans to move about 60 million barrels from its Gulf port of Ras Tanura through ship-to-ship transfers at Sohar during September and October, equivalent to roughly 1 million to 1.5 million barrels per day.

Those measures could reduce the immediate impact of the pipeline shutdown, but they do not eliminate the disruption. The cancellation of contracted European supplies shows that logistical workarounds are not yet sufficient to maintain all established customer flows.

A Potential Opening for Dangote

For Nigeria’s Dangote Refinery, the timing creates an unusually favorable commercial environment.

The refinery is currently at the center of an initial public offering through which Dangote is seeking to raise about 2.15 trillion naira, or roughly $1.6 billion, from the sale of 4.1 billion shares at 525 naira each. The offering values the refinery at roughly $47 billion and is scheduled to close on October 13.

The Saudi disruption provides investors with a real-world example of why large refining capacity outside traditional Middle Eastern supply corridors can become valuable when geopolitical shocks disrupt global energy flows.

Dangote is already operating at about 700,000 barrels per day, its current processing capacity, and has increasingly established itself as an important supplier of refined products beyond Nigeria.

The refinery generated $1.82 billion in after-tax profit in the first half of 2026, compared with a $476 million loss for all of 2025. Its growing exports of jet fuel, diesel and gasoil have also given the plant a larger role in international petroleum markets.

The Saudi disruption could strengthen that position if European buyers continue looking for alternative sources of refined products as Middle Eastern crude and refining operations remain vulnerable to attacks and transport disruptions.

For Dangote, the opportunity is not necessarily about replacing the Saudi crude that European refiners have lost. Rather, it is about benefiting from the broader market consequences of that shortage.

When refiners lose access to contracted crude, they have to compete for replacement barrels. When regional refining capacity or crude transportation is disrupted, buyers also become more dependent on refiners elsewhere that have available production. If those conditions push up product prices and refining margins, a large refinery with access to international markets can benefit.

But there is a hard limit to how much Dangote can capture.

The refinery can currently process about 700,000 barrels of crude per day. It cannot immediately increase that figure simply because international fuel markets have become tighter.

That constraint bears a heavy impact as Dangote prepares its IPO because the company’s longer-term investment proposition is built around substantially greater capacity.

Dangote plans to double the refinery’s capacity to 1.4 million barrels per day by 2029. The additional capacity would give the company significantly greater ability to serve Nigeria, supply other African markets and maintain exports to Europe and other international destinations at the same time.

At 700,000 bpd, Dangote is already a major single-site refinery. At 1.4 million bpd, it would become one of the world’s largest refining complexes, giving the company considerably more flexibility to allocate production toward markets offering the strongest margins.

That flexibility becomes particularly valuable during supply disruptions.

The IPO Is Betting On Future Scale

The current geopolitical crisis thus arrives at an important moment for Dangote. The refinery is demonstrating strong earnings at the same time that disruptions in Middle Eastern energy infrastructure are creating tighter global petroleum markets. Analysts say that combination can strengthen the near-term economics of the business and provide investors with a tangible illustration of the value of additional refining capacity.

But investors need to separate the temporary benefit of a supply shock from the refinery’s underlying long-term economics.

Geopolitical disruptions can produce unusually high refining margins because crude supplies become constrained while demand for fuels remains relatively firm. Refiners that have available capacity and access to alternative crude can capture those spreads.

While those conditions can generate exceptional profits, they cannot automatically be assumed to persist.

If Saudi Arabia restores the East-West pipeline within the expected six-week timeframe, crude exports normalize, and Middle Eastern refining capacity recovers, some of the scarcity premium supporting current fuel prices could disappear.

That makes the timing of Dangote’s IPO significant. The company is asking investors to value not only the refinery’s current earnings but also its future expansion and its ability to remain profitable when market conditions become less favorable.

Reuters Breakingviews has calculated that the offering implies a valuation of roughly $50 billion and noted that Dangote’s implied 2026 EBITDA multiple is substantially above those of major U.S. refiners including Valero, Marathon Petroleum and Phillips 66.

That premium effectively places considerable value on the refinery’s future growth. The Saudi disruption strengthens the argument that additional refining capacity can be valuable in a fragmented global energy market. It does not, by itself, establish that the IPO valuation is justified.