SYDNEY – Asian shares on Friday were headed for the worst month since the onset of the COVID-19 pandemic, while jitters in currency and bond markets persisted over hawkish talk from central banks, worries about global recession and rising geopolitical risk.

MSCI's broadest index of Asia-Pacific shares outside Japan was largely flat on Friday. Japan's Nikkei fell 1.6 percent.

Still, the Asian index was set to record a staggering 12.5 percent drop for the month, the largest since March 2020 when the COVID-19 pandemic threw financial markets into chaos.

"The 'troubling triad' of rising rates, slowing growth and strong dollar have all intensified," said Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs.

"We reduce our forecasts further and expect largely flat regional performance over the next two quarters with better returns on a 12-month view."

In currency markets, traders remained edgy amid risk of intervening from central banks.

The US dollar was little changed against a basket of major currencies at 111.88 on Friday, after retreating 0.9 percent in the previous day.

However, it is up 2.9 percent for the month, the best since April. The relentless rise of the dollar has pushed the Japanese yen.

In Europe, Britain's gilt market has been roiled along with the pound by government plans for heavy borrowing to finance spending.

Prime Minister Liz Truss said on Thursday she will stick to her plan to reignite economic growth, breaking her silence after nearly a week of financial market chaos. 

German Chancellor Olaf Scholz also set out a 200 billion euro (US$196 billion) "defensive shield", including a gas price brake and a cut in sales tax for the fuel, to protect companies and households from the impact of soaring energy prices. 

That came as Europe braces for a double-digit inflation reading later in the day, as the European Central Bank voiced support for another big interest rate hike. German inflation accelerated to 10.9 percent this month, far beyond market expectations. 

"Increased uncertainty and risks – and higher interest rates – logically see higher volatility in financial markets. Even G7 countries are now trading like emerging markets," said Jan Lambregts, head of global economics and markets research at Rabobank.

"Indeed, markets now also see a far wider range of possible outcomes when it comes to FX and rate movements."

US Treasuries stabilized somewhat after a renewed bout of selling on hawkish talks from Federal Reserve officials, with the yield on 10-year bonds up by 4 basis points in early Asia to 3.7815 percent.

The two-year Treasury yield also rose a similar amount to 4.2048 percent.

A strong US jobs market with weekly jobless claims hitting a five-month low adds to the case of more aggressive tightening from the Fed. Overnight hawkish comments from Fed officials offered no indication that recent foreign exchange and bond market drama will lead the central bank to back off from its rate hike course. 

Oil prices were little changed in early trade on Friday. US crude ticked up 0.11 percent to US$81.32 a barrel while Brent crude rose to US$88.51 per barrel.

Gold was slightly higher. Spot gold was traded at US$1663.29 per ounce.