Russia strikes Kyiv again, China tests missiles in the Pacific, and the yen slides as Goldman turns bearish

The back-to-back strikes suggest Russia is attempting to sustain psychological and infrastructural pressure on Kyiv as ceasefire diplomacy stalls. Ukraine's simultaneous strikes on Crimea — which Moscow annexed in 2014 and treats as sovereign territory — add a further escalatory dimension, since Crimea hosts key Black Sea Fleet assets and logistics hubs whose disruption directly affects Russian military supply lines.

For India, the conflict's most direct channel remains energy costs. India imports a significant share of its crude from Russia at discounted prices; any escalation that disrupts Russian export capacity or triggers fresh Western sanctions on Russian oil could narrow that discount or reduce volumes, pushing up India's import bill and adding to inflationary pressure. The rupee and Indian bond yields are sensitive to oil-price spikes, and the RBI would face a harder trade-off between supporting growth and containing imported inflation.

The test is the latest in a series of power-projection signals from Beijing, following its 2022 security agreement with the Solomon Islands and ongoing pressure on Taiwan. Pacific island nations have become a focal point of the US-China strategic competition because they sit astride critical sea lanes and, in some cases, host or could host military infrastructure. Fiji's pivot back toward Canberra is a notable reversal: under former Prime Minister Frank Bainimarama, Fiji had cultivated close ties with China, and Beijing had invested heavily in Fijian infrastructure.

India watches the Indo-Pacific balance closely. A more militarised Pacific raises the salience of the Quad (India, US, Australia, Japan) as a security grouping, potentially deepening India's defence-industrial and intelligence ties with Australia and the US. For Indian markets, the indirect effect is through risk-off sentiment: a sharper US-China confrontation in the Pacific would weigh on FII/FPI flows into emerging markets including India, and could pressure the rupee if global risk appetite deteriorates.

The Bank of Japan (BoJ) has been the outlier among major central banks, maintaining ultra-loose policy even as the Fed, ECB and others hiked aggressively. With the Fed now on hold and the BoJ moving only glacially toward normalisation, the interest-rate differential between Japan and the rest of the world remains wide — the fundamental driver of yen weakness and carry-trade attractiveness. Goldman's forecast implies the bank does not expect the BoJ to tighten meaningfully enough to close that gap in the near term.

India is a significant recipient of carry-trade capital: when the yen carry trade is in full swing, global liquidity is ample and FII/FPI flows into Indian equities and bonds tend to be supportive, helping the Sensex and Nifty and keeping the rupee relatively stable. However, India is also exposed to the unwind risk: if the yen strengthens sharply, carry traders liquidate emerging-market positions first, triggering FII outflows, a weaker rupee and higher domestic bond yields. The RBI typically intervenes in the FX market during such episodes, drawing on its forex reserves — which stood at $666.93 billion as of the latest data, down $5.65 billion on the week.