A survey of Chinese manufacturers that showed factory activity contracted for an eleventh straight month in the world’s second largest economy hit Chinese stocks, but fell short of inspiring safe-haven flows in the yen.
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Global equities jumped and the yen slumped yesterday after the Bank of Japan stunned markets by adopting negative interest rates, while hopes the US Federal Reserve will slow the pace of future rate hikes also underpinned stock gains.
“Market players will be wary of the BOJ taking action in that case, but they may conclude that the central bank won’t step in until dollar/yen falls into the 116 range”, said Koji Fukaya, president of FPG Securities in Tokyo.
The central bank noted that the Japanese economy has recovered modestly with underlying inflation picking up, along with spending by companies and households.
Impact on the JGB market might intensify, if European Central Bank (ECB), do announce further easing in March.
“Japan is one of the biggest beneficiaries of low oil prices”, he said.
The Bank of Japan ramped up its 25-year losing battle against deflation yesterday by resorting to negative interest rates, triggering fresh global market volatility.
The euro edged higher against the dollar, with EUR/USD easing up 0.17% to 1.0850, but still was well below Friday’s highs of 1.0948. It last stood at 0.777 per cent.
The yield on benchmark 10-year Japanese government bonds plunged to a record low of 0.09%, and the yen fell 1.90% against the U.S. dollar to 121.07 yen, its biggest daily decline in more than a year. A barrel of Brent crude fell below $30 to reach its lowest price for more than 12 years.
“The dollar initially climbed above 121 yen due to the negative interest rate surprise”, said Shinji Kureda, head of FX trading group for Sumitomo Mitsui Banking Corporation in Tokyo.
“The BOJ’s decision sent a message across the market that it will try to stop a slide in the market at any cost”.
Investors grew wary of the possibility that the Organization of the Petroleum Exporting Countries and Russian Federation could team up to cut supply.
The yen received little help from Chinese economic data, which were not impressive but not poor enough to revive safety flows into the Japanese currency.
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“Despite the perception the six-year slowing in China’s economy is now becoming more rapid, we have yet to see real evidence of this in China’s hard economic data. Midday today (Sydney time) will provide us a chance”, said Richard Grace, chief currency and rates strategist at Commonwealth Bank.
