Stocks are higher on Wall Street ahead of the Fed’s decision on interest rates.
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At the two-day rate review that ended on Wednesday, the BOJ abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.
On Wednesday morning, the BoJ unexpectedly decided by a 7-2 majority to switch to what it called “Quantitative and Qualitative Monetary Easing (QQE) with yield curve control” from “QQE with a negative interest rate”.
Stock gains pared somewhat immediately after the Fed’s move but firmed as the Chairwoman Janet Yellen explained the Fed’s monetary policy strategy.
Microsoft Corp.(MSFT) late Tuesday said it would increase its quarterly dividend by 8% (http://www.marketwatch.com/ story/microsoft-plans-40-bln-stock-buyback-2016-09-20) over the previous quarter, and it approved a share buyback program of up to $40 billion. The BoJ announced significant innovations to its policy framework as it unveiled a range of new measures.
Across the region, stock markets were boosted by the BOJ’s decision to buy more exchange-traded funds while refraining from deepening negative interest rates.
“The BOJ made some dovish comments and that has given investors an early push on the likelihood of no action from the Fed”, said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.
But again, as we had seen in early June, early September brought weak USA data that saw markets reverse those rate hike hopes/fears under the presumption that the Fed wouldn’t be hiking rates in the face of slowing data; even despite the prior comments given not more than two weeks earlier from Ms. Yellen and Mr. Fischer.
The BOJ may yet decide to expand JGB purchases or cut the negative rate further as soon as its next meeting ending on November 1.
In the United States, the Federal Reserve is expected to raise short-term US interest rates – but probably not before a meeting in December.
“If rates are kept on hold today, investors will be watching closely for any clues regarding a December hike”.
As noted by Bloomberg, support for a rate hike increased during the summer months as the USA economy created 232,000 jobs on average over the past three months.
At 2:10 p.m. ET the Dow Jones industrial average was up about 65 points, or 0.4%, after being up 28 points before the Fed statement.
In commodities, the brighter mood on risky assets saw USA crude oil futures up 1.8 per cent to $46.71 a barrel.
The Standard & Poor’s 500 index gained 10 points, or 0.5 percent, to 2,149.
“Markets are expecting a hike sometime in the next few months, just not today, which suggests that any move by the FOMC today would catch the markets completely unprepared”, said Michael Hewson, chief market analyst at CMC Markets.
Advancing issues outnumbered declining ones on the NYSE by a 3.21-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored advancers.
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The Nikkei closed up 1.91 per cent to 16,807.62, while the Topix rose 2.76 per cent to 1,051.79.
