Stripped down to its core, the changes made yesterday by the Bank of Japan to its monetary policy stance is nothing more that an attempt to stop the carping and moaning from the country’s banks about the impact of the central bank’s negative interest rate policy (NIRP), and negative rates for Japanese government bonds.
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The Fed is scheduled to release a statement at 2:00 p.m. ET, followed by Chair Janet Yellen’s press conference.
“We judged that the case for an increase has strengthened but decided for the time being to wait for further evidence of continued progress toward our objectives.”
Kristina Hooper, U.S. investment strategist for Allianz Global Investors, believes the Fed was looking for a convincing reason to tighten the monetary policy but couldn’t find one.
“Couple that with the BOJ lower-for-longer news story from earlier today and the equity market is doing well”, Tuz said. Well, we certainly have a number of answers and if we assess price action it seems that many are now happy to invest in Japanese banks and while the Fed have given as strong a signal of a hike in the December meeting, USA stocks still soared.
It is unlikely the US Fed would hike rates in November, partly because of the US presidential election. The Dow Jones Industrial Average climbed 163.74 to 18293.70 and the price of the 10-year U.S. Treasury note increased slightly.
Initial reactions to the BOJ in currencies and government bonds faded.
The Bank of Japan (BOJ) yesterday pledged to keep its stimulus programme going until inflation exceeds its 2 per cent target.
Japanese shares rose almost 2 percent and bank stocks leapt 7 percent after the BOJ not only refrained from taking interest rates further into the negative but pledged to steepen the yield curve. Instead, it set a “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields around their current zero percent. BOJ’s decision spurred a global equity rally, including on Wall Street.
The dollar which rose more than 1 percent to a one-week high of 102.79 yen gave up some of its gains in the European session to trade at 102.05 yen after BoJ Governor Haruhiko Kuroda said the Japanese economy was no longer in deflation. WTI crude futures added 3.5% on hopes that major oil producers could be nearing agreement on a deal to cap output. Brent crude, used to price worldwide oils, advanced 58 cents to $46.46 a barrel in London.
BOJ sparks global gains: The upbeat mood sparked by the BOJ spread to Europe, where banks also rallied, lifting the Stoxx Europe 600 higher. Japan’s 10-year sovereign bond briefly hit 0% on Wednesday for the first time since March before falling back in negative territory.
Macquarie does not expect any significant rally in platinum until 2018 or 2019, the bank said in a note.
The yen plunged – good news for exporters – after the announcement.
The central bank raised interest rates for the first time in almost a decade last December but weak economic data and global uncertainty have prevented it from raising the rates further.
Stocks to watch: FedEx Corp.(FDX) jumped 6.9% after the package-delivery giant’s adjusted earnings and revenue topped forecasts (http://www.marketwatch.com/story/fedex-cuts-outlook-as-it-integrates-tnt-express-2016-09-20-164855155).
Shares of Viacom Inc.
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Microsoft was the top influence on the S&P and the Nasdaq, rising 1.2 percent after announcing a $40 billion share buyback program. The difference between Treasury two- and 30-year yields fell for a fourth day, declining to about 1.61 percentage points. So all in all, for a central bank that has given the green light for a December hike, Janet Yellen would certainly be feeling pretty good about the fact that the U.S. dollar has fallen, United States treasury yields have also fallen, the S&P 500 has rallied fairly strongly and eyeing a test of the all-time high and implied volatility has been smashed.
