The Australian and New Zealand dollars hit one-week highs against the yen on Wednesday after the Bank of Japan (BOJ) overhauled its massive stimulus programme while recommitting to the fight to lift inflation.
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Stocks rose, the yen retreated and long-dated government bond yields rallied around the world Wednesday after Japan’s central bank affirmed its commitment to aggressive easing as it introduced a new monetary policy framework.
In practice, the BOJ will buy long-term government bonds to keep 10-year bond yields around current levels of zero percent and maintain 0.1 percent negative interest rates.
The BoJ is also aiming push inflation above the 2% target rate, which was set more than three years ago.
To the extent that the initial move to negative rates in January and subsequent curve flattening crushed banking stocks, the broader stock market and induced risk-negative yen strengthening, today’s moves can be viewed as an attempt to partially unwind the cause/effects of those actions.
Japan’s core consumer price index in July declined 0.5 percent from a year earlier. “This is positive for the equity market too, especially bank stocks”, said Michael Moen, fixed income investment manager at Aberdeen Asset Management. Inflation remains far below the bank’s target and the country’s currency, the yen, has strengthened significantly against the dollar this year, hurting exporters.
The BoJ wants to have more policy flexibility, shift to forward guidance and unwind damages done earlier this year, analysts say.
In bond markets, US Treasury yields spiked higher immediately after the decision, as investors apparently seem to believe the BOJ’s move to steepen the yield curve will have a ripple effect on other bond markets. It will buy 2.7 trillion yen of ETFs that track Topix.
Shares of Essel Propack rose as much as 10.42 pct to a record high after the company said unit Lamitube Technologies will raise its stake to 100 percent in Essel Deutschland Germany.
In reaction to the BOJ decision the benchmark Nikkei 225 index jumped 1.9 percent Wednesday, to 16,807.62.
September 21 (BusinessDesk) – The New Zealand dollar fell below 73 United States cents and gained against the yen after the Bank of Japan amended its monetary policy, prompting traders to sell the Japanese currency in favour of the greenback.
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Oil prices held early gains with USA crude oil futures CLc1 up 1.7 percent to $44.77 per barrel. But it is hard to see the initial gains in USD/JPY being sustained.
