Spreadbetters saw sentiment remaining sombre in the European session, forecasting a lower open for Britain’s FTSE, Germany’s DAX and France’s CAC. Unlike the Fed, where investors have a binary view (hike or no hike) of the United States monetary policy, the BoJ presented a complicated situation.
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Deepening worries over the ability of the world’s major central banks to stimulate growth have triggered a recent rise in bond yields and sparked a bout of risk-off trading.
Japan’s Topix index rose 0.3 per cent. Australia’s S&P/ASX 200 Index gained 0.4 per cent. Markets are shut for holidays on Friday in China, Hong Kong, Taiwan, Malaysia and South Korea.
Japan’s Nikkei slid more than 1 per cent to a three-week low. But with markets increasingly expecting some form of easing at the review, more radical options are not off the table, such as ditching setting an explicit cap on bond yields, they said.
This suggests that the Fed’s closely watched policy meeting beginning next Wednesday is likely to be a distraction from the more important development in markets: the significant risk of a severe loss of confidence in Japanese and European monetary policy.
The Financial Times last week said an interest rate hike would be “the biggest shock to the markets since” Janet Yellen become chairman of the bank two and a half years ago.
Japan’s finance minister Taro Aso told reporters Friday that monetary policy is up to the BOJ to decide, staying out of debate over whether the economy needs deeper negative rates. But it will consider changing its prime policy target to the 0.1 percent negative rate it now charges for a portion of excess reserves financial institutions park with the bank, the sources said.
While those views have been largely scaled back, central bank decisions will still be at the front and centre next week. The move would underscore concerns over limits to economic stimulus efforts. Spot gold was last trading at $1,314.64 an ounce, down about 1 percent for the week.
The US dollar eased from an eight-day high against the yen as doubts grew that the BOJ would intensify its stimulative monetary policies next week. It had briefly risen above 103.00 the previous day on speculation the BOJ would increase stimulus next week. The minutes from the meeting were read as showing officials slightly less pessimistic on the outlook for the economy than they were a month ago, adding to support for the pound at around $1.32.
Futures traders are now pricing in a 12 percent chance of a USA rate increase this month, down from 15 percent on Wednesday, according to the CME Group’s FedWatch tool.
Since QQE was launched in April 2013 real rates – the nominal interest rate on 10-year government bonds less the inflation rate – have averaged minus 0.03 percent. The 30-year JGB yield rose to a six-month high while the 20-year JGB yield rose to 0.495 percent, a level last seen in March.
Long-dated bonds have underperformed for much of the past month along with a steepening yield curve in Japanese government bonds.
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Both, however, referred to adverse effects for the first time since the bank adopted the measure in January, as many corporate executives have argued the BOJ’s policy has drastically lowered longer-term interest rates, sapping profits in the banking sector and hurting returns for insurers and pension savers.
