In its comprehensive monetary policy assessment, the Bank of Japan abandoned the formal monetary base target and will now manage the yield curve with buying of government bonds aiming to keep long-term yields around 0.0%.
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Silver prices briefly dipped lower following the Bank of Japan move with lows just below $19.10, as the dollar gained ground with a USD/JPY peak above 102.50.
The blue-chip FTSE 100 index closed up 0.1 percent at 6,834.77 points, with the index up around 10 percent so far in 2016.
The ICE U.S. dollar index DXY, -0.17% a measure of the greenback against six currencies, was down 0.1%. The yen fell 0.94 per cent against the dollar.
“There will be higher investment demand for gold as a result of the Bank of Japan’s decision”, said Chintan Karnani, chief market analyst at Insignia Consultants. The commitment to pushing inflation higher was, therefore, strengthened given the target of a rate above 2%.
While the BOJ reassured markets it would continue to buy large amounts of bonds and riskier assets, the policy reboot appeared to open the door for an eventual winding down of its huge asset purchases, and tried to fix some of the damage caused by its shock move to negative rates early this year. That means policymakers think the economy is about as likely to outperform forecasts as to underperform them. “But in the short term, I’d say a lot depends on what the Fed decides”. US short-term interest rate futures trimmed earlier losses and some nearer-term maturities rose on Wednesday. Conversely, gold tends to gain when the dollar dips.
Predictions of tightening United States rates and a lack of recent easing from other central banks have stoked debate that the age of easy money – which has helped fuel a rally on global markets – could be ending. However, investors will comb their comments for clues on the timing of the next hike. A rising-rate climate at the Fed can also tiresome the appeal of gold, which doesn’t offer a yield.
The dollar has fallen nearly 4 percent this year as Fed officials have held off from raising interest rates on concerns ranging from Brexit to lackluster global growth. The markets are estimating near zero chance for a rate hike today.
If it succeeds, economists believe that would open the door to scaling back its bond purchases, but still leave it the option to buy more bonds or cut rates deeper into negative territory if economic conditions deteriorate.
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“Overall, while the statement and dissents were more hawkish than expected, the dovishness contained in the SEP (Summary of Economic Projections) appear to be driving markets”, said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto, adding that the bank expects a rate hike in December.
