Sydney, Dec. 20 (BNA): The yen rose and Asian stocks fell sharply after the Bank of Japan’s decision to allow long-term interest rates to rise further, a move analysts said could signal a move toward a change in Japan long ago. Yield curve control.
Reuters reported that MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9%.
Japan’s Nikkei fell 2.2% after trading in positive territory earlier in the day, as stocks resumed trading following the Bank of Japan’s decision.
At its last meeting of the year, the Bank of Japan said its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around zero for 10-year yields, would remain.
But it dramatically decided to let the 10-year yield move up and down 50 basis points each from the 0% target, up from the previous 25 points each.
“This step came earlier than I expected, but it is a step towards normalizing politics in Japan,” Kerry Craig, global market analyst at JPMorgan Asset Management, told Reuters.
Market effects are most prevalent in the forex markets due to the difference between US and Japanese policy settings.
“While a wide gap remains, the hint that the Bank of Japan is moving increasingly away from excessive loss-making should be positive for the yen in the near term.”
The dollar fell 2.43% against the yen to 133.62 after the Bank of Japan’s decision, hitting a four-month low.
Australian shares extended losses earlier, falling 1.27% in afternoon trade.
Hong Kong’s Hang Seng fell 1.4% while China’s CSI300 fell 1.15%.
At the start of European futures trading, Euro Stoxx 50 futures fell 0.89% to 3,784, German DAX futures were down 0.91% at 13,888, and FTSE futures were down 0.63% at 7,321.
US stock futures, S&P 500 e-minis, fell 0.52% to 3,825.5.
In Asian trading, the yield on the benchmark 10-year Treasury note rose to 3.6752%, compared to its US close of 3.583% on Monday.
The two-year yield, which rose as traders expected higher federal funds rates, was 4.2662% compared to the US close of 4.262%.
The RBA considered leaving interest rates on hold at its December 6 policy meeting, according to the published minutes, but raised 25 basis points.
The Dow Jones Industrial Average fell 162.92 points, or 0.49 percent, to 32,757.54, Standard & Poor’s lost 34.7 points, or 0.90 percent, to 3,817.66 points, and the Nasdaq Composite fell 159.38 points, or 1.49 percent, to 10,546.03 points. All three markets closed in the red for the fourth consecutive session.
“We may not get as much of a Santa Claus stock market recovery as Wall Street rushes to price credit risk and earnings,” OANDA analsyt Edward Moya wrote.
The S&P 500, Dow and Nasdaq are on track for their biggest annual percentage losses since 2008, the nadir of the global financial crisis.
US crude rose 0.7% to $75.71 a barrel. Brent crude rose to $80.44 a barrel.
Spot gold rose slightly at $1,792.29 an ounce.
FAE