Sydney, Jan. 18 (BNA): Asian stocks were mixed on Wednesday while the Japanese yen weakened and Japanese yields fell sharply after the Bank of Japan unanimously decided to keep yield curve controls in place.
Speculation in the bond market that the Bank of Japan will adjust yield curve control (YCC) settings at the meeting that concluded Wednesday has pushed 10-year government bond yields above the policy ceiling of 0.5% for the fourth consecutive session, Reuters reports.
Nevertheless, the bank maintained ultra-low interest rates, including its 0.5% cap on 10-year bond yields, defying market expectations that it would phase out its massive stimulus program in the wake of mounting inflationary pressures.
The 10-year yield fell sharply to 0.360% on Wednesday, after hitting an intraday high of 0.5100%. Meanwhile, Japan’s Nikkei rose 2.6%, bucking the downward trend seen elsewhere.
The dollar rose 2.6 percent against the Japanese yen to 131.4 yen, the largest one-day percentage jump since March 2020.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3%, after weak earnings from Goldman Sachs overnight sent the Dow Jones down 1%. The investment bank reported a larger-than-expected 69% decline in fourth-quarter earnings.
S&P 500 and Nasdaq futures were mostly flat. Overnight, the S&P 500 was down 0.2% and the Nasdaq Composite was up 0.14%.
China’s blue-chip shares fell 0.2%, while Hong Kong’s Hang Seng fell 0.1%.
In a Reuters poll, 97% of economists expected the Bank of Japan to maintain its ultra-easy policy at the meeting.
Mahjabeen Zaman, head of forex research at ANZ, now expects any further gains in the Japanese yen to be delayed until April, when the new BoJ governor is expected to be in office.
“I think Kuroda has kind of done the groundwork with the band’s expansion in December, he’s done the groundwork for the new ruler to join the group and take it from there.”
Zaman expects the yen to rise to 124 against the dollar by the end of 2023 and 116 against the dollar by the end of 2024.
Just a month ago, the Bank of Japan shocked the markets by doubling the allowable range for the 10-year Japanese government bond yield to 50 basis points either side of 0%. The change encouraged speculators to test the BoJ’s resolve.
Mizuho Bank analysts said in a note that adjusting the Bank of Japan’s YCC or pushing interest rates above zero was only a matter of time and implementation, given the pressures arising from its divergence from monetary policy elsewhere.
A survey of global fund managers conducted by Bank of America Securities on Tuesday showed that expectations for a further rise in the Japanese yen in January were the highest in 16 years.
The dollar index, which tracks the greenback’s safe-haven currencies against six peers, rose 0.4% to 102.85. It has been undercut recently by falling US bond yields as markets are betting that the Federal Reserve could be less aggressive in raising interest rates.
In the treasury market, the yield on the benchmark 10-year Treasury note fell 5 basis points to 3.4531%, while the yield on the three-year Treasury note settled at 3.8442%, down from 3.8640%.
In the oil market, prices jumped on hopes of a recovery in Chinese demand. Brent crude futures rose 0.6% to $86.5, while US West Texas Intermediate crude closed up 0.8%, at $80.79.
At the World Economic Forum in Davos on Tuesday, German Chancellor Olaf Scholz said he was convinced Europe’s largest economy would not fall into recession.
Chinese Vice Premier Liu He also welcomed foreign investment and declared that his country is opening up to the world after three years of epidemic isolation.
Data on Tuesday showed that China’s economic growth eased in 2022 to 3.0% – the weakest rate in nearly half a century.
Spot gold fell 0.5% to $1,899.41 an ounce.