Bank of Japan schockwaves investors.

The Bank of Japan surprised investors with a change to a core tenet of its monetary policy, sending shockwaves across the currency, bond and equity markets. Traders described an adjustment to its longstanding yield curve control measures as potentially marking a «pivot» by the BoJ, the last of the leading central banks to stick to an ultra-loose monetary regime. «We view this decision as a major surprise, as we had expected any widening of the tolerable band to be made under the new BoJ leadership from spring next year, similar to the market,» said Naohiko Baba, chief Japan economist at Goldman Sachs. The yen rose more than 4 per cent to about ¥131.2 against the US dollar in New York trading, while Japan’s Topix equity index fell 1.5 per cent.

The 10-year Japanese government bond yield surged by its most in almost two decades, reaching a high of 0.47 per cent. The BoJ move ricocheted across other big markets. The US 10-year Treasury yield rose 0.11 percentage points to 3.69 per cent, while the equivalent UK gilt yield increased by a similar margin to 3.6 per cent. It kept overnight interest rates at minus 0.1 per cent.

Kuroda had earlier said any tweak to the yield curve policy would in effect amount to a rate rise. But he said yesterday the adjustment was to address increased volatility and improve bond market functioning to «enhance the sustainability of monetary easing». Kuroda had long argued that any tightening would be premature without robust wage growth, which is why most economists had expected the BoJ to stay the course until he steps down in April. «Maybe it’s an act of generosity by Kuroda to reduce the burden for the next BoJ governor, but it’s a dangerous move and market players feel duped,» said Masamichi Adachi, chief Japan economist at UBS.

www.sba.tax

Comments

Cloud Bookkeeping

US FED rate rise.

The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...

EU business slide.

S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...

Tariffs on UK electric cars.

The European Commission has confirmed that it will continue with its plan to impose tariffs on electric cars exported between the UK and EU starting next year. This is due to the "rules of origin" requirement that mandates EVs traded across the English Channel to have 60% of their battery and 45% of their parts sourced from the EU or UK or face a 10% tariff. A senior Commission official, Richard Szostak, recently informed parliamentarians from the UK and EU that the bloc's battery investment has significantly declined, making the tariffs necessary to encourage domestic production. In 2022, the EU's share of global investment in battery production shrank from 41% to only 2% after the US offered substantial subsidies through its Inflation Reduction Act. Starting in 2024, car manufacturers in the UK will need to have 22% of their sales come from zero-emission vehicles, which means they may need to import EVs from the continent to meet this requirement. If EU carmakers ...

Search This Blog