Stocks, Bonds Fall as Yen Bounces on BOJ Yield Shift: Markets Wrap

(Bloomberg) – Stocks and bonds tumbled after the Bank of Japan unexpectedly adjusted its yield curve control policy. The yen recovered.

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A day that started with listless, slightly subdued trading in Asia was thrown into turmoil when the BOJ raised the ceiling of its tolerance band on 10-year Japanese government bonds to 0.5% from 0.25%.

European and US stock futures tumbled, while stocks in Asia tumbled, with the region’s main benchmark heading for a fourth straight decline.

The Japanese currency, which had appreciated since late October, rose 3% against the dollar to its strongest level since mid-August.

Japan’s 10-year yield, which had moved at a rapid pace in recent years under the weight of the BOJ’s YCC regime, rose more than 20 basis points to its highest level since 2015.

Similar-maturity yields in Australia rose by about the same amount, while the 10-year government bond yield rose about 10 basis points for a second day.

“The Bank of Japan is once again teaching us that complacency is the devil,” wrote Matthew Simpson, senior market analyst at City Index, in a note. “This is arguably the biggest surprise they’ve given markets since the move to negative interest rates in January 2016.”

According to Tatjana Greil Castro, co-head of public markets at Muzinich & Co., investors should refrain from entering the Japanese bond market too quickly.

“If you get in too early and the 0.5% isn’t the end, you’d rather be stuck in, say, the Treasury market, where most people think the tightening is mostly behind us, than be in too early.” enter the Japanese market, where there may be more tightening to come,” she said on Bloomberg Television.

The story goes on

A dollar fell as the yen rallied. The yen also posted notable gains against currencies like the euro and Australian dollar.

The impact of the BOJ change will likely be felt in global markets for the remainder of the year and into 2023. Japanese investors, who are among the largest holders of government bonds and major players in European debt, now have more incentive to bring money home. Meanwhile, the stronger yen makes Japanese stocks more expensive for foreign buyers.

The moves during the Asian hours come in the broader context of gloomy global sentiment highlighted by former New York Fed President and Bloomberg Opinion columnist William Dudley. He told Bloomberg Television Monday that optimistic markets could only tighten the Federal Reserve further.

In commodities, oil stabilized with West Texas Intermediate above $75 a barrel and gold rose.

Important events this week:

• US housing construction begins on Tuesday

• EIA Crude Oil Inventory Report, Wednesday

• US Existing Home Sales, US Conference Board Consumer Confidence, Wednesday

• US GDP, Initial Jobless Claims, US Conf. Board leading index, Thursday

• US Consumer Income, New Home Sales, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment, Friday

Some of the key market movements as of 7:30am Tokyo time:

stocks

• S&P 500 futures were down 0.6% as of 7:04 am in London. The S&P 500 closed down 0.9%

• Nasdaq 100 futures fell 0.8%. The Nasdaq 100 closed down 1.4%

• Euro Stoxx 50 futures down 0.9%

• The Japanese Topix fell 1.5%

• Australia’s S&P/ASX 200 fell 1.5%

• Hong Kong’s Hang Seng fell 1.6%

• The Shanghai Composite fell 1.1%

currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro fell 0.1% to $1.0596

• The Japanese yen rose 2.7% to 133.23 per dollar

• The offshore yuan was little changed at 6.9833 per dollar

• The British pound was little changed at $1.2143

cryptocurrencies

• Bitcoin surged 1.5% to $16,834.55

• Ether was up 3.1% to $1,212.37

Bind

• The 10-year Treasury yield rose 7 basis points to 3.65%

• Japan’s 10-year yield rose 16 basis points to 0.41%

• Australia’s 10-year yield rose 19 basis points to 3.73%

raw materials

• West Texas Intermediate crude was up 0.4% to $75.51 a barrel

• Spot gold rose 0.4% to $1,794.10 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Jason Scott.

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