(Bloomberg) — Treasury yields rose and US equity futures slipped after the Bank of Japan emulated its central bank peers with a sudden hawkish move that lifted the yen to a four-month peak and raised expectations of further policy tightening.
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European shares pared some of their early falls however, boosted by gains on banking stocks, while US equity futures traded with only a slightly weaker bias, after four loss-making sessions for the underlying indexes.
On bond markets, the 10-year Treasury yield rose 8 basis points while bonds from Australia to Germany also sold off. Analysts reckon more losses lie ahead as Japanese investors, major players in US and European debt, have more incentive now to bring money home.
Many economists now expect the BOJ to raise interest rates next year, joining the Federal Reserve, the European Central Bank and others after a decade of extraordinary stimulus.
“Tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly,” Deutsche Bank analysts told clients, noting the BOJ move had come as markets were “already reeling” from the ECB and Fed’s hawkishness last week.
The yen strengthened to as much as 133.21 against the dollar, up more than 3% at one point, while Japan’s 10-year yield rose to the highest since 2015. Japanese bank shares, meanwhile, celebrated the BOJ move, gaining as much as 5%.
Until now, the BOJ has been an outlier among central banks, most of which have rapidly tightened policy. The Japanese monetary authority adjusted its yield curve control program to allow 10-year borrowing costs to rise to around 0.5%, versus the previous 0.25% upper limit, bucking forecasts for no change at its policy meeting.
Read more: BOJ Blindsides Traders to Echo Christmas Day Shock of 1989
The yen surge pummeled the dollar which dropped against a basket of currencies, while the yen also showed notable gains against currencies such as the euro and the Australian dollar.
RBC strategist Adam Cole said moves had been amplified by positioning, with most investors still long the dollar versus yen before the BOJ meeting, meaning “covering of these yen shorts may carry the yen higher still.”
On commodity markets, the weaker dollar gave gold prices a boost, while West Texas Intermediate crude oil futures rose above $75 a barrel.
Key events this week:
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US housing starts, Tuesday
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EIA Crude Oil Inventory Report, Wednesday
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US existing home sales, US Conference Board consumer confidence, Wednesday
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US GDP, initial jobless claims, US Conf. Board leading index, Thursday
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US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Friday
Some of the main moves in markets as of 7:30 a.m. Tokyo time:
Stocks
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The Stoxx Europe 600 fell 0.5% as of 10:20 a.m. London time
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S&P 500 futures fell 0.1%
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Nasdaq 100 futures fell 0.3%
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index fell 0.2%
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The MSCI Emerging Markets Index fell 0.9%
Currencies
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The Bloomberg Dollar Spot Index fell 0.6%
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The euro rose 0.2% to $1.0627
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The Japanese yen rose 3.2% to 132.52 per dollar
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The offshore yuan rose 0.2% to 6.9688 per dollar
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The British pound was little changed at $1.2140
Cryptocurrencies
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Bitcoin rose 1.2% to $16,792.89
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Ether rose 2.8% to $1,208.73
Bonds
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The yield on 10-year Treasuries advanced eight basis points to 3.66%
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Germany’s 10-year yield advanced eight basis points to 2.28%
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Britain’s 10-year yield advanced eight basis points to 3.58%
Commodities
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Brent crude rose 0.8% to $80.42 a barrel
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Spot gold rose 1.1% to $1,806.57 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott and Tassia Sipahutar.
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