In equity index futures the Nikkei 225 futures are off 655 points (2.41%) European index futures are down over 1% with the U.S. declines lagging, .68% to 1.06%.
From ZeroHedge:
The Bank of Japan shocked markets tonight.
After leaving policy rates unchanged, the 'easiest' bank in the world decided to dramatically modify its so-called Yield Curve Control framework and increase the quantity of government bonds it will buy each month (while the rest of the world is doing the opposite).
The increase in range is huge (from -0.5% to +0.5% in yields). Thus, realistically this is a tightening policy move allowing long-rates to rise from 25bps (the prior YCC limit) to 50bps (the current YCC limit)...
The YCC adjustment is being reported as a mechanism to encourage better functioning in the bond market (where barely a bond changes hands nowadays). The BOJ says it made the change as:
“the functioning of bond markets has deteriorated, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and future markets... If these market conditions persists, this could have a negative impact on financial conditions.”
The BoJ also increased its bond purchases to JPY9 trillion per month for January through March.
Bear in mind that the share of Japanese government bonds held by the Bank of Japan has topped 50% on a market value basis for the first time, new data showed Monday.
As one might expect, Cash JGBs didn't budge on the news.
Interestingly, despite the 'easing' implied by the JGB buying increase, the JPY strengthened against the dollar (because with a wider/higher band for the 10Y yield, theoretically the BoJ will have to buy fewer bonds to keep it within their limit). The JPY is now at its strongest since August.
Until, of course the next depressionary collapse.
So the bottom line is that The BoJ will allow 10Y to rise to 0.50% from 0.25% but in order to make the transition as painless as possible, it will increase bond purchases to Y9 Trillion from Y7.3 Trillion per month....
....MUCH MORE
