From Marc to Market:
Much of what the Bank of Japan announced
today had been largely leaked. While there was a sizeable response in the
asset markets, the dollar's knee-jerk gains against the yen were quickly unwound.
The BOJ lifted
its self-imposed restrictions on its asset purchases and shifted the focus of
policy from the monetary base to the yield curve. It is not clear that this shift
increases the chances of the BOJ reaching its inflation target.
Going forward
it will implement its JPY80 trillion increase in the monetary base more flexibly, and will no longer have an average
maturity target. This
produced a dramatic sell-off in JGBs. Japanese bonds maturing in
one to 15 years saw their yields jump 20-40 bp. Longer-dated bonds rose
less. The 20-year yield rose 13 bp,
and the 30-year yield increased by a dozen basis points. The 40-year bond
yield was practically unchanged.
The BOJ also
indicated it would stick with its JPY6 trillion a year purchases of equity ETFs,
but changed the distribution. It will buy more of the broader
Topix. Many participants had anticipated this, and there had been some
outperformance of the Topix and the
Nikkei 400 in recent days. This continued
today with the Topix and Nikkei 400 up 2.8% and the Nikkei 250 up almost 2%.
The dollar
initially fell to almost JPY101 before rallying to JPY102.80. However, the enthusiasm was not sustained and the greenback eased back to JPY101.60.
It has been confined to about a 30
tick range in the European morning.
Most Asian
equity markets were higher, led by Japan. The MSCI Asia-Pacific Index rose
1.4%, the biggest gain in two months. European markets are also higher,
with the Dow Jones Stoxx 600 up 0.6% in late-morning turnover. Financials
and telecoms are outperforming.
Attention turns
to the Federal Reserve. Most participants are convinced the Fed will not lift rates
today, but will signal its intention to hike in December. There is a
meeting in November, but there is no precedent for changing policy so close to
a national election....MORE