In a surprising turn of events, the Bank of Japan (BOJ) raised interest rates, leading to a significant rise in Japanese stocks and the yen. This move has caused ripples across global markets as traders eagerly await the Federal Reserve’s rate decision.
Hightlights:
| Asset | Movement |
|---|---|
| 10-Year U.S. Treasury Yield | 4.13% (Stable) |
| German 10-Year Yield | 2.32% (Down 2 basis points) |
| British 10-Year Yield | 4.02% (Down 3 basis points) |
| Yen | +1.6% to 150.42 per dollar |
| British Pound | Steady against dollar, large drop vs yen |
| U.S. Crude | +3% to $76.94/barrel |
| Brent Crude | +2.5% to $80.60/barrel |
| Euro STOXX 600 | +1% on corporate updates |
| MSCI Asia-Pacific | +1.2%, Nikkei +1.5% |
| Nasdaq Futures | +1.5% after AMD forecast |
| USD/JPY | -1.5% as yen strengthens |
| FOMC Decision | Anticipated at 14:00 ET |
| Two-Year JGB Yield | Up to 0.455% |
| Five-Year JGB Yield | Up to 0.665% |
| Bitcoin | Slight drop to $66,092.52 |
| Ether | +1.1% to $3,317.31 |
| Gold | +0.5% to $2,421.77/ounce |
| FOMC Meeting | July 30-31, announcement at 18:00 GMT |
Japan Yields Scale 15-Year Peaks, Bank Shares Surge on BOJ rate hike
On Wednesday, short-term Japanese government bond yields reached 15-year highs, and Japanese bank shares soared. The BOJ’s decision to hike interest rates for only the second time since 2007 and halve its monthly bond-buying program was a significant driver. The two-year Japanese Government Bond (JGB) yield surged 8.5 basis points (bps) to 0.455%, a level not seen since April 2009. Meanwhile, the five-year yield increased by 8 bps to 0.665%, the highest since November 2009.
BOJ’s Surprise Rate Hike Highlights Global Policy Divergence
The unexpected rate hike by the BOJ underscores the divergence in global monetary policies. While the BOJ moves towards tightening, markets are keenly watching the Federal Reserve and the Bank of England (BOE), which seem slower to act. The BOJ shocked the market with a 15bps rate increase and plans to reduce JGB purchases by ¥400 billion per quarter. The central bank also cut its GDP and inflation forecasts for FY24/25. With the yen firming up, the USD/JPY pair dropped by over 1.5%.
Market Reactions and Global Shares
Global stocks responded positively to the BOJ’s decision. The Euro STOXX 600 climbed nearly 1%, buoyed by corporate updates. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.2%, and Japan’s Nikkei closed up 1.5%, marking its highest level in a week. In the US, Nasdaq futures jumped over 1.5% following a bullish forecast from Advanced Micro Devices, which boosted chip stocks.
Oil Prices and Middle East Tensions
Oil prices rose from seven-week lows due to escalating tensions in the Middle East. The assassination of Hamas leader Ismail Haniyeh in Tehran led to threats of retaliation against Israel, further unsettling the region. U.S. crude prices increased by 3% to $76.94 per barrel, while Brent crude rose 2.5% to $80.60 per barrel.
FED Rate Decision
Markets are anticipating a Federal Reserve rate cut of 25 basis points in September, with 68 bps of easing expected for the year. However, analysts believe the Fed will remain cautious due to a still-tight labor market. The dollar index, which measures the U.S. currency against six rivals, stood at 104.39, down over 1% in July.
Yen Recovers, Currency and Commodity Movements
The yen recovered from slight losses and was last up 1.6% at 150.42 per dollar, reaching its highest level since early April. British Sterling held steady against the dollar but saw its biggest one-day drop against the yen in nearly three months. In commodities, U.S. crude was up 3% at $76.94 per barrel, and Brent was trading at $80.60 per barrel, a 2.5% increase.
Asian Markets React
Asian technology and chipmaking stocks rallied, mirroring strong earnings from Advanced Micro Devices. The Japanese Nikkei 225 index rose 0.4%, while the TOPIX climbed 0.3% after the BOJ’s rate hike. The BOJ’s decision to halve its bond-buying pace and cut growth and inflation forecasts sparked bets on continued accommodative monetary policy, presenting a positive outlook for Japanese stocks.
Traders Gear Up for Fed Day
Global stocks surged, with Nasdaq 100 index futures jumping over 1%. The yen strengthened following Japan’s rate hike. S&P 500 futures rose 1%, and Nasdaq 100 futures increased by 1.6%. Futures on the Dow Jones Industrial Average were up 0.1%, while the Stoxx Europe 600 rose 0.8%. The MSCI World Index climbed 0.5%.
Currencies and Cryptocurrencies
The Bloomberg Dollar Spot Index fell 0.4%, with the euro up 0.2% at $1.0839. The British pound was little changed at $1.2847, and the Japanese yen rose 1.7% to 150.16 per dollar. Cryptocurrencies also saw movement, with Bitcoin stabilizing around $66,000 and Ether rising 1.1% to $3,317.31.
Bonds and Commodities
The yield on 10-year Treasuries remained steady at 4.13%, while Germany’s 10-year yield declined two basis points to 2.32%. Britain’s 10-year yield dropped three basis points to 4.02%. West Texas Intermediate crude rose 3.4% to $77.28 per barrel, and spot gold increased by 0.5% to $2,421.77 an ounce.
USD/JPY Extends Sell-Off
Following the BOJ’s unexpected 15bps rate hike, the USD/JPY pair extended its sell-off, dropping toward 150.00. The yen’s appreciation over the past three weeks has been bolstered by its safe-haven appeal amid global political uncertainties and China’s economic challenges. Investors are now focused on the upcoming BOJ meeting, where further rate hikes and bond-buying tapering are expected.
EUR/USD Gains Traction
EUR/USD rose toward 1.0850 following disappointing US private sector employment data, which weighed on the US Dollar. Investors are now looking ahead to the Federal Reserve’s policy announcements, widely expected to leave the monetary policy setting unchanged.
Gold and Bitcoin Movements
Gold prices jumped above $2,400 amid Middle East tensions and expectations of a dovish Fed. Bitcoin stabilized around $66,000 after significant inflows into US Spot ETFs and notable acquisitions by large investors.
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