By Stella Qiu
SYDNEY (Reuters) – Asian shares were mixed on Wednesday while the Japanese yen tumbled and Japanese yields retreated sharply after the Bank of Japan unanimously decided to keep its yield curve controls in place.
Speculation in the bond market that the BOJ would tweak its yield curve control (YCC) settings at the meeting that concluded on Wednesday had pushed 10-year government bond yields above the policy cap of 0.5% for a fourth straight session.
The bank, however, maintained ultra-low interest rates, including its 0.5% cap for the 10-year bond yield, defying market expectations it would phase out its massive stimulus programme in the wake of rising inflationary pressure.
The 10-year yield retreated sharply to 0.360% on Wednesday, after hitting an intraday high of 0.5100%. Japan’s Nikkei share index meanwhile surged 2.6%, bucking the declining trend seen elsewhere.
The dollar gained 2.6% against the Japanese yen to 131.4 yen, its biggest one-day percentage jump since March 2020.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.3%, after weak earnings from Goldman Sachs overnight dragged the Dow Jones index 1% lower. The investment bank reported a bigger-than-expected 69% drop in fourth-quarter profit.
S&P 500 futures and Nasdaq futures were mostly flat. Overnight, the S&P 500 was 0.2% lower and the Nasdaq Composite rose 0.14%.
China’s blue chips dipped 0.2%, while Hong Kong’s Hang Seng Index was 0.1% lower.
In a Reuters poll, 97% of economists expected the BOJ to maintain its ultra-easy policy at the meeting.
Mahjabeen Zaman, head of FX Research at ANZ, now expects any further rises in the Japanese yen might have to be delayed until April when a new BOJ governor is expected to be in place.
“I guess Kuroda has sort of done the groundwork with widening the band in December, He’s done the groundwork for the new governor to get on board and take it from there.”
Zaman expects the yen to appreciate to 124 per dollar by end 2023 and 116 per dollar by end 2024.
Just a month ago the BOJ shocked markets by doubling the allowable band for the 10-year JGB yield to 50 basis points either side of 0%. The change emboldened speculators to test the BOJ’s resolve.
Mizuho Bank analysts said in a note that the BOJ adjusting YCC or pushing interest rates above zero was just a matter of time and execution, given the pressures arising from its divergence from monetary policy elsewhere.
A survey of global fund managers by BofA Securities out on Tuesday showed that expectations of further appreciation in the Japanese yen in January were the highest in 16 years.
The dollar index, which measures the safe-haven dollar against six peers, rose 0.4% at 102.85. It has been undermined lately by falling U.S. bond yields as markets wager the Federal Reserve can be less aggressive in hiking rates.
In the Treasury market, the yield on benchmark 10-year Treasury notes slid 5 basis points to 3.4531%, while the yield on three-year Treasury notes stood at 3.8442%, easing from 3.8640%.
In the oil market, prices jumped on hopes of Chinese demand rebounding. Brent crude futures rose 0.6% to $86.5 while U.S. West Texas Intermediate (WTI) crude settled up 0.8%, at $80.79.
At the World Economic Forum in Davos on Tuesday, German Chancellor Olaf Scholz said he was convinced Europe’s largest economy would not fall into a recession.
China’s Vice Premier Liu He also welcomed foreign investment and declared his country open to the world after three years of pandemic isolation.
Data on Tuesday showed China’s economic growth had slumped in 2022 to 3,0% – the weakest rate in nearly half a century.
Spot gold eased 0.5% to $1899.41 per ounce.
(Reporting by Stella Qiu; Editing by Bradley Perrett & Simon Cameron-Moore)