Yen jumps, Nikkei slides as BOJ bends yield policy

yen-jumps,-nikkei-slides-as-boj-bends-yield-policy
Yen jumps, Nikkei slides as BOJ bends yield policy

The yen experienced gains in volatile trading on Friday, leading to drops in stocks and bonds in Tokyo. This came after the Bank of Japan (BOJ) announced a more flexible approach to controlling long-term yields. The BOJ maintained its ultra-low interest rates but adjusted its cap on 10-year government bond yields from 0.5% to 1%. This shift by the BOJ followed recent rate hikes in the U.S. and Europe, signaling the end of an aggressive hiking cycle. The yen initially fell before reaching a one-week high against the dollar. Japanese government bond yields also reached a nine-year high, causing the Nikkei to extend its losses. However, Japanese bank stocks surged on the prospect of higher rates and increased lending opportunities. The BOJ’s adjustment to yield curve control policy was seen as a step towards eventual disbandment. Despite Tokyo’s core consumer price index rising, the BOJ reiterated that inflation is not sustainably at its 2% target. Ten-year U.S. Treasury yields also climbed in response to the BOJ’s announcement. In other parts of Asia, investors were optimistic about stimulus measures for China’s economy. The U.S. dollar strengthened, particularly against the Australian dollar, which was weighed down by weak retail sales data. The European Central Bank raised rates as expected but hinted at a pause in September, causing the euro to slide. The outlook for further rate hikes by the ECB will depend on upcoming inflation data. The Fed also hiked rates and no longer forecasts a recession, leading to positive investor sentiment. Brent crude oil futures slipped slightly from three-month highs.

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