Japan Stocks Rally, Yen Sags as BOJ Retains Ultra-Easy Stimulus

Yomiuri Shimbun file photo
Tokyo Stock Exchange

TOKYO (Reuters) – Japan’s Nikkei share average rallied and the yen sagged on Tuesday, after the Bank of Japan (BOJ) kept its ultra-loose monetary policy unchanged and offered no hints of an early end to negative interest rates.

The Nikkei climbed 1.41% to end the day at 33,219.39. The broader Topix reversed an early loss of 0.21% to end 0.73% higher. The BOJ’s announcement came during the midday recess.

The yen JPY=EBS weakened as far as 143.78 per dollar following the announcement, and last traded down about 0.5% at 143.50.

“It appears that the BOJ’s stance on carefully assessing the timing for the removal of negative interest rates has not changed,” said Ryutaro Kimura, fixed income strategist at AXA Investment Managers.

“The BOJ still lacks confidence in achieving its price target.”

The BOJ kept its short-term rate target at -0.1% and that for the 10-year government bond yield at around 0% in line with expectations. However, it also opted to leave intact dovish guidance that pledged to take additional monetary easing steps “without hesitation” if needed.

“There are extremely high uncertainties surrounding Japan’s economy and prices,” the BOJ said in a statement.

Speculation had been building in the market for the BOJ to exit negative short-term rates as soon as its meeting next month.

BOJ Governor Kazuo Ueda is scheduled to hold a news conference from 0630 GMT.

“Given the markets are preparing for rate-cutting cycles in the U.S. and Europe next year, it’s sensible for the BOJ to wait things out and assess global fundamentals,” said Kyle Rodda, senior financial market analyst at Capital.com.

The yen is likely to continue tracking changes in the U.S. yields on the Federal Reserve policy outlook, while the Nikkei reacts to the exchange rate, Rodda said.

The 10-year U.S. Treasury yield US10YT=RR was steady at around 3.94% on Tuesday.

Meanwhile, benchmark 10-year Japanese government bond yields JP10YTN=JBTC sank as much as 3.5 basis points to 0.63% following the BOJ announcement.

Gains in the Nikkei broadened in the afternoon, with 157 of the index’s 225 components rising versus 64 decliners and four that were flat.

Technology shares extended gains, with chip-testing equipment giant Tokyo Electron jumping 3.67% and chip-testing machinery maker Advantest advancing 4.1%.

Automaker shares, which had been heavy in the morning session, lifted as the weakening yen boosted the outlook for overseas revenue.

Toyota Motor gained 0.8% and Nissan rallied 0.95%.

Banks were among the worst performers, with an end to the yield-suppressing stimulus that crushed profit from lending and investing looking further off. The Tokyo Stock Exchange’s banking sub-index sank 0.43%.

Only airlines and rail operators fell more among the TSE’s 33 industry groups, dropping 0.82% and 0.9%, respectively.