Japan’s Nikkei Jumps as BOJ Policy Shift Looms (Update 1)

Reuters

12:37 JST, March 18, 2024 (updated at 15:25 JST)

TOKYO (Reuters) – Japan’s Nikkei share average ended sharply higher on Monday, as investors turned bullish after they learned more about likely changes to the Bank of Japan’s (BOJ) policy settings widely expected to be announced on Tuesday.

The Nikkei rose 2.67% to close at 39,740.44, posting its biggest daily rise since Feb. 13. The broader Topix gained 1.92% to 2,721.99.

“Investors were relieved as uncertainties about the changes the BOJ will make were mostly dispelled after reading reports from various media outlets,” Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities, said.

The Nikkei newspaper on Saturday became the latest media outlet to flag the policy move, after major companies granted the biggest pay hikes in 33 years.

Bigger-than-expected pay hikes by major Japanese firms have significantly heightened the chance the central bank will end eight years of negative interest rate policy at the end of a two-day policy meeting on Tuesday.

If the nine-member board of the BOJ believes the conditions are right, the central bank will set the overnight call rate as its new target and guide it in a range of 0-0.1% by paying 0.1% interest on excess reserves financial institutions park with the it, Reuters reported.

Upon exiting its negative rate policy, the BOJ will also ditch its bond yield control and discontinue purchases of risky assets such as exchange-traded funds.

But the BOJ is expected offer guidance pledging to keep monetary conditions accommodative for the time being, to reassure markets that it will not shift to a steady rate-hike path of the kind seen in the United States and Europe.

Uniqlo-brand owner Fast Retailing jumped 4.73% to become the biggest boost for the Nikkei, followed by chip-making equipment maker Tokyo Electron, which rose 3.76%.

“Unless the Fed (U.S. Federal Reserve) defies market expectations that it would cut the rate this year, the momentum of the stock market will continue,” Hitoshi Asaoka, senior strategist at Asset Management One, said.

The Fed is considered certain to keep rates at 5.25%-5.5% at its two-day meeting this week, but there is a possibility it might signal a “higher for longer” outlook on policy given the stickiness of inflation at both a consumer and producer level.