Bank of Japan's Moves Spur Gains in Asian Markets -- 2nd Update
September 21 2016 - 6:12AM
Dow Jones News
By Ese Erheriene
Japan's Nikkei Stock Average jumped Wednesday after the Bank of
Japan kept a key rate unchanged and announced it would introduce a
10-year interest-rate target.
The Nikkei Stock Average reversed earlier losses to close 1.9%
higher at 16807.62 points. Markets were also broadly higher
elsewhere in Asia. Australia's S&P/ASX 200 closed up 0.7%, Hong
Kong's Hang Seng Index gained 0.6% and Korea's Kospi ended 0.5%
higher.
Japan's central bank said it would keep its key interest rate
steady at minus 0.1%, and expand its monetary base until inflation
stabilized above 2%. The BOJ also said it aims to guide the yield
on 10-year Japan government bonds to zero as part of its effort to
steepen the yen yield curve.
The decision sparked buying, particularly in the financial
sector, as concerns the BOJ would cut rates deeper into negative
territory--which would hit bank profits among other
effects--eased.
"They're trying some new things [and] they're going to target a
different part of the yield curve, which is a bit more positive for
the banks," said Kay Van-Petersen, Asia macro strategist at Saxo
Capital Markets. "But I still don't feel that it's big enough. I
think it will quickly get discounted by the market."
The Topix's banking subsector closed up 7%, with Mitsubishi UFJ
Financial Group ending up 7.4%, Mizuho FG Financial Group adding
6.8% and Sumitomo Mitsui Financial Group closing up 7.3%.
Some in the market questioned whether the prospect of a steeper
yield curve was necessarily good news for banks.
"The longer-term profitability of the banks is still an open
question [as] you need to differentiate between real interest rates
and nominal interest rates," said Daniel Morris, a senior
investment strategist at BNP Paribas Investment Partners. "If you
force the yield curve to be steeper by making longer-term real
interest rates higher, that's arguably bad for the economy.
So...it's hard to know what the net effect of that is."
After the central bank said it would target a 0% rate for
10-year JGBs, the yield on the newest 10-year Japanese government
bonds climbed to briefly hit 0.005%, turning positive for the first
time since March 11.
The Japanese yen initially strengthened 1% and then weakened
1.8% against the dollar, on an intraday basis, after the BOJ news.
Investors' initial reaction was to buy the yen, before backtracking
as the details of the central bank's position became clear.
The new framework made "investors feel how the BOJ is much more
serious than before" in tackling slow growth and deflation, forcing
some investors to unwind their long yen positions, said Daiwa
Securities senior FX strategist Yukio Ishizuki.
The yen is now down about 0.2% against the greenback.
Chinese stocks caught an updraft after the country's two largest
steel mills announced they would merge their listed entities. The
Chinese steel sector surged early Wednesday, after Baoshan Iron
& Steel said Tuesday it would absorb Wuhan Iron & Steel via
an equity swap. The benchmark Shanghai Composite Index ended up
0.1% and the Shenzhen Composite Index closed up 0.3%.
Later on Wednesday, investors will be shifting their focus to
the U.S. Federal Reserve's statement on interest rates due 1800
GMT.
Takashi Nakamichi Mitsuru Obe, Hiroyuki Kachi, Yifan Xie and
Kosaku Narioka contributed to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com
(END) Dow Jones Newswires
September 21, 2016 05:57 ET (09:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.