Stocks rise, yen climbs as BOJ battles bond bears

Stocks rise, yen climbs as BOJ battles bond bears
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  • The BOJ is under intense pressure to defend its yield policy
  • Yen hits 7-month high, yuan climbs as dollar loosens
  • More earnings, many central bank speakers
  • UK FTSE flirts with record high

SYDNEY/LONDON, Jan 16 (Reuters) – Stocks soared on Monday on concerns that corporate earnings and optimism about China’s reopening balance could soften its oversize stimulus at this week’s key Bank of Japan (BOJ) meeting. US markets were made for thin trading.

The yen climbed to its highest level since May after rumors swirled that the BOJ could hold an emergency meeting on Monday as it struggled to defend its new yield ceiling amid massive sell-off. read more

This put local markets in an anxious mood and the Japanese Nikkei (.N225) It fell 1.3% to a two-week low.

Still, MSCI’s largest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) Hopes for a speedy reopening of China rose 0.27% last week, after gaining 4.2%.

European stock markets open positive with STOXX 600 (.STOXX) 0.1% increase from 0850 GMT, driven by healthcare stocks (.SXDP) increased 0.6%.

UK’s reference FTSE index (.FTSE) It approached the record level of 7903.50 reached in 2018, and banks and life insurance companies were among the top earners.

Earnings season picks up speed this week with Goldman Sachs (GS.N)Morgan Stanley (MS.N) and Netflix (NFLX.O) among reporters.

World leaders, policymakers and senior corporate chiefs will attend the World Economic Forum in Davos, and a large number of central bankers will speak, including at least nine members of the US Federal Reserve.

The BOJ’s official two-day meeting ends Wednesday, and there is widespread speculation that the market will change its yield curve control (YCC) policy as 10-year yields rise above its new ceiling of 0.5%. read more

The BOJ purchased nearly 5 trillion yen ($39.12 billion) of bonds in its largest daily transaction on record on Friday, but 10-year yields still finished the session at 0.51%.

Earlier on Monday, the bank offered to buy an additional 1.3 trillion yen of JGB, but the yield remained at 0.51%.

“There is still the possibility that market pressure will force the BOJ to further adapt or exit the YCC,” JPMorgan analysts said in a note. We cannot rule out this possibility, but at this stage we do not consider it the main scenario.”

“Despite domestic demand starting to recover and inflation continuing to rise, the economy is not warming enough to tolerate the risk of a sharp rise in interest rates and a high appreciation of the yen,” the statement said.


The BOJ’s ultra-friendly policy pushed the yen down, acting as a kind of anchor for global returns. If he abandons policy, it will put upward pressure on yields in advanced markets and will likely see the yen rise.

Falling U.S. bond yields are undermining the dollar as investors bet the Federal Reserve may be less aggressive in raising rates once inflation is clearly just around the corner.

The Japanese yen rose to a seven-month high against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would further fine-tune or abandon its yield control policy.

The yen was up roughly 0.5% to 127,215 per dollar and fell to 128.6 at 0915 GMT.

The dollar index, which measures the US unit against major currencies, rebounded from a 7-month low in the early hours of the session to 102.6.

Futures imply that the chance of the Fed raising interest rates by half a point in February is almost nil, with a quarter-point move seen as 94%.

10-year Treasury yields fell 6 basis points to 3.498% last week, approaching the December low and the main chart target of 3.402%.

The easing of global supply bottlenecks in recent months has proven to be a disinflationary shock for the US economy, increasing the chances of a soft landing, said Alan Ruskin, global head of Deutsche Securities G10 Currency Strategy.

“Low inflation itself encourages a soft landing through real wage increases, with positive repercussions to financial conditions, by allowing the Fed to pause more easily and fostering a better-behaving bond market,” Ruskin said.

“A soft landing also reduces the tail risk of much higher U.S. rates, and this reduced risk premium helps the global risk appetite,” said Ruskin.

Commodity prices, which rose last week, fell on Monday.

The decline in yields and the dollar benefited the price of gold, which rose 2.9% last week, but the precious metal fell 0.4% to $1,911 an ounce in early trading on Monday.

Oil prices tumbled as a surge in COVID cases overshadowed expectations for demand growth as China reopened its economy.

Brent crude fell 73 cents, or 0.83%, to $84.57 a barrel, while US West Texas Intermediate crude CLc1 fell 61 cents, or 0.6%, to $79.24 a barrel.

($1 = 127.8000 yen)

The report by Wayne Cole and Lawrence White; Editing: Shri Navaratnam and Emelia Sithole-Matarise

Our standards: Thomson Reuters Trust Principles.

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