World shares heat up over Bank of Ja­pan sub-zero move

The Pak Banker - - MARKETS/SPORTS -

World shares jumped and the yen slumped on Fri­day af­ter the Bank of Ja­pan stunned mar­kets by tak­ing one of its main in­ter­est rates into neg­a­tive ter­ri­tory, its bold­est step yet to re­in­flate the econ­omy.

The yield on Ja­panese bench­mark govern­ment bonds plunged to record lows JP10YTN=JBTC af­ter the cen­tral said it would charge 0.1 per­cent for ex­cess re­serves parked with the in­sti­tu­tion, an ag­gres­sive pol­icy pi­o­neered by the Euro­pean Cen­tral Bank.

The cen­tral bank said in a state­ment it would cut in­ter­est rates fur­ther if it judged it nec­es­sary. Most in­vestors had be­lieved Ja­pan's pol­i­cy­mak­ers were too cau­tious to ever adopt such a rad­i­cal mea­sure. Their re­ac­tion sent the dol­lar surg­ing about three yen to an al­most six-week high of 121.495 JPY=. It was last up 1.7 per­cent at 120.87 yen.

Euro­pean shares tracked Asian stock mar­kets higher, with the pan-Euro­pean FTSEurofirst 300 .FTEU3 in­dex bounc­ing back 1.2 per­cent by 0930 GMT, hav­ing fallen 1.7 per­cent on Thurs­day. The MSCI world equity in­dex .MIWD00000PUS, which tracks shares in 45 coun­tries, rose half a per­cent.

"It has be­come clear that stock mar­kets can­not stand on their own feet," said KBC se­nior econ­o­mist Koen De Leus, in Brus­sels. "As long as the econ­omy is shaky and the world is bur­dened with high debt, cen­tral banks and their money print­ing ma­chines are a nec­es­sary evil to keep up the mar­kets."

The plunge in Ja­panese bond yields set up a pos­i­tive tone for other ma­jor bond mar­kets.

Ger­many's 10-year Bund yield fell four ba­sis points to a nine-month low at 0.29 per­cent DE10YT=TWEB, while two-year Ger­man bond yields touched a fresh record low at mi­nus 0.471 per­cent. The yield on 10year U.S. Trea­suries mean­while fell 4 ba­sis points to 1.95 per­cent US10YT=TWEB.

The dol­lar was up 0.4 per­cent against a bas­ket of ma­jor cur­ren­cies at 98.885 DXY, though still down about 0.7 per­cent for the week. The prom­ise of ex­tra global stim­u­lus gave an added fil­lip to oil, which had al­ready risen for three ses­sions on talk of a pos­si­ble deal to pare back ex­cess sup­ply.

US crude CLc1 added about 0.7 per­cent to $33.45 per bar­rel, while Brent fu­tures LCOc1 firmed 0.9 per­cent to $34.18. That put oil on track for a se­cond weekly gain, though oil volatil­ity has climbed to its high­est since 2009 as traders try to price in the un­cer­tainty around sup­ply cuts.

Ear­lier, Ja­pan's Nikkei share in­dex .N225 whip­sawed on the BOJ an­nounce­ment be­fore end­ing up 2.8 per­cent, to mark a 3.3 per­cent weekly gain. [.T]

The cen­tral bank's move gave a lift to bourses across the re­gion, even though econ­o­mists at HSBC and else­where doubted it would give a boost to Ja­pan's real econ­omy or in­fla­tion. "We do not think neg­a­tive rates are a game changer," said Com­merzbank strate- gist Es­ther Re­ichelt, in Frank­furt. "Pres­sure on the BoJ will mount to do even more in com­ing months to at­tain their in­fla­tion tar­get."

MSCI's broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan .MIAPJ0000PUS added 1.8 per­cent, up 2.7 per­cent for the week. The Shang­hai Com­pos­ite In­dex . SSEC rose 2.9 per­cent, while the CSI300 in­dex .CSI300 of the largest listed com­pa­nies in Shang­hai and Shen­zhen added 3.2 per­cent, bounc­ing from steep losses early in the week.

The buy­ing spread to U.S. debt mar­kets as in­vestors wa­gered the BOJ de­ci­sion and a stronger dol­lar would make it even harder for the Fed­eral Re­serve to hike rates four times this year, as orig­i­nally en­vi­sioned by its pol­icy board.

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