Yen surges after surprise BOJ move

TOKYO: The yen sharply rose against the US dollar, while the Nikkei stock index plunged to a two-month low yesterday as market participants were surprised by a Bank of Japan decision that they saw as monetary tightening following a decade of its ultraloose policy under the current governor.

The Japanese currency strengthened by around 4 yen versus the dollar to trade at the lower 133 level, and the Nikkei briefly fell nearly 3%, shortly after the central bank decided to allow longterm government bond yields to trade in a wider range.

The 225-issue Nikkei Stock Average ended down 669.61 points, or 2.46%, from Monday at 26,568.03, its lowest close since Oct 13. The broader Topix index finished 29.82 points, or 1.54%, lower at 1,905.59.

On the top-tier Prime Market, real estate, precision instrument, and transportation equipment issues drove the decline.

The yen sharply appreciated from the lower 137 zone as soon as the BOJ’s surprise decision came out around noon, causing panic among investors who had expected the interest rate gap between the United States and Japan would continue to widen due to the US Federal Reserve’s hawkish stance.

“It is a virtual rate hike. Nobody had expected it in the market,” Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co, said of the central bank’s decision.

“It may be said that BOJ Governor Kuroda paved the way for the exit of the bank’s ultraloose monetary policy by the end of his tenure next April,” he said.

Japanese shares reversed earlier gains and took a deep dive in the afternoon as the yen’s sudden rise caused export-oriented stocks to tumble.

“The stock market plunged because investors now have to worry about the negative impact on economy” caused by BOJ’s virtual rate hike, said Takuya Kanda, senior researcher at the Gaitame.com Research Institute.

Automakers and tech companies were particularly hit by the volatile move in the foreign exchange market. Mitsubishi Motors dropped 52 yen, or 8.9%, to 530 yen. Olympus sank 132.5 yen, or 5.1%, to 2,443.5 yen.

Among Prime Market issues, declining issues outnumbered advancers 1,612 to 205, while 21 ended unchanged.

Trading volume on the Prime Market rose to 1,843.92 million shares from Monday’s 971.32 million.