One swallow does not a summer make and one interest rate rise by the Bank of Japan does not necessarily mean it’s embarking on a hiking cycle. Less taking the plunge, more like dipping its dainty toes in the water. The BoJ raised interest rates for the first time in 17 years to formally end its negative rates policy. This had been terrifically well telegraphed and the yen sold off on the news. USDJPY jumping a full big figure to 150. I think that is what you may call a dovish hike.
The BoJ raised the short-term interest rate to between 0 per cent to 0.1 per cent, scrapped yield curve control and ended its purchases of exchange-traded funds and Reits...but it pledged to maintain the purchase of long-term government bonds and keep conditions accommodative for a while longer. It will continue its Japanese government bond purchases with “broadly the same amount as before” and increase them “in case of a rapid rise in long-term interest rates”. Its goal of stable 2 per cent inflation was “within sight”, but there was still some distance” to go to reach it. The BoJ does not envisage one hike to herald lots more.
While the yen slackened a bit the dollar was firmly big against peers anyway. Treasury yields continued to firm, with the 10-year above 4.325 per cent. Another central bank was quite dovish – the Reserve Bank of Australia left rates on hold and dialled back some of its tightening bias that the market was discounting anyway.
European stock markets were broadly flat at the open on Tuesday. Tech stocks bounced back a bit in the US to lead Wall Street higher on Monday ahead of some big AI announcements from Nvidia that don’t seem to have moved the stock much at all. Gold continued to track sideways at $2,150. The Federal Reserve meeting tomorrow is the next big ticket item, Bank of England on Thursday.
USDJPY blazes through 150 to reach a two-week high after the rather dovish language from the BoJ. The risk now is that the BoJ rests on its laurels a bit and thinks it’s done its work. It’s a bit like hoovering – just because you did it last week doesn’t mean the carpet is still clean.
Elsewhere the dollar was firmly bid against peers, with DXY futures jumping up through the 200-day simple moving average at around 103.50.
The Trader is written by Neil Wilson, chief market analyst at Finalto
