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 The yield on Japanese benchmark government bonds plunged to record
lows after the Bank of Japan said it would charge 0.1 percent for
excess reserves and may cut rates further if necessary, an
aggressive policy pioneered by the European Central Bank.
Most investors had believed Japan's policymakers were too cautious
to ever adopt such a radical measure. The dollar surged in response,
rising about three yen to an almost six-week high of 121.495 <JPY=>.
By 1230 GMT (7:30 a.m. ET) it was up 1.8 percent at 120.97.
"We're only one month into the year and two of the major central
banks have already surprised markets," said J.P. Morgan Asset
Management's fixed income CIO in London, Nick Gartside. "The ECB has
signaled more policy action in March and the BOJ has moved to
negative interest rates, a policy previously thought of as
unthinkable."
European shares tracked Asian stock markets higher, with the
pan-European FTSEurofirst 300 <.FTEU3> index up 0.9 percent, having
fallen 1.7 percent on Thursday. Wall Street was expected to open
with similar gains. <ESc1>
The MSCI world equity index <.MIWD00000PUS>, which tracks shares in
45 countries, rose half a percent. For the month, though, the index
is down 7.5 percent - its steepest fall in almost four years.
"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 encouraged other major bond
markets. Germany's 10-year Bund yield fell four basis points to a
nine-month low at 0.29 percent, on track for the biggest monthly
decline in two years.
Two-year German bond yields touched a record low of minus 0.471
percent. The yield on 10-year U.S. Treasuries fell 4 basis points to
1.95 percent.
The dollar was up 0.6 percent against a basket of currencies at
99.174, though still down slightly on the week.
OIL GAINS
The promise of extra global stimulus boosted oil prices, which had
already risen for three sessions on talk of a possible deal to curb
excess supply. [O/R]
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U.S. crude added about 1.2 percent to $33.61 per barrel and Brent
futures also gained 1.2 percent to $34.28. That put oil on track for
a second weekly gain, though 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 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 stocks across the region,
even though economists at HSBC and elsewhere doubted it would do
much for Japan's real economy or inflation.
"We do not think negative rates are a game changer," said
Commerzbank strategist 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 added 1.8
percent, up 2.7 percent for 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 raise rates four times this year, as originally
envisioned by its policy board.
Fed fund futures <0#FF:> rose to imply a rate of 51 basis points by
year end, compared with 90 basis points a month ago. Futures for
U.S. 10-year bonds <0#TZY:> rose 5 ticks.
"With other central banks easing more, pushing their currencies
weaker against the U.S. dollar ... the Federal Reserve will struggle
to deliver meaningful rate hikes," said J.P. Morgan's Gartside.
(Additional reporting by Atul Prakash, Dhara Ranasinghe, Anirban Nag
and Marc Jones in London, Lisa Twaronite in Tokyo and Wayne Cole in
Sydney, editing by Larry King)
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