Over to the Fed after
world stocks get a lift from BOJ
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[September 21, 2016]
By Vikram Subhedar
LONDON (Reuters) - World stocks rose on
Wednesday, led by a surge in bank shares, after the Bank of Japan
overhauled its monetary policy to target interest rates, though the
yen recovered initial losses against the dollar on scepticism those
moves would stoke inflation.
With the global economy showing few signs of rebounding and
investors fretting about the limits of monetary easing by major
central banks, the BOJ's move initially came as a welcome relief for
markets, particularly financial sector shares.
Investors' focus now shifts to the U.S. Federal Reserve policy
decision later on Wednesday. Expectations of a rate increase have
all but evaporated after some weak economic data, and Wall Street
looked set to follow Europe higher.
Europe's STOXX 600 rose 1 percent as euro zone banking shares
rallied nearly 3 percent. The bank shares were poised for their best
day in more than two months.
Futures on Wall Street were up 0.4 percent.
The BOJ maintained its 0.1 percent negative interest rate, but
abandoned its base money target. Instead, it set a "yield curve
control" under which it will buy long-term government bonds to keep
10-year bond yields around their current zero percent [nT9N1B603C].
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"The fact that the flattening of the yield curve has gotten to a
point where it has elicited a policy response could mark the
beginning of the end of quantitative easing," said Michael Metcalfe,
head of global macro strategy at State Street Global Markets.
"Just as interest rates have reached their lower bound, asset
purchases, in government bonds at least, may have reached their
upper bound. Other central banks, the ECB especially, will take
close note."
A similar move would solve many of the European Central Bank's own
problems but would probably pose even more, making the policy
difficult to emulate.
MINOR TWEAKS
Doubts about the sustainability of the market's moves crept in
quickly, particularly for the yen, which reversed direction against
the dollar hours after the BOJ decision.
"Markets seem a bit confused by today, and rightly so," said
Aberdeen Asset Management investment manager James Athey. The fact
that the BOJ is trying to overshoot an inflation target it has
struggled to hit has raised eyebrows, Athey said.
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![](../images/092116pics/busine25.jpg)
A man walks past a display of the Nikkei average and other market
indices outside a brokerage in Tokyo, Japan April 19, 2016.
REUTERS/Thomas Peter
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"The Bank has effectively told markets that it has a royal flush, and the
markets are questioning Kuroda’s poker face," he said.
The U.S. dollar rose as high as 102.78 yen, but had slipped back to 101.36 yen
by midday in Europe.
Government bond yield curves, which measure borrowing costs across different
maturities, initially steepened in response to the BOJ's moves, but the impact
quickly waned.
Japanese 10-year yields rose as high as 0.005 percent, turning positive for the
first time since March, but last traded at -0.035 percent, up 2.5 basis points.
German 10-year benchmark yields last stood at -0.01 percent, up 0.4 bps on the
day
In commodities, the brighter mood on risky assets saw U.S. crude oil futures
rise 1.8 percent to $46.71 a barrel [O/R].
Spot gold rose 0.4 percent to $1320.30 an ounce, and further gains are expected
if the Fed holds back from a rate increase.
(Additional reporting by Jamie McGeever,; Editing by Larry King)
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