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Yen holds gains, markets mixed after BoJ tweak

A man walks past the Bank of Japan’s headquarters in Tokyo on Tuesday, Dec. 20, 2022. AFP PHOTOA man walks past the Bank of Japan’s headquarters in Tokyo on Tuesday, Dec. 20, 2022. AFP PHOTO 

HONG KONG: The yen held onto gains and equity markets were mixed on Wednesday after plunging the day before in response to the Bank of Japan’s (BoJ) shock decision to shift away from its ultra-loose monetary policy.

The move to allow yields on certain government bonds to move in a wider band was seen as a precursor to a possible interest rate hike next year, finally bringing the Japanese central bank in line with others around the world.

Tuesday’s announcement sent the yen soaring from above 137 to the dollar to just above 130 — its strongest since August — while it also rallied against other peers, including the euro. And it managed to hold on to most of the advances on Wednesday.

Some observers said the Japanese unit could strengthen further to about 120, adding that it remained relatively cheap, having tumbled for most of the year against the United States currency owing to the divergence of Federal Reserve (Fed) and BoJ policies.

“It would be safe to assume that the BoJ shift [is] likely [to] fuel [the yen’s] strength on repatriation flows as local bond yields rise,” Stephen Innes of SPI Asset Management said in a note.

“Effectively, the BoJ pivot is the equivalent of quantitative tightening, which should lead real long-term rates to increase,” he added.

Regional markets mostly edged back up after a painful selloff, though fears that borrowing costs would continue to rise globally next year were keeping any rally in check.

Tokyo fell again after dropping more than 2 percent on Tuesday, while there were also losses in Shanghai, Mumbai, Singapore and Seoul.

But Hong Kong, Sydney, Wellington, Taipei, Manila, Bangkok and Jakarta all rose.

London, Paris and Frankfurt advanced at the open.

The BoJ’s surprise move came as investors were already suffering following hikes by the Fed and the European Central Bank last week, and warnings by officials that rates are likely to go higher than initially expected.

The tightening measures, aimed at bringing decades-high inflation under control, have fanned speculation that the world economy will be tipped into a recession.

“Tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly,” Deutsche Bank analysts said.

National Australia Bank’s Ray Attrill said Tuesday’s “tweak has, whatever the BoJ [and government] will have us want to believe, been interpreted as putting the writing on the wall for a policy shift next year.”

“It is also seen as signifying a formal end to tolerance/desirability of yen weakness,” he added.

Traders are also keeping an eye on China as it quickly reopens after almost three years of a “zero-Covid” policy of severe lockdowns and mass testing that hammered the world’s No. 2 economy.

However, there is a worry about the immediate impact of a spike in infections, with hospitals struggling, pharmacy shelves being stripped bare and crematoriums overwhelmed.

“Though unspoken, it is well-understood that policymakers have decided to accept a sizable Covid wave,” Innes said. “And beyond the Covid shift, Chinese policymakers have taken more decisive steps to support the economy, while broader macro policy continues to ease.”

“The tradeoff is to expect weaker oil demand through the Covid ‘exit wave’ across the country, but possibly an above-consensus 2023 demand bounce on the accelerated pace of reopening,” he added.

Still, the expected bump in demand from China has helped push crude prices higher. A drop in US inventories also provided support, while the upcoming Northern Hemisphere winter is expected to further boost energy use.

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Credit belongs to : www.manilatimes.net

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