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We have our first shift in monetary policy. Yesterday, the Bank of Japan announced that it would raise interest rates from -0.1% to 0%, terminating a period of negative rates that has endured since 2016. Yield curve control, the tool by which the central bank achieved its rate targets, is also coming to an end. The move comes off the back of encouraging signs of wage growth, the most robust seen in decades, which is exactly the sign Governor Kazuo Ueda has been looking for to trigger the shift.
The Yen reacted exactly as one might expect, blasting through 150 to finish the session over a percent weaker versus the Dollar. The Nikkei 225 gained just enough to close above the 40k mark, up 0.66% by Tuesday’s close. Japanese markets are closed today so we’ll have to wait until Thursday to witness the continued impact of the BoJ’s decision.
Later today, it falls to the Federal Reserve to make a move of its own, although anything other than maintaining the current 5.5% figure would be very surprising. Having said that, given the strong performances in US stocks on Tuesday, it appears some market participants are expecting a rate cut in the not-too-distant future. In anticipation of the imminent decision, the DJI, S&P 500 and Nasdaq Composite gained 0.83%, 0.56% and 0.39% respectively during yesterday’s session.
Sentiment continued to improve in oil markets early this week as a result of increasing demand forecasts, with Brent Crude nudging above $86 a barrel, WTI reclaiming $82.
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