Bank of Japan: a surprising move

Asian shares jumped and the yen swooned after the Bank of Japan stunned markets on Friday by adopting negative interest rates in its boldest step yet to re-inflate the economy.

Spreadbetters predicted the cheer would spread to European markets, with Britain’s FTSE 100 seen opening 0.4 percent higher, Germany’s DAX expected to rise 0.5 percent and France’s CAC 40 seen gaining 0.6 percent.

The yen fell across the board and the yield on the benchmark Japanese government bond plunged to a record low after Japan’s central bank said it would charge 0.1 percent for excess reserves parked with the institution, an aggressive policy pioneered by the European Central Bank.

“The BOJ will cut the interest rate further into negative territory if judged as necessary,” the bank said in a statement announcing the decision.

The move surprised investors, most of whom had believed policymakers were too cautious to ever adopt such a radical measure. Their reaction sent the dollar surging about three yen to a session high of 121.495. It was last up 1.7 percent at 120.92 yen.

The dollar was last up 0.4 percent against a basket of currencies at 98.885, though still down about 0.7 percent for the week.

The euro slipped about 0.2 percent to $1.0913, on track to gain about 1.1 percent for the week.

Japan’s Nikkei share index whipsawed after the announcement before ending up 2.8 percent, to mark a 3.3 percent weekly gain, while the benchmark 10-year JGB yield touched an all-time low of 0.090 percent.

“The yen could weaken further and stocks could gain after the BOJ eased today, so long-term government bond yields will face both downward and upward pressure after today’s move,” said Akito Fukunaga, chief fixed income strategist at Barclays in Tokyo.

The BOJ’s move gave a lift to bourses across the region, even though economists at HSBC and elsewhere doubted it would give a boost to Japan’s real economy or inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.8 percent, up 2.7 percent for the week .

The Shanghai Composite Index rose 2.9 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen added 3.2 percent, bouncing from steep losses early in 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 hike rates four times this year, as originally envisioned by its policy board.

Fed fund futures rose to imply a rate of 51 basis points by year end, compared to 90 basis points a month ago. Futures for U.S. 10-year bonds rose 5 ticks.

The promise of extra global stimulus gave an added fillip to oil, which had already risen for three sessions on talk of a possible deal to pare back excess supply.

U.S. crude added about 2.2 percent to $33.95 per barrel, while Brent futures firmed 2.6 percent to $34.76.