Stocks tumble and dollar tumbles on unexpected policy change by BOJ
© Reuters. FILE PHOTO: Pedestrians wait to cross the street at a junction near a giant display of the stock index in Shanghai, China August 3, 2022. REUTERS/Aly Song
By Nell Mackenzie
LONDON (Reuters) – World stocks slid on Tuesday after Japan’s central bank adjusted policy as investors worried about the economic impact of rate hikes and uncontrollable inflation. .
The Bank of Japan (BOJ) extended its allowable range for long-term yields to 50 basis points either side of its 0% target, from 25 basis points previously.
The policy decision sent the yen soaring immediately, with a 0.80% drop to 103.95, a six-month low. US stock futures traded lower and were slightly sideways below 0.25%.
European stock markets hit a six-week low, with benchmark German and French indexes falling as much as 1%, while London lost as much as 0.8%.
Yields on Japan’s 10-year government bonds rose to their highest levels since 2014, dragging with them euro-area yields. Yields rise when bond prices fall.
Tatjana Puhan, deputy chief investment officer at TOBAM in Paris, said investors needed time to digest the series of rate hikes launched last week from central banks including the Bank of England, the Bank of England and the Bank of England. the European Central Bank and especially the US Federal Reserve. – Asset-based management company.
“The market doesn’t want to believe it, but this move by the BOJ highlights that central banks remain concerned that inflation will continue to be higher,” said Puhan.
The BOJ has been steadily buying billions of dollars worth of government bonds to keep long-term interest rates low, despite rising inflation, both at home and abroad.
“Think of us going into a recession and inflation still higher,” said Puhan. Not sure if Tuesday’s market moves will produce a snowball effect or if they are just a temporary shock, in the long run, investors should be prepared for big waves, she said. next discount.
Mr. Puhan said rising COVID cases that threaten to slow China’s reopening process to the rest of the world after nearly three years of lockdown is also the focus of investors’ attention, as The continuation of the blockade that could affect China’s growth will have a lasting impact on the world economy. .
“A lot of American companies manufacture in China and rely on the supply chain of the country. This is not going to change overnight,” Puhan said.
However, James Rossiter, head of global macro strategy at TD Securities, thinks thin liquidity in the market today should be taken into account.
“There must be a lot of people on vacation saying, ‘Wait, this shouldn’t have happened,'” he said.
Rossiter pointed to BOJ Governor Haruhiko Kuroda’s speech in which he said the policy adjustment was “aimed at improving market function” and “not about raising interest rates.”
This knocked other currencies off recent gains, with both the euro and pound dropping more than 3.5% against the yen.
In turn, the benchmark index fell 2.71% after trading in positive territory early in the day, while US stock futures fell between 0.1% and 0.2%, indicating a start to trading. slightly weaker.
In the oil market, it rose 0.20% to $79.95 a barrel, while up 1.3% to $76.19.
benefited from the dollar’s weakness, rising 1% to around $1,805 an ounce. [GOL/]