BoJ gives equities a boost before Fed decision

AFP

Stocks got a boost on Wednesday after Japan’s central bank overhauled its stimulus programme as markets awaited the outcome of the Fed’s policy meeting.
Wall Street opened higher, with the Dow adding 0.5 percent.
Meanwhile in Europe, London’s benchmark FTSE 100 index edged up 0.1 percent as the OECD slashed its growth forecast for Britain owing to the Brexit vote.
Frankfurt’s DAX 30 added 0.5 percent and the CAC 40 in Paris rose 0.7 percent.
In foreign exchange, the euro hit a three-week low at $1.1123 before recovering. The yen first tumbled against the greenback, but the dollar weakened as the Fed meeting approached.
“The first of the day’s central bank drama has gone down well, with the Bank of Japan tinkering with their stimulus package much to the delight of the markets,” said Spreadex analyst Connor Campbell.
Tokyo’s Nikkei stocks index sprang from negative territory to end 1.9-percent higher after the Bank of Japan said it would try to raise government bond yields as part of its drive to kickstart inflation.
Yields on 10-year government bonds briefly broke into positive territory on the news before falling back.
It also said it would continue its huge monetary easing scheme and delayed cutting interest rates further into negative territory — providing some much-needed relief for banks, which have been hammered by the policy introduced earlier this year.
The announcement came at the end of a keenly-awaited meeting and follows a string of weak readings on the economy, which has failed to revive despite three years of bank and government stimulus.
Later in the day, the US Federal Reserve will wind up its own policy meeting.
Global markets have suffered severe volatility in the weeks leading up to the gathering, with Fed officials giving contradictory opinions on the need for a rise in interest rates.
While it is not expected to tighten this month, the policy board’s statement
will be pored over for clues about its plans for its next meeting in December, or January.

Positive for risk assets
Predictions of tightening US rates and a lack of recent easing from other central banks have fuelled debate that the age of easy money — which has helped fuel a rally on global markets — could be ending. This has sparked fears of a painful correction.But Masayuki Kichikawa, chief macro strategist at Mitsui Sumitomo Asset Management Co. in Tokyo, said: “The stock and currency markets are starting to price in the fact the BoJ probably won’t be tapering too easily and they’ll continue to ease. This is slightly positive for risk assets.”