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Japan’s benchmark government bond yield fell to the lowest since late July and the Nikkei 225 stock gauge rose to within a whisker of a 33-year high as traders trimmed bets for an interest rate hike in the next few months. The rally in sovereign debt sent the 10-year yield tumbling as much as 8.5 basis points to 0.55%, a level last seen on July 28 when the Bank of Japan (BOJ) tweaked its yield-curve control settings. The Nikkei rose as much as 1.8%, a day after the BOJ bank provided no forward guidance on whether it will scrap the world’s last negative interest rate regime next year.
The yen made a small gain after weakening as much as 1.5% versus the dollar on Tuesday. Governor Kazuo Ueda didn’t rule out policy normalisation at any of the gatherings in coming months, but he insisted that more evidence is needed that the BOJ will achieve its price stability target. Derivative traders cut back policy shift bets, with overnight index swaps suggesting a 36% chance of a rate hike by the BOJ’s January meeting, down about 10 percentage points from Tuesday. The likelihood of a move by the April declined slightly to 83%.
“It’s sure the BOJ is moving toward normalization but the issue is when,” said Keisuke Tsuruta, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co.
“In addition to the buying back of bonds on Tuesday’s no-change decision, there probably is additional buying on the receding view that there will be a policy shift in January.”
In the share market, exporters such as automakers and electric appliance companies gained in reaction to the yen’s slide. Toyota Motor Corp advanced as much as 2% before paring most of the move. “Governor Ueda confirmed that he will make policy changes only after scrutinising wage indicators, which reassured the market,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co.