Asia report: Markets fall after BoJ bond yield shock

Stocks were in the red across Asia on Tuesday, after the Bank of Japan announced a shock shift in bond yields.

In Japan, the Nikkei 225 was down 2.46% at 26,568.03, as the yen strengthened 3.34% on the dollar to last trade at JPY 132.34.

Robotics specialist Fanuc was down 2.48%, Uniqlo owner Fast Retailing was off 1.86%, and tech investing giant SoftBank Group tumbled 4.85%.

The broader Topix index was off 1.54% by the end of trading in Tokyo, settling at 1,905.59.

Japan’s central bank stood pat on interest rates in its latest policy decision, as expected, but it surprised markets by shifting the band of its yield curve control.

The Bank of Japan said it would expand the range of yield fluctuations for the 10-year Japanese government bond (JGB) to between -0.5% and 0.5%, from the current -0.25% to 0.25%.

In its statement, the BoJ said it was expanding the yield band to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions”.

The central bank also said it would increase its purchases of JGBs to JPY 9trn per month between January and March, from its previous plans for JPY 7.3trn in that period.

It also offered to purchase JPY 600bn worth of JGBs with maturities of between one and three years.

“The policy change can be seen as paving the way for more flexibility in 2023, depending on the strength of economic recovery, inflationary expectations and wage growth,” said Duncan Wrigley at Pantheon Macroeconomics.

“China’s economic reopening should support Japanese economic recovery from the second quarter onwards, though in the context of soft global demand.

“Medium and long-term inflationary expectations have risen, for instance, in the Tankan survey.”

Wrigley said the wild card was whether the government would appoint a hawkish successor to governor Kuroda in April next year.

“On balance, we still think that the domestic economy, especially the services sector, is relatively weak, and overall a rate hike is unlikely next year.”

On the mainland, the Shanghai Composite lost 1.07% to 3,073.77, and the technology-centric Shenzhen Component was 1.58% weaker at 10,949.12.

The People’s Bank of China kept its key lending rates on hold in its December decision, with the one-year loan prime rate kept at 3.65%, and the five-year rate held at 4.3%.

Both decisions were in line with what analysts had been expecting, according to polling conducted by Reuters.

South Korea’s Kospi slipped 0.8% to 2,333.29, while the Hang Seng Index in Hong Kong was down 1.33% at 19,094.80.

The blue-chip technology stocks were in the red in Seoul, with Samsung Electronics down 1.51%, and SK Hynix losing 0.89%.

Oil prices were higher as the region went to bed, with Brent crude futures last up 0.24% on ICE at $79.99 per barrel, and the NYMEX quote for West Texas Intermediate ahead 1.33% at $76.19.

In Australia, the S&P/ASX 200 slipped 1.54% to 7,024.30, as investors in the sunburnt country digested minutes from the most recent Reserve Bank of Australia meeting.

The minutes showed that policymakers considered a range of options for its December cash rate decision, including pausing its tightening cycle.

“The board considered several options for the cash rate decision at the December meeting - a 50-basis point increase, a 25-basis point increase, or no change in the cash rate,” the minutes read.

Rate-setters ended up tacking 25-basis points onto the RBA’s cash rate on 7 December, taking it to 3.1%.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 was down 0.98% at 11,404.83, with retirement property developer Arvida Group sliding 4.4% by the end of trading in Wellington.

The down under dollars were both weaker against the greenback, with the Aussie last off 0.36% at AUD 1.4979, and the Kiwi retreating 0.27% to NZD 1.5748.

Reporting by Josh White for Sharecast.com.