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Markets Update: BOJ allows for “gradual” yield adjustment of 10-yr JGBs at 1.0% fixed rate; JGB yields at highs last seen 2014; Nikkei 225 declined by >2.0%
Economic Calendar
Global Markets Roundup: 28 July 2023
The Bank of Japan (BoJ) kept monetary policy settings unchanged on Friday, but announced that it will guide its yield curve control (YCC) more flexibly. The BoJ said that it will conduct fixed-rate operations for 10-year Japanese government bonds (JGBs) at 1.0%, down from 50 basis points previously.
The decision was met with mixed reactions from markets. Some investors were disappointed that the BoJ did not take more aggressive action to combat rising inflation, while others welcomed the more flexible approach to YCC.
European Equity Futures Lower
European equity futures were lower on Friday, with the Euro Stoxx 50 down 0.4%. The decline was likely due to the mixed performance of Asian stocks and the uncertainty surrounding the BoJ's decision.
JPY Outperforms The Japanese yen (JPY) outperformed other major currencies on Friday, with USD/JPY whipsawing amid the confusion in the aftermath of the BoJ. The JPY's strength was likely due to the BoJ's decision to guide YCC more flexibly, which raised concerns about the future of the Japanese currency.
Asian stocks were mixed on Friday, with the Nikkei 225 underperforming as investors digested the latest developments from the Bank of Japan (BoJ) and the United States.
The BoJ surprised markets by suggesting that it may be willing to tolerate higher yields in order to support the economy. This sent the Japanese yen soaring and weighed on Japanese stocks.
In the United States, strong economic data boosted yields and the dollar. This weighed on European stock futures, which were down 0.4% at the time of writing.
FX
The dollar index (DXY) was rangebound overnight but held onto the prior day's gains after climbing alongside yields on the back of a slew of hot US data and following a hawkish BoJ sources piece, as well as on the bank capital proposals. The euro (EUR) languished beneath 1.1000 after the strong US data and dovish ECB meeting guidance tweak. The pound (GBP) extended on the prior day's lows after its recent slide from near the 1.3000 handle to trade sub-1.2800. The US dollar (USD) rose against the Japanese yen (JPY) amid confusion in the aftermath of the BoJ announcement and had slumped during US hours after the hawkish report that flagged that BoJ could switch to a more flexible approach on yields. Antipodeans declined amid the subdued risk tone, weak Aussie Retail Sales and softer PPI data.
FIXED INCOME
10-year US Treasury futures remained subdued after yesterday's heavy selling pressure with the US 10-year yield back above 4% due to hot US economic data, bank regulation proposals, a weak 7-year auction and recent BoJ developments. Bund futures suffered spillover selling from counterparts which overshadowed the ECB's guidance tweak. 10-year Japanese government bond (JGB) futures slumped on the hawkish BoJ report and with further selling as yields climbed following the BoJ's purchases tweak.
COMMODITIES
Crude futures were rangebound owing to the mixed risk mood and lack of energy-specific catalysts. Russia is to meet OPEC+ output cut obligations in full in August, according to TASS. Spot gold nursed some of its recent losses but with the rebound contained by a firm dollar. Copper futures were lacklustre amid the BoJ-related caution and confusion.
Looking Ahead Highlights for the day include Eurozone Economic Sentiment, German HICP (Preliminary), US Personal Income, Consumption, PCE & Employment Costs, Earnings from Air France, BBVA, Intesa Sanpaolo, Sanofi, Vinci, Exxon, Chevron, P&G.
General news - Information source from multiple newswires.
The article and the data is for general information use only, not advice!
The Trade Academy Team