The yen weakened following the Bank of Japan’s (BOJ) decision to end the world’s last negative rates, a move widely anticipated by market participants. Despite bringing an end to negative rates, the BOJ opted to maintain easy financial conditions for the time being.
In its decision, Japan’s central bank established a new policy rate range of between 0% to 0.1% and abandoned its yield curve control program. However, it pledged to continue purchasing long-term government bonds. The announcement led to gains in the nation’s sovereign bonds, while Japanese shares surged, with the Topix index poised for its highest close since 1990.
Charu Chanana, a strategist at Saxo Capital Markets, noted that the BOJ’s decision was well-flagged, helping to prevent turmoil in financial markets. She emphasized the importance of strong communication in guiding market expectations. According to Chanana, the BOJ’s commentary indicates an expectation for accommodative conditions to persist, suggesting that simultaneous rate increases are unlikely in the near term.
Meanwhile, Asia’s equity benchmarks faced downward pressure, primarily driven by losses exceeding 1% in Hong Kong’s technology shares and South Korean equities. The Australian dollar was poised to reach its weakest level in approximately two weeks. However, Australia’s stock market experienced a second consecutive day of gains following the Reserve Bank of Australia’s decision to maintain policy rates at a 12-year high. The decision was influenced by signs of further economic slowdown and increasing unemployment trends in the country.
The BOJ’s move to end negative rates marks a significant shift in monetary policy and is likely to have implications for Japan’s financial markets in the coming days. Investors will closely monitor the impact on the yen’s exchange rate and assess the broader implications for global financial markets.
