Asia report: Markets mixed as BoJ adjusts yield curve control policy

by | Jul 28, 2023

(Sharecast News) – Asia-Pacific region saw a mixed stock market performance on Friday, following the Bank of Japan’s decision to hold its interest rates steady.
While that decision aligned with expectations, the bank did make an adjustment to its yield curve control approach.

“Asian equity markets traded mixed as investors were cautious and focused on the Bank of Japan’s policy decision,” said TickMill market analyst Patrick Munnelly.

“The central bank kept monetary policy settings unchanged but announced a more flexible approach to yield curve control, with fixed rate operations for 10-year Japanese government bonds to be conducted at 1.0%, an increase from the previous 0.5%.”

That move spooked markets, Munnelly quipped, causing the Nikkei 225 to underperform.

“In contrast, the Hang Seng and Shanghai Composite recovered from early weakness and gained as China’s efforts to support the housing market and tech industry boosted sentiment.”

Equity markets mixed after Bank of Japan’s announcement

Japan’s benchmark Nikkei 225 experienced a dip of 0.4% to close at 32,759.23 points, while the broader Topix index dropped 0.2% to finish at 2,290.61.

Hino Motors, Omron Corporation, and Fujitsu faced significant losses on Tokyo’s main index, falling 9.59%, 9.5%, and 3.93% respectively.

In contrast, China’s markets closed on a high note, with the Shanghai Composite index rising by 1.84% to 3,275.93 and the Shenzhen Component index seeing an increase of 1.62% to 11,100.40.

Central China Securities and Citychamp Dartong were among the top gainers in Shanghai, each rising by 10.13%.

The Hong Kong market also closed with gains, as the Hang Seng Index rose 1.41% to close at 19,916.56.

Stocks that saw significant gains included Longfor Properties, up by 8.85%, Sunny Optical Tech, which rose by 8.82%, and Lenovo Group, with a 7.71% increase.

South Korea’s Kospi 100 slipped 0.26% to finish at 2,598.71.

Leading the declines in Seoul were SD Biosensor and LG Household & Healthcare, which dropped 10.22% and 8.12%, respectively.

In Australia, the S&P/ASX 200 dropped by 0.7% to end the day at 7,403.60, as Capricorn Metals and Perpetual experienced significant declines, down by 8.09% and 7.1%, respectively.

New Zealand’s S&P/NZX 50 slipped by a marginal 0.06% to end at 11,946.74.

The biggest losers in Wellington were Pacific Edge, which plunged by 24.56%, and Tourism Holdings, which fell by 3.62%.

In currency markets, the yen was last down 0.28% against the dollar, trading at JPY 139.87.

The Aussie was meanwhile down 1.07% on the greenback at AUD 1.5064, while the Kiwi fell 0.92% to NZD 1.6323.

On the oil front, Brent crude futures last dipped 0.4% on ICE to at $83.90 per barrel, while the NYMEX quote for West Texas Intermediate dropped 0.24% to $79.90.

Bank of Japan adjusts yield curve control, Tokyo inflation continues to exceed target

In economic news, the Bank of Japan (BOJ) decided to keep its benchmark policy rate at -0.1% in a move that aligned with the predictions made by economists in a Reuters poll.

The central bank also announced that it would allow the yields on 10-year government bonds to fluctuate within a range of roughly plus or minus 0.5%.

However, the bank indicated a shift towards a more flexible yield curve control approach, stating that it would regard the upper and lower bounds of the range as references, rather than fixed limits, in its market operations.

After that announcement, yields on 10-year Japanese government bonds (JGBs) rose to 0.539%, marking the first time they had reached such levels since September 2014.

“We think the BoJ’s decision to tweak its yield control curve policy is aimed at making it more viable, and the timing is opportunistic,” said Duncan Wrigley at Pantheon Macroeconomics.

“Markets have been relatively calm and the Bank seized the opportunity to catch most investors by surprise, given the consensus for no policy change at today’s meeting.

“The markets are likely to test the BoJ’s resolve, as it probably will seek to engineer a gradual shift away from its yield control curve policy over the next year or so, while leaving the short-term rate target unchanged, as it still believes that Japan needs supportive monetary policy.”

Elsewhere, inflation in Japan’s capital city Tokyo continued to exceed the central bank’s 2% target.

Data for July showed that the consumer price index in the city increased 3.2% year-on-year, slightly higher than the 3.1% rise recorded in the prior month.

That marked the 14th consecutive month of the inflation rate in Tokyo surpassing the Bank of Japan’s target.

Meanwhile, core inflation, which excludes fresh food prices, stood at 3%, slightly surpassing the 2.9% forecast by economists in a Reuters poll, but lower than the 3.2% figure reported in June.

Finally on data, South Korea’s industrial output in June saw growth of just 0.1% on a monthly basis, making for a significant slowdown from the 1.3% growth seen in May.

The mining and manufacturing sectors experienced a decline, with the manufacturing industry reporting a 1.1% decrease compared to May.

However, the service industry and public administration sector saw a growth from the prior month, recording increases of 0.5% and 3.1%, respectively.

On a year-on-year basis, South Korea’s total industrial production rose 1.1%, showing a recovery from the 0.9% decline registered in May.

Reporting by Josh White for Sharecast.com.

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