World shares heat up as Bank of Japan goes sub-zero

Reuters Updated - January 19, 2018 at 07:32 PM.

European shares track Asian markets higher

The Shanghai Composite Index rose 2.9 per cent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen added 3.2 per cent, bouncing from steep losses early in the week.

World shares jumped and the yen slumped on Friday after the Bank of Japan stunned markets by taking one of its main interest rates into negative territory, its boldest step yet to reinflate the economy.

The yield on Japanese benchmark government bonds plunged to record lows after the central said it would charge 0.1 per cent for excess reserves parked with the institution, an aggressive policy pioneered by the European Central Bank.

The central bank said in a statement it would cut interest rates further if it judged it necessary.

Most investors had believed Japan's policymakers were too cautious to ever adopt such a radical measure. Their reaction sent the dollar surging about three yen to an almost six-week high of 121.495. It was last up 1.7 per cent at 120.87 yen.

European shares

European shares tracked Asian stock markets higher, with the pan-European FTSEurofirst 300 index bouncing back 1.2 per cent by 0930 GMT, having fallen 1.7 per cent on Thursday.

The MSCI world equity index, which tracks shares in 45 countries, rose half a per cent.

"It has become clear that stock markets cannot stand on their own feet," said KBC senior economist Koen De Leus, in Brussels. "As long as the economy is shaky and the world is burdened with high debt, central banks and their money printing machines are a necessary evil to keep up the markets."

Bond markets

The plunge in Japanese bond yields set up a positive tone for other major bond markets.

Germany's 10-year Bund yield fell four basis points to a nine-month low at 0.29 per cent, while two-year German bond yields touched a fresh record low at minus 0.471 per cent. The yield on 10-year U.S. Treasuries meanwhile fell 4 basis points to 1.95 per cent.

The dollar was up 0.4 per cent against a basket of major currencies at 98.885, though still down about 0.7 per cent for the week.

Oil gains

The promise of extra global stimulus gave an added fillip to oil, which had already risen for three sessions on talk of a possible deal to pare back excess supply.

US crude added about 0.7 per cent to $33.45 per barrel, while Brent futures firmed 0.9 percent to $34.18. That put oil on track for a second weekly gain, though oil volatility has climbed to its highest since 2009 as traders try to price in the uncertainty around supply cuts.

Asian markets

Earlier, Japan's Nikkei share index whipsawed on the BOJ announcement before ending up 2.8 per cent, to mark a 3.3 percent weekly gain.

The central bank's move gave a lift to bourses across the region, even though economists at HSBC and elsewhere doubted it would give a boost to Japan's real economy or inflation.

"We do not think negative rates are a game changer," said Commerzbank strategist Esther Reichelt, in Frankfurt. "Pressure on the BoJ will mount to do even more in coming months to attain their inflation target."

MSCI's broadest index of Asia-Pacific shares outside Japan added 1.8 per cent, up 2.7 percent for the week .

The Shanghai Composite Index rose 2.9 per cent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen added 3.2 per cent, bouncing from steep losses early in the week.

The buying spread to US debt markets as investors wagered the BOJ decision and a stronger dollar would make it even harder for the Federal Reserve to hike rates four times this year, as originally envisioned by its policy board.

Fed fund futures rose to imply a rate of 51 basis points by year end, compared to 90 basis points a month ago. Futures for US 10-year bonds rose 5 ticks.

Published on January 29, 2016 10:00