WORLD MARKETS-Asian Stocks Swap, Yen Tumbles After BOJ Holds Policy Unchanged

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Asian equities mixed; Nikkei Up 2.6% Post BOJ

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Japanese interest rates are falling sharply

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Yen Tumbles Against Majors After BOJ

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Oil Boosts Gains on China Optimism

By Stella Qiu

SYDNEY, Jan. 18 (Reuters) – Asian equities were mixed on Wednesday, as the Japanese yen tumbled and Japanese rates pulled back sharply after the Bank of Japan unanimously decided to maintain its yield curve controls.

Speculation in the bond market that the BOJ would adjust its yield curve control (YCC) settings at the meeting that concluded Wednesday had pushed 10-year Treasury yields above the 0.5% policy threshold for a fourth consecutive session.

However, the bank maintained ultra-low interest rates, including its 0.5% limit on 10-year bond rates, defying market expectations that it would scale back its massive stimulus program in the wake of rising inflationary pressures.

The 10-year yield fell sharply to 0.360% on Wednesday, after hitting an intraday high of 0.5100%. Japan’s Nikkei stock index, meanwhile, rose 2.6%, bucking the downward trend seen elsewhere.

The dollar gained 2.6% against the Japanese yen to 131.4 yen, its largest one-day percentage gain since March 2020.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 0.3% as weak gains from Goldman Sachs dragged the Dow Jones index down 1% overnight. The investment bank reported a larger-than-expected 69% drop in fourth-quarter earnings.

S&P 500 futures and Nasdaq futures were mostly flat. Overnight, the S&P 500 was down 0.2% and the Nasdaq Composite was up 0.14%.

Chinese blue chips fell 0.2%, while Hong Kong’s Hang Seng index was 0.1% lower.

In a Reuters poll, 97% of economists expected the BOJ to maintain its ultra-easy policies at the meeting.

Mahjabeen Zaman, head of FX Research at ANZ, now expects any further gains in the Japanese yen may have to be postponed until April, when a new BOJ governor is expected to take office.

“I think Kuroda laid the groundwork with broadening the band in December. He laid the groundwork for the new governor to come on board and take it from there.”

Zaman expects the yen to rise to 124 per dollar by the end of 2023 and 116 per dollar by the end of 2024.

Just a month ago, the BOJ shocked markets by doubling the allowable margin for the 10-year JGB yield to 50 basis points either side of 0%. The change encouraged speculators to test the BOJ’s resolve.

Analysts from Mizuho Bank said in a note that the BOJ’s adjustment of YCC or pushing interest rates above zero was only a matter of time and execution given the pressures arising from monetary policy deviation elsewhere.

A survey of global fund managers by BofA Securities on Tuesday found that expectations of further Japanese yen appreciation in January were the highest in 16 years.

The dollar index, which measures the safe-haven dollar against six counterparts, rose 0.4% to 102.85. It has recently been undermined by falling US bond yields as markets bet that the Federal Reserve can be less aggressive in raising interest rates.

In the Treasury market, the 10-year Treasury yield fell 5 basis points to 3.4531%, while the 3-year Treasury yield was 3.8442%, down from 3.8640%.

In the oil market, prices rose in hopes that Chinese demand would pick up. Brent oil futures rose 0.6% to $86.5, while US West Texas Intermediate (WTI) crude rose 0.8% to $80.79.

Speaking at the World Economic Forum in Davos on Tuesday, German Chancellor Olaf Scholz said he was confident Europe’s largest economy would not slip into recession.

Chinese Vice Premier Liu He also welcomed foreign investment and declared his country open to the world after three years of pandemic isolation.

Data from Tuesday showed China’s economic growth had fallen to 3.0% in 2022 – the lowest rate in nearly half a century.

Spot gold fell 0.5% to $1899.41 an ounce.

(Reporting by Stella Qiu; Editing by Bradley Perrett & Simon Cameron-Moore)