Yen Rallies on BOJ Report, Asia Stocks Seen Mixed: Markets Wrap

2023-10-31 08:29

The yen rallied on a report that the Bank of Japan may raise a cap on government bond

Yen Rallies on BOJ Report, Asia Stocks Seen Mixed: Markets Wrap

The yen rallied on a report that the Bank of Japan may raise a cap on government bond yields, adding a layer of uncertainty as policymakers in Tokyo wrap up a two-day meeting. Asia stocks are poised for a mixed open.

Japan’s currency rallied to its strongest level in nearly three weeks after Nikkei reported, without identifying where it obtained the information, that the BOJ is considering letting the yield on 10-year government bonds rise above 1%. Ten-year swap rates also jumped on the report.

That news rippled across Asian markets, with futures for equities in Japan turning lower. Australian stocks rose at the open, while US futures were little changed in early Asia trading. Australian bonds fell, sending 10-year yields up seven basis points to 4.94%. Oil edged higher after the price slumped on Monday.

The yen’s slide last week to a fresh year-to-date low, higher yields and continued inflation stickiness have been spurring market speculation that the BOJ will make some adjustment to the yield-curve control at its meeting, which concludes Tuesday. The currency was little changed in early Asia trading.

“Policy normalization, to the extent it reverses the recent yen weakness, is a negative for Japanese stocks,” said Chamath de Silva, a senior fund manager at BetaShares Holdings in Sydney. “The Japanese market is particularly exporter heavy, hence a lot of yen sensitivity.”

In the US on Monday, stocks rose as Israel’s ground incursion into Gaza appeared less extensive than investors had feared. Amazon.com Inc. led gains in the beaten-down megacap space, though Tesla Inc. bucked that trend — dropping almost 5%.

Oil erased gains since the war in the Middle East began as Israel faces growing pressure to curb its bombardments to help hostage negotiations, keeping the conflict limited entering its fourth week.

“The operation isn’t as large as feared yet — and that’s helping to slightly reduce geopolitical anxiety,” said Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. “This week will be a very busy one as we get a Fed decision and important economic/inflation data, as well as the final ‘big’ week of earnings.”

Treasuries fell, briefly paring some US session losses after the Treasury Department reduced its estimate for federal borrowing for the current quarter on stronger-than-expected revenues.

Key events this week:

China non-manufacturing PMI, manufacturing PMI, Tuesday
Bank of Japan interest rate decision, Tuesday
Eurozone CPI, GDP, Tuesday
US Conference Board consumer confidence, employment cost index, Tuesday
China Caixin manufacturing PMI, Wednesday
UK S&P Global / CIPS UK Manufacturing PMI, Wednesday
US construction spending, ISM Manufacturing, job openings, light vehicle sales, Wednesday
All Saints holiday in much of Europe, Wednesday
Treasury quarterly refunding announcement, Wednesday
Federal Reserve interest rate decision. Fed Chair Jerome Powell holds news conference, Wednesday
Eurozone S&P Global Eurozone Manufacturing PMI, Thursday
Bank of England interest rate decision. Governor Andrew Bailey holds news conference, Thursday
US factory orders, initial jobless claims, productivity, Thursday
Apple earnings, Thursday
China Caixin services PMI, Friday
Eurozone unemployment, Friday
US unemployment, nonfarm payrolls, Friday
Canada employment report, Friday

Here are some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 8:20 a.m. Tokyo time. The S&P 500 rose 1.2%
Nasdaq 100 futures were little changed. The Nasdaq 100 rose 1.1%
Australia’s S&P/ASX 200 Index rose 0.6%
Hong Kong’s Hang Seng futures fell 0.5%
Nikkei 225 futures fell 0.4%

Currencies