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19 Mar 2024

The Trade Academy Team

08:00 CET - 3 min read

Tuesday Morning Coffee - Markets Update - 19 Mar 2024 - BOJ Ends Era of Negative Rates: Yen Tumbles, Markets on Edge

Markets Update: BOJ Ends Negative Rates: Yen Falls, Stocks Mixed as Central Bank Week Heats Up


by TradingView

Global Markets Roundup: 19 March 2024

Japanese equities experienced significant volatility on Tuesday, accompanied by a near-150 level for the yen against the dollar, subsequent to the Bank of Japan's anticipated move to conclude eight years of negative interest rates. This shift marks Japan's first tightening of monetary policy since 2007. Amidst a week punctuated by pivotal central bank gatherings worldwide, the Bank of Japan signaled a departure from its longstanding ultra-accommodative monetary stance, heralding a new phase in its policy trajectory. The BOJ unveiled its new target for the overnight call rate, setting it within a range of 0-0.1%. This decision includes the provision of a 0.1% interest rate on excess reserves parked by financial institutions with the central bank.

Against this backdrop, Japan's Nikkei NI225 index oscillated between gains and losses, mirroring the market's uncertainty, while the yen weakened by 0.39% to 149.74 per dollar. This movement suggests that the much-anticipated pivot had largely been factored into market valuations following weeks of hints and media speculation. Market analysts anticipate that the yen's trajectory will be increasingly influenced by the policy decisions of the Federal Reserve, particularly regarding the timing and magnitude of potential interest rate adjustments within the United States. Meanwhile, despite the BOJ's commitment to maintaining accommodative policy, traders envisage interest rates remaining at zero for the foreseeable future.

Elsewhere in the region, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) experienced a decline of 0.62%. Chinese equities followed suit, with Hong Kong's Hang Seng index HSI shedding over 1%, while blue-chip shares 3399300 eased by 0.3%.

In Europe, the EURO STOXX 50 initially surged but later relinquished its gains, settling marginally lower at 4,985 points. Similarly, the STOXX 600 experienced a modest dip, slipping 0.2% to 504 points.

In the realm of central banking activities, Australia's Reserve Bank maintained interest rates at existing levels, aligning with market expectations. However, it tempered its tightening bias, refraining from explicit commitments on future policy directions. While markets have priced in rate cuts for most major central banks starting around June, the Reserve Bank of Australia stands out as an exception, with no such mid-year pricing evident.

FX Markets

Japan witnessed a significant depreciation of its yen currency on Tuesday following the momentous decision by the central bank to terminate its negative interest rate policy, a move long anticipated by investors. Meanwhile, the Australian dollar also experienced a decline subsequent to the Reserve Bank of Australia's decision to maintain steady domestic rates. Marking a departure from years of extensive monetary stimulus, the Bank of Japan (BOJ) concluded its two-day monetary policy meeting by discontinuing eight years of negative interest rates and other unconventional measures. Despite widespread expectations of this shift, the yen, represented by USDJPY, plummeted by 0.8%, breaching the 150 level against the US dollar. The yen's value settled at 150.39 against the dollar and weakened by more than 0.7% against the euro, reaching its lowest point in three weeks at 163.425 EURJPY.

In Australia, the Australian dollar, denoted as AUDUSD, mirrored the yen's decline after the Reserve Bank of Australia (RBA) opted to keep rates unchanged, aligning with forecasts, but adjusted its stance on tightening policies. The Australian dollar dipped by 0.7% to $0.6515, marking a two-week low, and dragging down the New Zealand dollar, with NZDUSD falling over 0.5% to $0.6050.

Elsewhere, the dollar exhibited strength across the board, resulting in the euro and sterling both reaching two-week lows. The EURUSD descended to $1.08625, while the British pound experienced a modest 0.2% decline to $1.2703. The Dollar Index (DXY) surged to a two-week peak of 103.82 against a basket of currencies.

In the bond market, the yield on benchmark 10-year Treasury notes US10Y moderated by 1.4 basis points to 4.326% during Asian trading hours, following a recent ascent to a three-week high of 4.348%.

In commodities, spot gold was last observed at $2,160.51 per ounce. U.S. crude CL1! experienced a marginal decline of 0.16% to $82.59 per barrel, while Brent BRN1! stood at $86.74, down 0.17% on the day. Notably, cocoa futures in New York and London surged by more than 4% on Monday to attain record highs, propelled by a supply shortage stemming from poor crops in West Africa.

Looking ahead, the economic landscape promises significant developments, presenting a multitude of events worthy of attention. Among the key focal points are the anticipated release of EZ Labour Costs data, providing crucial insights into the labor market dynamics within the Eurozone. Additionally, market participants eagerly await the publication of the German ZEW Economic Sentiment Index, a leading indicator of economic health and investor confidence in the largest economy of the European Union.

Furthermore, eyes will be on Canada as the nation prepares to unveil its Consumer Price Index (CPI), offering valuable perspectives on inflationary trends and consumer spending patterns. In the realm of central banking, noteworthy remarks are expected from Bank of Japan (BoJ) Governor Ueda, shedding light on the monetary policy stance and economic outlook of one of the world's largest economies.

Simultaneously, attention will be directed towards the European Central Bank's Vice President, de Guindos, whose commentary is anticipated to provide insights into the ECB's monetary policy direction and assessments of economic conditions across the Eurozone.

Moreover, market participants will closely monitor the release of supply data from both the United Kingdom and the United States, as these indicators hold significance for global markets and economic sentiments.

You can view all markets data and charts here.

General news - Information source from multiple newswires.

The article and the data is for general information use only, not advice!

The Trade Academy Team

Rating: Mixed Outlook

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