The yen weakened and Japanese government bond yields fell after the Bank of Japan announced on Tuesday a departure from years of ultra-easy monetary policies, marking a historic shift from its long-standing battle against deflation.
The Nikkei share average initially saw losses but later rose, experiencing volatile trading immediately following the central bank's announcement of ending its negative interest rates policy and yield curve control (YCC), as well as discontinuing purchases of risky assets such as exchange-traded funds (ETFs).
The decision was widely anticipated following reports from both local and international media, including Reuters, in the past week predicting an end to most or all of the BOJ's stimulus programs at this policy meeting.
This led to a 'sell-the-fact' scenario in Japanese markets, according to analysts.
The yen, in particular, seemed to have weakened due to this, with domestic rates still significantly lower compared to those in the United States. As a result, the dollar surged 0.84% to 150.385 yen as of 0604 GMT.
The Nikkei closed the day up 0.66% at 40,003.60, surpassing the psychological barrier of 40,000 for the first time since reaching an all-time high on March 7.
The 10-year JGB yield decreased by 3 basis points to 0.725%.
Shoki Omori, chief Japan desk strategist at Mizuho Securities, pointed out some dovish undertones in the BOJ's policy decision, suggesting that bond yields would remain under pressure.
Omori noted, "The yen remains a funding currency and is likely to keep being utilized for carry trades.
Tuesday's policy shift marked Japan's first rate hike since 2007, but interest rates still hover around zero.
BOJ Governor Haruhiko Ueda will elucidate the policy decision in a press conference scheduled for 0630 GMT.
In its policy statement, the bank announced its intention to continue JGB purchases at roughly the same amount as before, albeit with a reduction in the maximum limit of its purchases.
The BOJ's decision to end its radical stimulus measures was partly facilitated by the largest wage hikes in 33 years during annual negotiations with unions. Finance Minister Shunichi Suzuki stated on Friday that Japan had emerged from decades of deflation.
A positive cycle of price increases, wage hikes, and strong earnings contributed to a 19% surge in the Nikkei this year, significantly outpacing the 6.6% rise in the MSCI World Index.
Norihiro Yamaguchi, senior economist at Oxford Economics in Tokyo, commented, "For the time being, I anticipate equity prices to rise, with the uncertainty surrounding the meeting now resolved."
Paraphrasing text from "Investing" all rights reserved by the original author.
