The Bank of Japan has roused investors in Europe from their pre-Christmas mood. After investors had just digested the willingness signaled by the Fed and the ECB to take further interest rate hikes in the fight against inflation, Japan’s central bank also surprisingly tightened its interest rate policy. The newly fueled interest rate concerns caused the Dax to slip by up to 1.1 percent to 13,792 points. The EuroStoxx50 lost 1.2 percent to 3767 points. “This is a bang from the Japanese central bank,” said Thomas Altmann, portfolio manager at asset manager QC Partners. “Much faster than expected, the Bank of Japan is joining the chorus of restrictive central banks.” Japan’s currency watchdogs left the yield target for ten-year government bonds unchanged at zero percent. However, they will allow for greater fluctuations in the future and thus pave the way for a sharper rise in interest rates for long-dated government bonds. At the same time, however, they announced that they would significantly increase bond purchases.
The move came as a complete surprise to the financial markets. Market participants had expected that the BoJ would make no more changes to its yield curve management until the announced resignation of central bank governor Haruhiko Kuroda in April 2023. Stockbrokers interpreted the measure as an indication that a tightening of the ultra-loose monetary policy could also be pending in Japan. “In Japan, too, there is a problem with rising prices, although not at the same high level as in this country,” stated Jochen Stanzl, an analyst at the online broker CMC Markets. The policy decision pushed the yen to a four-month high against the dollar. Conversely, the dollar fell 3.5 percent to 132.35 yen. The dollar index fell 0.8 percent to a six-month low of 103.95 points. Yields on 10-year Japanese government bonds rose to a 7-year high.