Bank of Japan Widens Yield Target Range, Causing Nikkei 225 to Drop Over 2% and Yen to Strengthen

Stock markets in the Asia-Pacific region experienced a decline as the Bank of Japan adjusted its yield curve control tolerance range, while maintaining its ultra-low benchmark interest rates.

The Nikkei 225 dropped 2.46% to 26,568.03, causing a decline in the region, and the Topix decreased 1.54% to 1,905.59. The Japanese yen rose by more than 3% against the U.S. dollar to 132.56, reaching its highest point in over three months.

In South Korea, the Kospi dropped by 0.8% to 2,333.29, while the S&P/ASX 200 in Australia ended the day 1.54% lower at 7,024.3.

The Hang Seng index in Hong Kong dropped 1.3% in its last hour of trading, with technology and real estate stocks leading the decline. In mainland China, the Shenzhen Component decreased 1.58% to 10,949.12 and the Shanghai Composite dropped 1.07% to 3,073.77 as the People's Bank of China maintained its key lending rates.

In the United States, stocks on Wall Street experienced a decrease in value during the night, making it the fourth day in a row that all three averages have gone down. This is due to worries about a potential recession overshadowing the hope for a year-end rally.

Haruhiko Kuroda, Governor of the Bank of Japan, declared that the central bank will not be hesitant to take further action to loosen its monetary policy if the situation calls for it, as the economy is currently facing a great deal of uncertainty. He made this statement during a press conference.

The speaker suggested that it is premature to consider leaving the current policy, and that if the economy is close to the central bank's inflation target of 2%, then strategies for an exit should be discussed at policy meetings.

The Bank of Japan proposed to buy 600 billion yen worth of Japanese government bonds with a maturity period of one to three years.

The Bank of Japan announced that it would raise its monthly purchases of Japanese Government Bonds (JGBs) to 9 trillion yen from January to March, which is higher than the 7.3 trillion yen that was initially planned.

The 10-year Japanese Government Bond yield increased by 20.5 basis points to 0.455%, the highest it has been since 2015.

The Bank of Japan decided to keep its benchmark interest rates the same and declared that it will be making changes to its yield curve control band, according to a statement released by the central bank.

The Bank of Japan announced that it will be increasing the range of 10-year Japan government bond yield fluctuations from its current plus and minus 0.25 percentage points to plus and minus 0.5 percentage points.

The Bank of Japan (BOJ) has announced an adjustment to "enhance the functioning of the market and promote a more consistent formation of the yield curve, while still keeping financial conditions accommodating."

Following the announcement, the Japanese yen experienced a surge of more than 2%, bringing its value to 133.37 in comparison to the U.S. dollar.

The Reserve Bank of Australia's December meeting minutes revealed that the central bank had contemplated a variety of possibilities for its cash rate decision, including the possibility of not increasing the rate at all.

The Reserve Bank of Australia's board members highlighted the significance of "acting in a consistent manner," and stated that they will keep evaluating a variety of possibilities for the upcoming year.

The People's Bank of China maintained the one-year and five-year loan prime rates at their current levels in December, as per an official statement.

The one-year loan prime rate and five-year loan prime rate held steady at 3.65% and 4.30%, respectively, in accordance with the predictions of a Reuters survey.

The Chinese yuan was steady against the U.S. dollar, with the offshore yuan at 6.9808 and the onshore yuan at 6.9783.

Now that China has lifted many of its restrictions related to the Covid-19 pandemic, what will be the next steps for the country?

Financial experts are offering their opinions on the potential for a recovery in the second-largest economy in the world and are highlighting investment opportunities for those interested.

Economists surveyed by Reuters anticipate that the Bank of Japan will maintain its current interest rate of -0.10%.

The outcome of the central bank's two-day monetary policy meeting is anticipated to be revealed on Tuesday, when the rate decision is expected.

According to Kyodo News, citing government sources, Japan's government and the Bank of Japan (BOJ) are reportedly aiming to revise a statement that commits to a 2% inflation target as soon as possible.

Ed Hyman of Evercore ISI suggested in a Sunday note that the Federal Reserve may be raising interest rates too much in an effort to control inflation, which could lead to a recession in the United States.

Hyman noted that the Federal Funds rate is currently 6.5%, while the core Personal Consumption Expenditure (PCE) is 4.7% for the year and bond yields are at 3.5%.He noted that the Federal Reserve was not the only central bank to tighten last week, as the European Central Bank, Bank of England, Mexico, Switzerland, and Norway all followed suit. He added that the money supply was also shrinking, which could have a more profound effect.

Evercore's economic diffusion index is nearing recession levels, in line with other signs such as surveys from businesses, inflation figures, and job cuts. Furthermore, wage increases have begun to decelerate and rents have started to decrease, suggesting that inflation has likely reached its peak.

Hyman noted that a vast majority of American voters, 87 percent, are worried about the possibility of a recession.

The S&P 500 has seen a significant decrease of over 6% this month, with Wall Street facing difficulties as the year comes to a close. This puts it on track for its most severe monthly performance since September. If this trend continues, it will be the largest December decline since 2018, when it dropped by 9.18%.

On Monday, stocks experienced a fourth consecutive negative close due to worries about a recession and the lack of a year-end rally.

The Dow Jones Industrial Average dropped 163.85 points, or 0.50%, to finish at 32,756.61. The S&P 500 declined 0.91% to 3,817.47, and the Nasdaq Composite decreased 1.49% to 10,546.03, with Amazon's shares taking a 3% dip.