Yen Surges on BOJ Shift; S&P 500 Futures Drop: Markets Wrap

(Bloomberg) — The yen strengthened as the Bank of Japan said it would let benchmark bond yields rise further. The unexpected decision sent Japanese stocks and US and European equity futures lower.

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BOJ increased the upper band limit on yield target to 0.5% from 0.25%. Japanese government 10-year bond yields rose 20.5 basis points to 0.455%, the highest since 2015.

Yen had been appreciating since late October and got a boost more recently from speculation of pivot away from ultra-loose policy.

Asian equities headed for a fourth day of declines amid the news from Japan and broader investor concern on the global inflation outlook. Reports of growing disruptions from Covid outbreaks remained concerns among investors in Hong Kong and mainland.

The S&P 500 had closed at its lowest level in more than a month on Monday. The benchmark was dragged down by declines in big-tech firms including Apple Inc., Microsoft Corp. and Amazon.com Inc.

A gauge of the dollar dropped as the yen rallied. Yields on US Treasuries rose after the BOJ move.

In China, banks maintained their benchmark lending rates, including the five-year rate that is a reference for mortgages, for a fourth month after the central bank kept its monetary policy settings unchanged last week.

Oil remained higher as investors weighed a pledge from China to revive consumption against broader low-risk sentiment, with West Texas Intermediate above $75 a barrel.

Underscoring the poor global sentiment, former New York Fed President and Bloomberg Opinion columnist William Dudley told Bloomberg Television on Monday that optimistic markets could only make the central bank tighten even more.

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Milford Asset Management sees the risk of profit decline among companies dragging for longer as the economy slows. “We are looking for at least a profit decline of 20% and possibly a bit more. That’s going to be a bit of a shock to investors next year,” William Curtayne, portfolio manager, said on Bloomberg Television.

Key events this week:

• US housing starts, Tuesday

• EIA Crude Oil Inventory Report, Wednesday

• US existing home sales, US Conference Board consumer confidence, Wednesday

• US GDP, initial jobless claims, US Conf. Board leading index, Thursday

• US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets as of 7:30 a.m. Tokyo time:

Stocks

• S&P 500 futures fell 0.6% as of 12:40 p.m. in Tokyo. The S&P 500 closed down 0.9%

• Nasdaq 100 futures fell 0.7%. The Nasdaq 100 closed down 1.4%

• Japan’s Topix fell 1.4%

• Australia’s S&P/ASX 200 fell 1.3%

• Hong Kong’s Hang Seng fell 1.2%

• The Shanghai Composite fell 0.6%

• Euro Stoxx 50 futures fell 1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro was little changed at $1.0616

• The Japanese yen rose 2.4% to 133.56 per dollar

• The offshore yuan was little changed at 6.9809 per dollar

• The Australian dollar fell 0.2% to $0.6687

Cryptocurrencies

• Bitcoin rose 0.6% to $16,691.06

• Ether rose 1.2% to $1,190.11

Bonds

Commodities

• West Texas Intermediate crude rose 0.7% to $75.71 a barrel

• Spot gold rose 0.4% to $1,794.60 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rheaa Rao and Jason Scott.

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