SINGAPORE- Japanese shares were volatile on Tuesday, while the yen fell to near 150 per dollar after the Bank of Japanin a widely expected move ended eight years of negative interest rates and ushered in the nation’s first policy tightening since 2007.
In a week filled with central bank meetings across the globe, the BOJ heralded a new era as it shifted away from years of ultra-easy monetary policy.
The BOJ set the overnight call rate its new target and said it would guide it in a range of 0-0.1 percent by paying 0.1 percent interest on excess reserves financial institutions park with the central bank.
“The BOJ took its first, tentative step towards policy normalization. The big question is what happens next,” Frederic Neumann, chief Asia economist at HSBC.
“Likely, the BOJ will find that it is getting ‘stuck at zero’, being unable to lift short-term interest rates meaningfully further in the coming quarters.”
Japan’s Nikkei was choppy, moving between gains and losses, while the yen weakened 0.39 percent to 149.74 per dollar, indicating the landmark pivot had already been priced into markets after weeks of policy clues and media reports that a shift was imminent.
Analysts anticipate the yen to be more influenced by the Federal Reserve’s policy decisions, including when and how much rate cuts are projected this year by the US central bank. In addition, the BOJ pledged to maintain accommodative policy and traders expect rates to remain at zero for some time.
“As the Fed begins to ease policy, the BOJ may need to proceed extra cautiously with any further tightening to prevent potential strength of the yen undermining hard-won gains in reflation,” said HSBC’s Neumann.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.62 percent . China stocks fell, with Hong Kong’s Hang Seng index down over 1 percent , while the blue-chip shares eased 0.3 percent .
Australia’s central bank held interest rates steady on Tuesday as expected, while watering down a tightening bias to just say that it was not ruling anything in or out on policy.
