View the article online at http://citywire.co.uk/money/article/a876904
FTSE surges through 6,000 as Japan stuns markets
Japan's introduction of negative interest rates sends global stock markets soaring, with FTSE 100 jumping more than 150 points.
Update: Japan has stunned markets by moving to negative interest rates in a bid to protect its ailing economy from market turbulence.
The decision triggered a violent swing in the Nikkei 225 index, which had been down by 1.6% leading up to the move and surged to a 3.5% gain on the announcement, before closing 2.8% higher.
In London the FTSE 100 surged 2.6% to 6,083, while eurozone markets were also buoyant. The French CAC 40 rose 2.2%, the German DAX 30 was up 1.2%, Spain's Ibex added 2.1% and Italy's FTSE MIB rose 2%. In the US, the Dow Jones rose 1.2% and the S&P 500 was up 1.1%.
The yen tumbled 1.8% against the dollar to ¥121, while Japanese bond yields plunged to records lows, with the benchmark 10-year yield touching 0.09%, racing past the previous low of 0.19% it hit on 14 January.
The Bank of Japan (BoJ) has now joined the European Central Bank in introducing negative interest rates, after cutting rates for some commercial banks holding money with it from 0.1% to -0.1%.
The BoJ move is an attempt to breathe life into the economy by encouraging the country’s commercial banks to stop sitting on excessive cash piles and lend to businesses.
At the same time the Bank repeated its commitment to inject capital into the economy at a pace of 80 trillion yen. The money will be used to purchase Japanese government bonds, real estate investment trusts and exchange-traded funds.
BoJ governor Haruhiko Kuroda did not rule out further rate cuts and extreme measures if this latest move fails to have the desired impact.
‘We won’t hesitate taking additional (easing) steps by expanding the quantity, quality of money, as well as through interest rate (cuts) if needed to achieve our price target, while scrutinising risks to the economy and prices,' Kuroda said.
In other key measures the BoJ has extended the timeframe for hitting its 2% inflation target by six months, which it attributed to the sharp fall in the oil price.
Fidelity Japan Active Growth fund manager Kok Wei Yee said the move would bring a welcome boost to investor sentiment and business confidence.
'The BoJ is well aware that significant market turbulence can negatively affect the real economy, and the easing measure is more of a pre-emptive and symbolic move.'
Architas fund manager Stephen Allen said he was now considering whether to reimpose a hedge on the yen following the news.
'A weaker yen should, for now at least, be a boost to exporters and we would see funds having exposure to that sector the key beneficiaries and funds exposed to financials taking a hit,' Allen said.
'On a relative basis to other equity markets we remain positive on Japan but have become more cautious over the shorter term of the impact of a general slowdown in China.
'We removed our hedged exposure to Japan early last year but even before today’s announcement we have been debating whether it is once again time to hedge some of that Yen exposure as the BoJ seems intent on weakening the currency.'
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by Gavin Lumsden on Jul 22, 2016 at 16:24