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Asia stocks on back foot as BoJ stands pat

Tuesday 02:20 GMT

Overview

Stock markets across Asia were largely on the back foot, with investors in the Japanese market treading particularly cautiously despite the yen weakening and the Bank of Japan keeping monetary policy meeting steady, as expected.

Hot topic

Global financial markets were beginning to quiet down in the lead-up to Christmas. Despite attacks in Germany and Turkey on Monday that added to geopolitical unease, volatility has fallen to its lowest level in four months.

The closely watched Vix volatility index fell 4 per cent in New York to 11.71, the lowest reading since mid-August and a third straight day of decline.

The Vix has almost halved from a recent peak hit just a few days ahead of the US presidential election in November.

What to watch

The Bank of Japan held monetary policy steady at its final meeting of the year, capping what has been an experimental and at times tumultuous year. The central bank kept interest rates at minus 0.1 per cent, which is where they have been since January when the BoJ first took them into negative territory.

Among its other efforts to spur inflation and encourage growth, the central bank has set a cap on 10-year Japanese government bond yields, vowed to overshoot its 2 per cent inflation target on purpose and overhauled its exchange traded fund buying campaign. The BoJ on Thursday kept that yield cap unchanged, and maintained its asset purchase programme at an annual pace of ¥80tn.

The central bank also struck a more optimistic tone on the outlook, noting that “exports have picked up” and that Japan’s economy has continued its “moderate recovery trend”.

The yen was 0.2 per cent weaker at ¥117.34 per dollar, giving up about a third of Monday’s gain. The yield (which moves in the opposite direction to price) on 10-year Japanese government bonds was down 1.5 basis points at 0.073 per cent. Japanese markets overall were relatively unmoved by the policy decision.

Equities

Japan’s benchmark Topix was down 0.2 per cent while the Nikkei 225 was flat. Hong Kong’s Hang Seng was 0.2 per cent lower while in China the Shanghai Composite slipped 0.5 per cent.

Australia’s S&P/ASX 200 was the standout, pulled 0.7 per cent higher by defensive stocks and bank shares.

On Monday in the US, the S&P 500 closed 0.2 per cent higher while the Nasdaq Composite gained 0.4 per cent.

Commodities

Gold firmed 0.1 per cent to $1,139 an ounce in Asia, after gaining 0.3 per cent overnight as heightened geopolitical tensions pushed investors toward haven assets.

Brent crude, the international oil benchmark, was down 0.1 per cent at $54.88 a barrel while West Texas Intermediate was down 0.3 per cent at $51.96.

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