Japan Ends Negative Rates In a Historic Move, First Rate Hike In 17 Years

Arjun Pandit
19 Mar, 2024
Mumbai

Asian markets struggled to advance amid China's earnings worries and Japan's decision to end its negative rate regime after lagging other major central banks for years. 

Market indexes in Tokyo rebounded from a morning slump after the rate decision, but they closed down in Shanghai and Hong Kong after market mood tuned negative on a lack of catalysts and worries about earnings growth compounded market anxieties. 

 

Japan Ends Negative Interest Rate Policy 

The Bank of Japan ended its negative interest rate policy and set its policy rate range between zero and 0.1% in a sweeping policy overhaul that ended its negative interest rate regime. 

The central bank lifted its policy rate for the first time in 17 years from -0.1% to 0.0% amid high inflation and sharp gains in wages at large companies. 

In a 7-2 interest rate decision, policymakers decided to end the negative interest rates, but the accompanying statement provided little guidance about interest rate direction in the future. 

Major central banks have raised rates multiple times in the U.S. and Europe for two years, while the Bank of Japan stuck with its negative policy rates first implemented in 2016. 

The central bank will also stop buying Japanese stocks through the purchase of ETFs and end its yield control program.

The widely anticipated move exceeded many market watchers' expectations after the central bank announced its plans to end the purchase of stocks and also set a target rate for government bond yields. 

Ultraeasy monetary policy in place since 2000 has contributed to the Japanese yen's weakness and stoked inflationary forces since the onset of the COVID-19 pandemic in 2020. 

The BoJ said it will continue to purchase Japanese government bonds at the current rate, suggesting that the central bank will continue its easy monetary policy for a while. 

After the rate decision announcement, the Japanese yen drifted lower to 149.86 against the U.S. dollar. 

The Nikkei 225 Stock Average gained 0.04% to 39,768.19, and the Topix index advanced 0.5% to 2,734.58. 

Tokyo Electron and Advantest fell between 1% and 2%, and Disco Corp. and Screen Holdings advanced around 1.5%. 

Mitsubishi UFJ Financial Group, Mizuho Financial, and Sumitomo Mitsui Financial Group fell between 0.3% and 1.2%. 

In other news in the region, the Reserve Bank of Australia held its policy rate for the third time in a row at 4.35% and softened its hawkish inflation stance. 

 

Earnings Worries Drag Down China Stocks 

Stocks in Shanghai and Hong Kong extended losses after corporate earnings lagged market expectations. 

The worries about China's fragile economic recovery were compounded by the weaker-than-anticipated pace of earnings growth and the protracted property market slump. 

The average earnings growth has lagged market expectations as the rebound in consumer demand has been weaker than expected after the end of zero COVID lockdowns. 

The CSI 300 index fell 0.3% to 3,592.42, and the Hang Seng index declined 1.1% to 16,550.90. 

Wuxi Apptec dropped 6.6% to HK$39.90 after the company issued a cautious outlook, blaming global macroeconomic headwinds. Wuxi Biologics declined 4.9% to HK$14.04. 

Tech stocks and electric vehicle makers faced selling pressure on earnings and valuation worries. 

XPeng dropped 4% to HK$38.85 ahead of the company's earnings announcement later in the day.

Li Auto plunged 12%, and Alibaba Group, JD.com, Tencent Holdings, and Meituan Group declined between 1% and 3%. 

 

India Stocks Remain In Negative  Territory 

Stocks in Mumbai edged lower in early trading following the weakness in Asian markets after the monetary policy decisions from the Bank of Japan and the Reserve Bank of Australia. 

The Sensex and the Nifty indexes fell as much as 0.5% amid interest rate uncertainties, rising crude oil prices, and a regulatory crackdown on speculation in small-cap stocks. 

The Federal Reserve is set to announce its rate decision tomorrow, and investors are anticipating that the central bank will hold interest rates steady. 

The crude oil price extended two-week gains to more than 5% in international trading amid rising tensions in the Middle East. 

Small-cap stocks continued their decline after the securities regulatory agency SEBI urged mutual fund companies to halt accepting new fund flows. 

The Sensex index decreased 0.4% to 72,462.94, and the Nifty index edged down 0.5% to 21,946.45. 

On the Mumbai stock exchange, 17 stocks traded at their 52-week highs and 19 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.08%, and the Indian rupee edged lower to ₹82.92 against the U.S. dollar.