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(Bloomberg) — Stocks and bonds fell after the Bank of Japan’s unexpected adjustment to its yield curve control policy. Yen rose.

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A day that started with volatile, slightly bearish trade in Asia got a jolt when the BOJ raised its tolerance limit on 10-year Japanese government bonds to 0.5% from 0.25%.

European and U.S. stock futures were lower, while stocks in Asia fell, with the region’s main benchmark on track for a fourth straight decline.

The Japanese currency, which has been appreciating since late October, rose 3% against the dollar to its strongest level since mid-August.

Japan’s 10-year yield, which had moved at a glacial pace in recent years under the weight of the BOJ’s YCC regime, rose more than 20 basis points to the highest since 2015.

Similar-maturity yields in Australia rose by about the same amount, while the 10-year Treasury yield jumped about 10 basis points for a second day.

“The Bank of Japan is once again teaching us that complacency is the devil,” Matthew Simpson, senior market analyst at City Index, wrote in a note. “This is perhaps the biggest surprise they have given the markets since the move to negative interest rates in January 2016.”

Investors may be better off jumping too quickly into the Japanese bond market, according to Tatiana Greil Castro, head of public markets at Muzinich & Co.

“If you got in too early and 0.5% isn’t the end, you’d rather rest on, say, the Treasury market, where most people think most of the tightening is behind us, than get in too early on the Japanese market. where possibly further tightening is expected,” he said on Bloomberg Television.

The dollar index fell as the yen rose. The yen also gained significantly against currencies including the euro and Australian dollar.

The impact of the BOJ’s change is likely to ripple through global markets for the rest of the year and into 2023. Japanese investors, big players in Treasuries and European debt, now have more incentive to bring money home. Meanwhile, a stronger yen makes Japanese stocks more expensive for overseas buyers.

In Asian hours, the moves come in a broader context of poor global sentiment, highlighted by former New York Fed president and Bloomberg Opinion columnist William Dudley. He told Bloomberg Television on Monday that bullish markets can only prompt the Federal Reserve to tighten even more.

Among commodities, oil steadied with West Texas Intermediate above $75 a barrel, while gold rose.

This week’s main events:

  • US housing starts on Tuesday

  • EIA Crude Oil Inventories Report, Wednesday

  • US Existing Home Sales, US Conference Board Consumer Confidence, Wednesday

  • US GDP, Initial Jobless Claims, US Conf. Department leading index, Thursday

  • US Consumer Income, New Home Sales, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment, Friday

As of 7:30 a.m. Tokyo time, some key moves in the markets:


  • S&P 500 futures were down 0.6% as of 7:04 a.m. in London. The S&P 500 closed up 0.9%

  • Nasdaq 100 futures were down 0.8%. The Nasdaq 100 closed up 1.4%

  • Euro Stoxx 50 futures were down 0.9%

  • Japan’s Topix fell 1.5%

  • Australia’s S&P/ASX 200 fell 1.5%

  • Hong Kong’s Hang Seng fell 1.6%

  • The Shanghai Composite fell 1.1%


  • The Bloomberg Dollar Spot index fell 0.4%

  • The euro was down 0.1% at $1.0596

  • The Japanese yen rose 2.7% to 133.23 per dollar.

  • The offshore yuan was little changed at 6.9833 per dollar

  • The British pound was little changed at $1.2143


  • Bitcoin rose 1.5% to $16,834.55

  • Ether rose 3.1% to $1,212.37


  • The 10-year Treasury yield rose seven basis points to 3.65%

  • Japan’s 10-year yield rose 16 basis points to 0.41%

  • Australia’s 10-year yield rose 19 basis points to 3.73%


  • West Texas Intermediate crude rose 0.4% to $75.51 a barrel.

  • Spot gold rose 0.4% to $1,794.10 an ounce.

This story was produced with the help of Bloomberg Automation.

— with support from Jason Scott.

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