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Yen plummets to five-week low after BoJ startled markets with negative rates

News Date: 29/1/2016 00:41:16
Update Date: 29/1/2016 00:48:49
 

 

Bank of Japan surprised the markets by adopting a negative rate policy on deposits held with it from other banks, a strategy championed by the European Central Bank. BoJ put the rates at -0.1%, in stark contrast with expectations of no-change.

The bold move came as the central bank tries to fend off deflationary pressures, after earlier bleak data showed household spending tumbling 4.4% y/y in December, while Core CPI rose only 0.1% y/y, far away from the bank's 2% target. Housing starts also disappointed, dropping 1.3% y/y, while preliminary industrial production data for December showed another stumble of 1.4% m/m.

The yen collapsed to a five-week low versus the dollar at 121.36, before paring some losses to trade at 120.28, still down a massive 1.24%. The Japanese currency also hit a month low versus the euro at 132.24, before trading lastly at 131.29, down 1.02% for the day. Yen plunged 1.33% against sterling to 172.83.

Japanese and Asian markets cheered the unexpected policy easing, with Nikkei jumping nearly two percent to a two-week high at 17,638. China's Shanghai Composite index climbed 2.0%, while Australian shares rose 0.60%. Hong Kong shares surged about 1.50%.

The Asian revival comes on the heels of gains on Wall Street, supported by strong earnings and stabilizing oil prices. Facebook shares soared 15.5% after smashing profits forecasts, while Alphabet (Google) rose a solid 4.28%. But not all was rosy however, with Amazon plunging 12% after missing profits expectations by a big margin.

The Dow Jones Industrial Average closed up 125 points, or 0.79% at 16,069. NASDAQ Composite added 38 points, or 0.86% to 4,506. S&P 500 index gained ten

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