World shares exhibited a mixed performance following the Bank of Japan’s unprecedented decision to hike its benchmark interest rate for the first time in 17 years, thereby terminating a longstanding negative rate policy.
Despite the BOJ’s move to raise the overnight call rate to a range of 0 to 0.1%, up from minus 0.1%, markets responded with only subdued reactions. In Tokyo, the Nikkei 225 index climbed 0.7% to 40,003.60, while the dollar strengthened against the Japanese yen, reaching 150.62 yen from 149.14 yen.
The Japanese central bank highlighted wage increases and other indicators suggesting that inflation had stabilized above the BOJ’s 2% target. However, it underscored “extremely high uncertainties,” including weaknesses in industrial production, exports, housing investment, and government spending.
Analysts interpreted the BOJ’s move as a measured step to unwind the extreme policies it had previously employed, without aggressively tightening credit. Shigeto Nagai of Oxford Economics commented, “We anticipate the BOJ will maintain an effective zero-interest rate policy at least for another year.”
Attention this week will be focused on the Federal Reserve’s meeting on interest rates, scheduled to conclude on Wednesday. The consensus expectation is for the central bank to maintain its main interest rate at its highest level since 2001. However, Fed officials will also provide updated forecasts for interest rates for the remainder of the year and the long term. Earlier, they had projected three rate cuts this year, aimed at alleviating pressure on the economy and financial system.
Meanwhile, across the Atlantic, the Bank of England is poised to announce its latest decision on interest rates later in the week.
In European markets, Germany’s DAX climbed 0.2% to 17,961.40, while the CAC 40 in Paris advanced nearly 0.2% to 8,162.18. London’s FTSE 100 experienced a marginal decline of less than 0.1%, slipping to 7,718.80.
Futures for the S&P 500 and the Dow Jones Industrial Average were both down by 0.2% on Tuesday.
In other developments, troubled property developer China Evergrande Group disclosed that Beijing’s market watchdog had imposed a fine of 4.2 billion yuan ($333.4 million) on the company for allegedly falsifying its revenue, among other violations. This action comes amidst ongoing efforts to address challenges in China’s financial sector.
In a release to mainland Chinese stock exchanges late Monday, troubled property developer China Evergrande Group disclosed significant penalties imposed by regulatory authorities. The company’s chairman, Hui Ka Yan, was fined 47 million yuan ($6.5 million) and banned from China’s markets for life. Hui, also known as Xu Jiayin, had been detained by authorities in September on suspicion of “illegal crimes.”
The news had a pronounced impact on Chinese markets, with property shares experiencing heavy selling pressure. Hong Kong’s Hang Seng index tumbled 1.2% to 16,529.48, while the Shanghai Composite index declined 0.7% to 3,062.76. Evergrande bore the brunt of the selling, hitting the maximum 10% daily limit, while other major developers like China Vanke Co., Sino Ocean Group Holding, and Country Garden Holdings also recorded significant losses.
Elsewhere in the region, South Korea’s Kospi fell 1.1% to 2,656.17, while Australia’s S&P/ASX 200 managed to buck the trend, gaining 0.4% to reach 7,703.20. The Reserve Bank of Australia’s decision to keep its benchmark interest rate steady at 4.35% for a third consecutive meeting was widely anticipated, reflecting a cooling inflation environment that nonetheless remains above the central bank’s target.
On Wall Street, the S&P 500 advanced 0.6% on Monday, breaking a streak of back-to-back weekly losses experienced since October. The Dow Jones Industrial Average rose 0.2%, while the Nasdaq composite surged 0.8%. However, smaller stocks represented by the Russell 2000 index retreated by 0.7%.
Investor focus remains on the trajectory of inflation, which has consistently outpaced expectations in recent reports. This trend could potentially compel the Federal Reserve to scale back its projections for interest rate cuts this year, a scenario that might disappoint investors banking on looser monetary policy.
In commodities trading early Tuesday, U.S. benchmark crude oil shed 30 cents to $81.86 per barrel on the New York Mercantile Exchange, while Brent crude, the international standard, declined by 37 cents to $86.55 per barrel.
The euro weakened against the dollar, slipping to $1.0844 from $1.0872.