Why Japan's shock policy shift didn't 'freak out' US markets: Morning Brief – Yahoo Finance

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Wednesday, December 21, 2022
Today's newsletter is by Julie Hyman, anchor and correspondent at Yahoo Finance. Follow Julie on Twitter @juleshyman. Read this and more market news on the go with Yahoo Finance App.
Traders faced one more surprise late Monday to cap off a volatile year: a surprise change in monetary policy from the Bank of Japan.
The BoJ announced a tweak to its yield curve control policy, saying it will now allow the yield on 10-year government bonds to rise to about 0.5%, up from a previous cap of 0.25%. The central bank is still targeting a 0% rate on its 10-year bond and maintained a -0.1% benchmark interest rate.
A “nasty early Christmas surprise,” the Wall Street Journal dubbed it. “Bank of Japan stuns markets,” the Financial Times blared. Bloomberg News called it a “shocker.”
Indeed, currency and rates markets reacted accordingly, with the Japanese yen (JPY=X) surging 4% versus the U.S. dollar, and the U.S. 10-year Treasury yield leaping by more than 10 basis points.
For markets, the big deal is the Bank of Japan hadn’t joined the global central bank tightening party until now, and its project of maintaining low-and-stable monetary policy has been one of the longest-standing in the world.
BoJ Governor Haruhiko Kuroda said in a press conference following the decision that this move still doesn’t signal tightening, but rather a continuation of the bank’s yield curve control policy. Kuroda is due to step down from his post in April.
Amidst all the excitement, U.S. stocks largely shrugged.
“The modest move higher in Japanese rates is important for FX markets, but it will not have any impact on the shape of the U.S. economic outlook,” wrote Torsten Slok, chief economist at Apollo Global Management, in a note to investors.
One of the concerns with a potential rise in rates in Japan is that Japanese investors would pull money from foreign assets amid the prospect for better returns at home.
Slok suggests the effect would be negligible, however, with Japanese holdings of U.S. long-term Treasury bonds accounting for just 5% of the total. For U.S. corporate bonds and U.S. equities, Japanese holdings comprise just 2% and 1% of the total, respectively.
Another risk when there’s a market surprise is that it could trigger some kind of “blowup,” said Steve Sosnick, chief strategist at Interactive Brokers.
In particular, those employing a “carry trade” could have been vulnerable following the Bank of Japan’s announcement. As Sosnick explained in a blog post, “The trade involves borrowing a low yielding currency — typically the yen — and using the proceeds to purchase higher yielding fixed income assets or to finance speculation in equities and other risk assets. In theory, those who had the carry trade on should be getting clobbered with the yen rising dramatically.”
But there was no evidence of that clobbering in the market, he said, perhaps because the yen had already been moving higher, or maybe because hedge funds were repositioning into the end of the year.
Indeed, the rise in the yen could actually end up being good news for U.S. stocks, making this "nasty early Christmas surprise" one to the upside.
Since it reached its high versus the yen on October 20 of this year, the dollar has fallen by about 12%. That kind of move tends to presage a stock rally, analysts at Bespoke Investment Group wrote in a note on Tuesday.
Looking at other instances when the yen rallied by at least 10% versus the dollar over a two-month period, Bespoke found stocks were higher a year later in every instance since 1978, and had only risen by less than double-digits twice.
“One month later, the S&P 500 was only higher 62% of the time, but three, six, and twelve months later, U.S. stocks rallied 85% of the time,” they said.
“When the headline hit, my reaction was probably like a lot of other people’s reaction, which was – whoa!” Sosnick said. “It was shocking, but ultimately not a reason to freak out.”
Economy
7:00 a.m. ET: MBA Mortgage Applications, week ended Dec. 16 (3.2% during prior week)
8:30 a.m. ET: Current Account Balance, Q3 (-$222.0 billion expected, -$251.1 billion during prior month)
10:00 a.m. ET: Existing Home Sales, November (4.20 million expected, 4.43 million during prior month)
10:00 a.m. ET: Existing Home Sales, month-over-month, November (-5.2% expected, -5.9% during prior month)
10:00 a.m. ET: Conference Board Consumer Confidence, December (101.0 expected, 100.2 during prior month)
10:00 a.m. ET: Conference Board Present Situation, November (137.4 during prior month)
10:00 a.m. ET: Conference Board Expectations, November (75.4 during prior month)
Earnings
Micron Technology (MU), Cintas (CTAS), MillerKnoll (MLKN), Rite Aid (RAD), Toro (TTC), Carnival Cruises (CCL)
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
The Bank of Japan took a step back from its commitment to ultra-loose monetary policy on Tuesday. It will now allow 10-year government bond yields to trade as high as 0.5%, up from 0.25%. Here’s how Japanese assets reacted: + _**Bond yields gained.**_ The 10-year yield rose above 0.4%. + _**The yen jumped against the dollar.**_ One dollar recently bought about 132.6 Japanese yen, compared to 137 previously, building on a rebound in recent weeks. + _**The broad stock market fell.**_ The Nikkei 22
Of all the financial surprises of 2022, the Bank of Japan's decision to finally join its G7 peers in effectively tightening borrowing rates is up there with the shocks of the year – in its timing at least. In the last major central bank set-piece of the year, the BOJ raised its long-standing cap on 10-year Japanese government bond yields by quarter of a percentage point to 0.5% – sending those yields and the yen surging and squeezing stocks further. With inflation numbers due this week expected to show price rises creeping to near twice the BOJ's 2% target, there had been reports and speculation in recent days that a change of the central bank's super-easy policy was in the works.
The Bank of Japan's surprise decision to loosen the grip on its yield cap marks the beginning of an end to Governor Haruhiko Kuroda's controversial policy, sources say, and may pave the way for massive monetary stimulus to be phased out next year. The central bank on Tuesday tweaked its bond yield control in a way that effectively allows long-term interest rates to rise more, shocking investors who weren't expecting any such changes until Kuroda steps down in April next year. The pressure for the BOJ to act now, rather than later, came from the government's desire for more flexible monetary policy, prospects for higher wage growth and inflation and risks of a U.S. recession next year, say five government officials and sources familiar with the bank's thinking.
The Bank of Japan spooked markets this morning with a surprise adjustment to its yield curve control policy. The move, which allows the 10-year Japanese government bond (JGB) to move 50 basis points on either side of its 0.0% target rate, doubled the BoJ’s previous line in the sand and was seen by many investors as a hawkish turn as the bank fights domestic inflation. Weston Nakamura joins Andreas Steno Larsen from Tokyo to break down the BoJ decision and its implications for various global risk assets. Plus, Dale Pinkert, the head of trader development at TradeGateHub, is here to discuss the action in currencies, specifically the dollar’s response to a suddenly strengthened yen. We want to hear from you, so make sure to get your questions in.
In response to the Bank of Japan's change in policy, the US dollar softened versus the Japanese yen as the US Dollar Index weakened overall. What the Bank of Japan did alone does not really constitute a tightening of monetary policy. Hiruhiko Kuroda's 10 year term at the helm of the BOJ is set to end in March.
The yen jumped to a four-month high against the U.S. dollar, on pace for its biggest one-day rise in 24 years, on Tuesday after the Bank of Japan stunned markets with a surprise tweak to its bond yield control program. While it kept broad policy settings unchanged – pinning short-term JGB yields at -0.1% and the 10-year yield around zero – the BOJ decided to let long-term yields move 50 basis points either side of its 0% target, wider than the 25 basis point band previously. The timing of the move surprised since most BOJ watchers had expected no changes until the current governor Haruhiko Kuroda's 10-year term ends at the end of March.
Nike is fixing one its biggest issues of the last six months.
Los Angeles Chargers RB Austin Ekeler is back with Matt Harmon for another great episode of Ekeler’s Edge. This week, the guys talk about the Pro Bowl campaign video the Chargers’ social media team put out and play a game of “this or that” as a fantasy debate before welcoming former Chargers TE Antonio Gates to the show.
NASSAU (Reuters) -Sam Bankman-Fried has consented to be extradited to the United States where he faces fraud charges, according to an affidavit his lawyer read on Wednesday at a court hearing in The Bahamas. It paves the way for the founder of the FTX cryptocurrency exchange to be flown to the United States as early as Wednesday afternoon. Bankman-Fried was committed to custody to await the move.
Stocks on the move in extended trading on Monday, December 19, 2022.
Shares of cybersecurity software stocks CrowdStrike (NASDAQ: CRWD), Palo Alto Networks (NASDAQ: PANW), and Fortinet (NASDAQ: FTNT) were falling today, down 2.1%, 1.1%, and 1.3% as of 1:49 p.m. ET, even though the broader Nasdaq Composite was up by about 1.5% at that time. Yesterday, Palo Alto announced the closing of its acquisition of Cider Security, a leader in software application protection. On Tuesday night, cybersecurity peer BlackBerry had its fiscal third-quarter earnings report, in which management noted some caution in closing large cybersecurity deals in the near term, as sales cycles have become "elongated," which is a fancy term for customers being slower to sign off on purchases.
The Ark Invest co-founder, CEO, and top stock picker has fallen on hard times since turning heads with triple-digit returns in 2020 for her family of high-growth exchange-traded funds. Ark Invest publishes its transactions daily, and investors know the stocks she's now buying. Wood added to her stakes in Tesla (NASDAQ: TSLA), Roku (NASDAQ: ROKU), and Teladoc Health (NYSE: TDOC) on Tuesday.
Jackson Square Partners, an investment management firm, released its “Large-Cap Growth” Q3 2022 investor letter. A copy of the same can be downloaded here. In the third quarter, the strategy returned -10.08% (net), underperforming its benchmark Russell 1000 Growth Index, which returned -3.60%. The most significant performance contributor during the quarter was industrials, while the healthcare […]
Bonus: this trio provides diversification.
If investors were judging Rivian's (NASDAQ: RIVN) business performance based on its 2022 stock price performance, they might guess that sales weren't doing well. Indeed, the electric car company's vehicle production increased 67% sequentially in the third quarter, leading to a 47% bump in deliveries over the same period. Or should the growth stock be avoided?
Despite all the pain from Elon Musk's Twitter distractions, Tesla ranks fourth on a list of the worst S&P 500 stocks of 2022 by market-value decline.
Every investor in Ford Motor Company ( NYSE:F ) should be aware of the most powerful shareholder groups. With 49…
In this article, we discuss the 11 best penny stocks to buy now. If you want to read about some more penny stocks, go directly to 5 Best Penny Stocks to Buy Now. The majority of penny stocks, which are defined as securities that trade for less than $5 per share, have had a terrible […]
These rock-solid income stocks, with inflation-fighting yields ranging from 4.6% to 8%, provide plenty of reward with minimal risk for investors.
As much as we'd like the stock market to increase in value every year, corrections, crashes, and bear markets are a more common occurrence than most people probably realize. In 2022, investors have dealt with all three major U.S. stock indexes plunging into respective bear markets. On the bright side, bear markets have a reputation for allowing investors to buy high-quality stocks at a discount.

source