Japan stimulus shift stokes stock markets and weakens yen – Today

Stock market values and the dollar rose early on Wednesday after the Bank of Japan (BoJ) announced a shift in its monetary policy strategy.

Hours before an eagerly awaited rate decision by the US Federal Reserve, Japan’s central bank kept its core interest rate at a negative level of -0.1% to encourage banks to lend more.

But it said it was to tweak its asset purchases to push yields on long-term government bonds higher – helping banks and other institutional investors grow returns in the negative interest rate environment.

The measures – in support of its annual $783bn (£604bn) asset purchase programme – are aimed at stoking activity until such time as its 2% inflation target is reached and appears stable following decades of weakness.

The announcement helped shares soar – with the Nikkei almost 2% up by the close – and the yen plunge at the expense of the dollar, as investors looked towards the US ahead of the Fed’s policy announcement due later on Wednesday.

While policymakers are expected not to raise interest rates this month, Fed chair Janet Yellen’s remarks will be closely scrutinised for clues on the timing of a possible increase – the second since last December.

Markets currently see a possibility of a December rise – following the country’s presidential election – a move that would also give the rate-setting committee more time to evaluate the stop-start recovery and pressures in the wider world economy.

In London, the FTSE 100 was trading 0.5% up while sterling remained near 31-year lows against the dollar ahead of the Fed’s rate commentary.