Japan equities and bond yields shot up as the central bank increased its policy rate to a three-decade high. This move comes when inflation has remained above its target levels for almost four years.
The Bank of Japan increased benchmark rates by 25 basis points, to 0.75 percent, the highest since 1995, according to expectations by economists polled by Reuters.
Government data released on Friday indicated that the consumer inflation rate in Japan fell to 2.9 percent in November. The core inflation that removes the prices of fresh food held steady at 3 percent in October and was in line with the average of the economists polled by Reuters.
The Nikkei 225 in Japan increased by 1.33 percent, with the Topix up by 1.06 percent. The Japanese yen depreciated 0.33 percent to 156.06 percent against the greenback.
The data provided by LSEG indicated that the yields on the 10-year government bond increased more than 3 basis points to 2 percent, the highest since May 2006. The 20-year yield is also up by more than 2 basis points to 2.962 percent.
Japan macro strategist at Credit Agricole-CIB, Ken Matsumoto, wrote in a note after the decision that “The government’s acceptance of interest rate hikes seems to be a move centered on the Ministry of Finance, which is concerned about the depreciation of the yen.”
Matsumoto also said that in case the yen weakens during the year-end and the New Year holidays, when liquidity is low, then the Ministry of Finance will “actively intervene in the exchange rate.” The Kospi of South Korea rose 0.77 percent, and the small-cap Kosdaq surged 1.49 percent.
Therefore, Australia’s S&P/ASX 200 increased 0.51 percent. The Hang Seng index of Hong Kong increased by 0.59 percent, whereas the CSI 300 of the mainland increased by 0.58 percent.
However, India’s Nifty 50 climbed by 0.5 percent. The stock of ICICI Prudential AMC, one of the largest asset management firms in India, shot up by up to 20 percent in the opening trade, after the company sold 106 billion rupees ($1.17 billion) in an initial public offering.
The U.S. S&P 500 ended overnight a four-day decline on Thursday, and was supported by lower-than-predicted inflation numbers that increased the possibility of a reduction in interest rates in 2026 and an explosion warning by chipmaker Micron Technology.
The broad market index surged by 0.79 percent to settle at 6,774.76, while the Nasdaq Composite advanced 1.38 percent to 23,006.36. The Dow Jones Industrial Average gained 65.88 points, or 0.14 percent, to end the day at 47,951.85.
